On February 14, 2023, the European Parliament voted to ban the sale of diesel and petrol cars by 2035. Curiously, Prime Minister of Hungary, Viktor Orbán, voted for the measures. Backing progressive environmental policy may seem out of character for Orbán, whose climate record includes hits like abolishing Hungary's Environmental Ministry. However, to understand Orbán's motivations, we need only follow the money—most dominantly, Chinese foreign direct investment.
In the summer of 2022, Viktor Orbán announced his intention to make Hungary the world's third-largest producer of EV batteries. He projected a “technological shift” in the European automotive industry spurred by the EU’s decarbonization efforts. As EV adoption grows in Europe, and EU automakers make the fraught transition to EV production, Hungary is positioning itself to capture market share in a sector it expects to grow rapidly.
Today, Hungary has the world's fourth-largest battery production capacity. By 2027, the EU Commission expects Hungary's capacity to grow from 38GWh to 194 GWh. In comparison, the EU's total production of EV Batteries was 185 GWh in 2023.
Hungary's government is targeting 250 GWh in annual capacity, which they expect to cover 35% of European needs. For a country with a population smaller than Michigan and a GDP smaller than Kansas, Hungary's plans are incredibly ambitious. However, this ambition could come at a geopolitical cost.
The growth of Hungary's EV battery industry is driven by foreign direct investment (FDI). €24B of FDI has flowed into the industry since 2017. To attract this investment, Orbán has followed a policy of "economic neutrality." Foreign greenfield projects are welcomed regardless of their country of origin. In practice, this has meant a monumental influx of Chinese Foreign Direct Investment, which directly contradicts the EU's goal of reducing EV dependency on China.
From 2022-2023, Chinese EV battery companies announced over $10.9B in battery investments in Hungary. CATL is constructing a $7.34B battery plant in Debrecen, and similarly, significant investments of Eve Energy ($1.1B), Huayou Cobalt ($1.5B), BYD ($521M), and Ningbo Zhenyu Technology ($65.9M) have followed suit.
This influx of Chinese investment is not necessarily negative. China produces more innovative EV batteries at a lower cost. China's control over supply chains allows it to produce batteries at a cost 17% lower than those in Europe. 41 percent of EU consumers say that the biggest barrier cost of EV ownership is too high. The biggest barrier to EV adoption in the EU is vehicle cost. Partnerships with Chinese EV battery manufacturers could offer a chance for European manufacturing industries to lower costs while not losing economic value by importing batteries.
Chinese institutions make up 65.4 percent of research publications on electric batteries, while Europe lags in its adoption of new LFP battery technology, remaining reliant on the higher-cost, cobalt-dependent NMC chemistry. An influx of Chinese R&D spending could foster faster adoption of innovative EV battery technology.
However, applying a geopolitical lens reveals how Hungary's dependence on Chinese Foreign Investment runs directly counter to the EUs goal to mitigate its exposure to economic coercion from China. In their 2019 Strategic Action Plan, the European Commission highlighted that the establishment of a domestic battery industry was an economic, and geo-strategic imperative.
China's foreign policy is at odds with the EU's. The EU is currently mulling sanctions on China over reports that a Chinese-based company has been manufacturing drones for Russia in its invasion of Ukraine. Reports that the United States has already used to sanction two China-based drone suppliers. In contributing to Russia's war, China directly undermines EU security interests.
China's Shanghai Cooperation Organization (SCO) facilitates cooperation between Russia and China on shared security interests. Its recent military exercise with Belarus near the Polish border practiced "counter-terrorism operations" – an aim those familiar with Russian propaganda will undoubtedly find chilling.
On October 29, 2024, the EU voted to impose Tariffs on Chinese EVs, citing anticompetitive government subsidies that artificially lowered the price of its vehicles. The EU has made protecting its EV industry against unfair Chinese influence a matter of economic security, which is an endeavor Viktor Orbán wishes to upend.
EV Battery production now makes up 5% of Hungary's GDP, and 21% of its exports. As a recent EU Commission report points out, Hungary does not have any economic advantage outside its ability to attract foreign investment. Keeping China happy has become somewhat of an economic imperative for Orbán's administration, and China has made it clear that it will not invest in countries which vote against it in the EU parliament.
In-kind, Orbán has loudly stated his support of the Chinese Government, including its foreign policy. After Orbán's May 2024 visit to China, its Ministry of Foreign Affairs praised his "unequivocal and firm support for China on issues related to Taiwan, Hong Kong, and human rights."
As the rest of the EU faces significant challenges ramping up battery production, the continent finds itself increasingly exposed to Chinese dependence through Hungary. Hungary's dependence and, therefore, alignment with China, risks leaving Europe's EV industry economically dependent on a nation that may seek to undermine its interests.
Bylines:
Nicola Hadwen (GS ‘26) is a writer for the Columbia Emerging Markets Review studying Economics and Statistics. She is a Software Engineer passionate about economic development and technology-led economic growth.
Sydney Smith (Trinity / GS ‘26) is a managing editor for the Columbia Emerging Markets Review studying Classical Civilization. She is interested in clean energy in emerging economies, as well as geopolitical analysis.