The electric vehicle boom in a quiet Hungarian town

Sándor Máriás still remembers the Soviet fighter jets that kept him up all night as a child. He grew up during the Communist era on a small farm next to a military air base outside Debrecen, in eastern Hungary. Their family home was 300 metres from the runway.

“The jets’ roar was deafening especially when they practised touch-and-go manoeuvres,” he recalls.

His family was one of a handful that the Communist authorities allowed to keep their farm at a time of mandatory co-operatives. After the regime collapsed in 1989, the others all sold their land, but Máriás held out. That was until a wave of green technology started to wash over Debrecen.

Today, Máriás Road, as the dirt track next to the farm is still called, leads to Korean battery materials maker EcoPro BM’s new development site, where the company committed to a €700mn investment to produce cathodes, one of the key components in batteries. Next door, Chinese battery giant CATL plans to spend 10 times as much on Europe’s largest gigafactory.

In just a few years, Hungary has transformed itself into a potential electric vehicles powerhouse, centred on Debrecen. By 2030, battery production in this town of 200,000 people alone will rival every European country other than Germany.

The investment boom was ignited by German automaker BMW, which is building a €2bn electric vehicle factory in the town. Including the CATL announcement and factories for a dozen major suppliers and scores of smaller ones, the electric vehicle expansion has attracted investment of more than €10bn to the town.

Elsewhere in the country, South Korean SK Innovation and Samsung are building and expanding battery plants, each at a cost of about €1bn. Germany’s Mercedes-Benz and Audi are switching their large Hungarian carmaking units to produce electric vehicles as well. By the time Europe outlaws the sale of new petrol or diesel cars from 2035, Hungary’s car industry is set to be all electric.

The government has helped achieve this by offering major tax breaks for the sector, along with friendly and efficient regulation.

Before announcing its Debrecen investment, CATL had put a smaller plant in Germany and expressed interest in locating a battery gigafactory either in Poland or in Serbia, according to people with knowledge of the talks in those countries. Along with other benefits, it is now set to receive tax and infrastructural incentives worth about €800mn in Hungary.

“We began talks with CATL two and a half years ago, when the company had another location in mind,” foreign minister Péter Szijjártó told the local news site Haon.hu. “We performed a heroic save as we wiggled our way into the picture.”

Hungary’s efforts to lure the world’s leading battery makers are part of a scramble in Europe to put in place sufficient infrastructure to allow the switch away from internal combustion engines. For Budapest, preparing for the transition to electric vehicles is vital: the auto industry makes up a fifth of Hungary’s exports and 8 per cent of its economic output.

“This process is an existential challenge to the Hungarian and European economy,” says Péter Kaderják, chair of the newly formed Hungarian Battery Association and a former government official under Viktor Orbán.

“This game is for real. And in this new industry the key to the process is the battery. Europe has fallen behind and missed out on the opportunity to create a complete value chain.”

However, the success in attracting so many investments has generated criticism. Some fear that Hungary risks becoming too dependent on Chinese battery-makers — and is giving too much diplomatic leverage to Beijing.

In Debrecen, residents worry about scarce water supplies as well as the pressure on housing, schools, hospitals and more from the new workers and their families.

“This may put Debrecen on the European industry map, but lots of people rightly ask, what about the energy needs, the water, sewage, labour? Can this town cater to these giants?” asks József Pálinkás, 70, a physicist and former head of the Hungarian Academy of Sciences, who lives in Debrecen.

Pálinkás, a former education minister under Orbán who served as the government’s chief official for research and development until 2018, says he sees the project as a symbol of the government’s “megalomania”.

“Orbán really likes huge investments. He wants to have the largest stuff,” says Pálinkás.

Expansive change

CATL executives first started scouting for locations in eastern Hungary shortly before the coronavirus pandemic erupted. What the government has described as a cut-throat race to attract the company blindsided almost everyone in Debrecen.

