Why Hungary could be the future of Europe's EV industry and transition policy

EU contrasting fortunes in the automotive sector 

While Western Europe sees automotive factories closing—such as Audi’s plant in Brussels and likely three VW plants in Germany—Hungary celebrates new investments. Budapest is positioning itself as one of the main centers for European car and battery production. 

In recent months, BMW has invested €2 billion to build a new plant in Debrecen for next-generation E-Cars. The Chinese company BYD, already active in Hungary with E-Bus production, has announced the opening of another plant in Szeged. Both facilities are set to begin operations in 2025. For years, Hungary has pursued a focused strategy on electric vehicles, employing targeted industrial policies with careful integration of the supply chain.  

One of the key factors behind the competitiveness of Tesla and Chinese manufacturers is their verticalization of production, ensuring top-down control of the entire manufacturing process.

CATL’s leap in Europe

In this context, CATL, the world leader in the battery sector, has announced a €7.3 billion investment in a new factory that will initially supply BMW and Mercedes-Benz plants. The facility will have a production capacity of 100 gigawatt, enough to equip one million electric vehicles annually.  

By producing directly in Europe, BYD avoids the additional customs duties imposed by the European Commission on E-Cars imported from China. In addition to the existing 10% tariffs, a further 17% has been applied.

Industrial policy: a game-changer for manufacturing localisation 

This example highlights how industrial policies and strategic transition plans influence decisions around production localization, supporting insights from the European Competitiveness Report by Mario Draghi.  

The report highlights how European manufacturing—especially in energy-intensive sectors—is progressively shifting to regions with ample renewable energy capacities and other factors necessary for new production. In simpler terms, the competitiveness balance between European regions is changing.  

In public investment decisions, therefore, it is essential to focus on areas with competitive advantages, supporting growing regions and accompanying the reconversion of those with traditional industrial structures. Investing in declining old industries benefits no one. This principle is likely to have significant implications for the European Commission's revised regional policies.

The European Commission will update its smart specialisation approach   

These ideas were central to discussions at the 2024 Conference on Smart Specialisation Strategies (S3), held on 11-12 December. Organised by the Directorate-General REGIO in collaboration with the Emilia Romagna Region, the conference brought together policymakers, experts, and officials from across Europe to address the continent's pressing challenges. The results of this ongoing exercise carried out by the Commission will influence the shape of the cohesion policy for the new political cycle in the EU. 

From accelerating climate and environmental crises to strategic dependencies and geopolitical tensions, the need for a balanced and effective approach is urgent.

How Europe addresses these challenges will define its economic future. A balance must be struck between competition and cooperation, protecting industries while fostering innovation and shared prosperity.  

Teresa Ribera, EU Commissioner for clean, just and competitive transition made it clear during her confirmation hearing at the European Parliament in November, “New global competitors are emerging. Countries like China and the U.S. are racing to lead in green technology, microchips, and digital innovation. And we face challenges that must be solved through global cooperation. The most important of those global challenges is climate change. No company, country, or continent can tackle this alone. It calls for worldwide cooperation and bold action.”

In this race, Europe cannot afford business as usual. Ribera further stressed that we will need to rethink all of our tools and how we use them to ensure they are fit for new realities. Shielding industries from competition is not the answer. Instead, Europe requires transformative investments that align decarbonisation and competitiveness to build industries of the future.  

Once again, this is in line with Draghi’s report. The investments we make today shape the reality we live in tomorrow. Producing in Europe is both an economic necessity and a strategic imperative, strengthening the block’s position against global giants like the U.S. and China while reducing dependencies on critical imports. Addressing vulnerabilities, however, demands targeted actions that avoid disrupting global trade flows.

The value of precision in addressing dependencies  

This is also the position of economist Carlo Altomonte, who has served as an advisor to the Draghi government. Speaking at the European Parliament in a recent audition, he noted that Europe’s strategic dependencies involve only 40 products, representing just 0.19% of total imports.  

“Mitigating this risk requires precision, not overreach,” he argued. Altomonte also highlighted that global value chains are not collapsing but evolving, with trade within blocks remaining stable, while trade between them is being reduced.  

To maximise the Single Market's leverage and avoid fragmented national policies, EU trade and Foreign Direct Investment (FDI) strategies must be aligned, ensuring coordinated actions among member states, preventing fragmented actions by individual member states. 

A perspective from the China Intelligentsia 

This is a point that Chinese experts understand. Zhang Jian, Vice President of the Institute of Climate Change and Sustainable Development (ICCSD) at Tsinghua University, offered a global Chinese perspective on Hungary’s electric vehicle and battery investments for this article.  

The ICCSD, founded by Minister XIE Zhenhua, China’s long-serving former Special Representative for Climate Change Affairs, remains under his leadership as the inaugural president. The institute holds a central role in Beijing’s climate leadership, influencing policy and fostering international collaboration on sustainable development.  

According to Zhang:  “Hungary's new investments and factory constructions represent not only a shift in European industrial geography but also an integral part of the global climate change response strategy. These projects are pivotal for developing and deploying low-carbon technologies, while also creating economic growth and local job opportunities.  

In global climate governance, such regional success stories can inspire broader action toward sustainable development goals. Moreover, Hungary’s efforts highlight the importance of technological innovation and industrial upgrades in achieving global carbon neutrality targets, while underscoring the leading roles of China (and Europe, I must add) in advancing green, low-carbon technologies.”

The stakes for Europe’s future

As Ribera reminded us in her confirmation speech, “The industrial race to reach climate neutrality is already ongoing, and the rest of the world is not going to wait for us. Let’s use our capacities to ensure a clean, fair transition and a competitive single market.”  

Europe’s strategic decisions today will determine its future, navigating the delicate balance between openness and resilience, competition and cooperation, and innovation and regulation to achieve shared prosperity.  

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.