Rumours only began to emerge earlier this year after announcements trickled in about smaller investments related with batteries. Industry minister László Palkovics talked in May about the need to beef up water and electricity grids in anticipation of a new battery manufacturer in Debrecen.

Then in August, CATL and the government announced with great fanfare that the Chinese giant would invest €7.3bn to build a 100GWh battery plant in Debrecen — about five times the current size of Tesla’s Nevada Gigafactory, and enough to power 2mn new cars per year.

The investment will be financed by a loan from China Construction Bank, according to a source with knowledge of the situation. “The greenfield project in Hungary will be a giant leap in CATL’s global expansion,” founder and chair Robin Zeng said in a statement. Markus Schäfer, chief technology officer at Mercedes-Benz, which has a large plant in central Hungary, said the carmaker will be “the first and largest client of the new factory”.

BMW announced last week that it would put a battery assembly facility at the site of its Debrecen plant, doubling the total investment there to €2bn. A key factor, the company said, was the “battery cell factories to be built in the vicinity”.

“Europe is the main overseas market CATL is going for, because of the amount of OEMs [carmakers] here,” says Yu Du, head of China research at battery market research firm Rho Motion. “CATL’s Hungary plant comes as part of their partnership with BMW. They want to be closer to the car plants.”

EVE, another Chinese battery maker, bought a 45-hectare plot in the vicinity of the town earlier this year for a new factory whose details are yet to be announced.

CATL has said little about its Debrecen plans. However, according to three people who are not authorised to speak publicly, the company plans to move quickly with a first unit, launching production at the site in May 2025 and scale it up until the unit has a capacity of 33GWh. It will comprise a single building measuring a kilometre in length, plus a smattering of side buildings.

Two more identical units will follow. The factory will reach full size by around 2030, according to these people. It is only then that the full impact in Debrecen will be felt, including the pressures on other aspects of life in the town: water use and pollution, energy consumption and labour needs.

Water worries

Debrecen might seem like an unusual choice for an industry such as battery manufacturing that uses a lot of water. It is an hour’s drive from a major river, the Tisza, and it is situated amid the farmlands of the Hungarian plains, which already suffer from climate change induced drought.

At the parliamentary hearing in May, Palkovics said the CATL factory would use around a similar amount of fresh water per hour that the entire population of Debrecen uses during the same time period.

When István Fábián, a water chemist and former rector of the University of Debrecen, heard about the CATL plans, he says he did a double take. “That’s a hell of a lot of water they need,” he says. “If indeed they won’t use even more.”

Fábián, who has studied the town’s water systems for decades, has many questions about CATL’s water plans. There is plenty of groundwater under the town, but some of it is hard to get to, some of it is contaminated, and there are doubts about existing plans to pipe in more from the Tisza.

As climate change affects water systems, Debrecen cannot return to the days of the Communist era, when it used almost three times as much water as it does now, says Fábián.

People familiar with the company’s plans say it is investigating water resources and technology for the potential use of purified wastewater. “The local water supply system can meet the demand of our Debrecen plant,” the company said.

CATL, according to Palkovics, would also need constant power capacity of about 800MW, the output of a large power plant, as well as plenty of natural gas — both potential problem sources as Hungary, like the rest of Europe, faces steep energy costs and availability problems amid the Ukraine war.

Government officials have privately expressed concern about this and other energy-intensive plants coming online at the same time, elevating electricity and gas use in the country just as energy markets are under increasing supply pressure.

However, CATL has ways to ease the energy supply constraints. It plans to use some of the land it has acquired to generate solar power, the company said. It will procure green energy from the regional markets as needed.

Debrecen mayor László Papp insists the town can handle the boom, with the government’s backing, and adds the fears over water use are overblown.

“Despite the past year’s drought groundwater levels no longer recede,” he says. “Debrecen’s water is not threatened. Plus, climate change or not, we will not get back to the water use levels of the 1980s . . . even if the entire industrial capacity gets built.”

The Financial Times requested comments from several government ministries and development agencies. Of those that replied, each declined to comment.

But Szijjártó, the foreign minister, has in the past said concerns about water, energy and labour are groundless. “This investment can only happen if it meets the strictest environmental standards,” Szijjártó told local media. “Debrecen can rest assured, preserving water and air quality is not up for compromise.”

Despite these assurances, there is considerable resistance in Debrecen to some of the investments.

As much as three quarters of residents want the big factories to stay away, says Zsolt Gondola, an attorney and leader of the NGO Civil Forum, which has surveyed local people.

“Big industrial investments have been built and abandoned before, leaving behind decay and destruction; just think of the American Rust Belt,” Gondola says. “We must anticipate that it is a normal part of the economic cycle, except our beginner capitalism has not faced that yet. When the big money comes, we bend over backwards.”

Pálinkás says the government should not ignore an erosion of trust, instead it should open up about the details.

“Debrecen was told of this too late,” he says. “I understand secrecy while the investors had several options, but once the decision was made they should have been more open. We have these questions because they impact our very lives.”

The China connection

CATL’s huge investment in Debrecen is sensitive for another reason: it comes amid a growing debate about Chinese investments in Europe and Hungary’s relationship with Beijing.

Chinese state-owned firms have built infrastructure across central and eastern Europe as part of Beijing’s global Belt and Road Initiative (BRI), beginning with the opening of the Pupin Bridge over the Danube in Serbia in 2014. But partners have criticised BRI projects for their lack of transparency over financing and planning.

Eastern European diplomats in Beijing have spoken of high hopes for investment agreements set against a lacklustre reality, as well as complaining of being treated as junior partners — an unwelcome reminder of the dynamics of the former Soviet Union.

Hungary, however, has warmed to Chinese investment just as other European countries have grown wary. Under Orbán’s “eastern opening” policy, Chinese companies have invested in the chemical industry; Beijing is bankrolling and building a new Belgrade-Budapest railway for its cargo to central Europe; and Shanghai’s Fudan University has tried to open a Budapest campus.

Péter Kaderják, the battery association chair, says this connection with Beijing is vital because the transition to electric vehicles is so important to Hungary — and because China, the leader in EV batteries, prefers warm diplomatic relations.

As Chinese and Korean companies take the lead in Hungary’s nascent battery industry, some people, including Kaderják, acknowledge that this new relationship could make Europe dependent on Asian battery suppliers.

Edit Zgut-Przybylska, a researcher at the Polish Academy of Sciences and vice-president of Amnesty International in Hungary, says the investment expands China’s strategic influence on European economic infrastructure.

“Viktor Orbán has gone the furthest in the EU by providing Beijing with windows to weaponise political and economic leverage in Europe,” she says. “The CATL investment fits a decade-long strategy during which the Orbán regime further committed itself to a China-friendly policy . . . Budapest serves as a battering ram for Beijing on the European level by vetoing joint EU initiatives critical of China.”

However, András Deák, an energy expert at Hungary’s Public Service University, says dependency fears are premature because the technology is so fluid that lithium-based batteries may just be one of several options in a few years.

He says the green transition must be viewed more broadly than cars, which will mean all sorts of batteries produced for household and even industrial use. Those technologies are not all coming from China, although most are Asian, he says, adding Hungary’s mistake may actually come from betting too early and too heavily on lithium technology.

“It’s like we want to fill up with the soup already, while there is an entire feast on the table,” he says. “I fear climate change more than I fear China. It’s too early to worry about that. I would not put brakes on electric mobility or battery technologies for geopolitical fears.”

Máriás, the farmer, is pragmatic about the changes coming to his corner of Hungary. “Let the city develop, let the industrial parks come, we have moved on,” he says.

The town offered him a fair deal for his farm, he says, and he bought new land and built a new home nearby. “A piece of my heart stayed in the old compound, but life goes on. I can keep doing what I do.”

Additional reporting by Raphael Minder in Warsaw