Debrecen (Debrețin) is a city with a population of 200,000 people, located less than 40 km from the border with Romania. Although few could believe it, the city is on its way to becoming one of the main European centers for the production of batteries for electric cars as well as vehicles. How did Debrecen become a powerhouse in the European automotive industry and what are the downsides of the investment that many cities would like from here?

An unexpected investment pole in eastern Hungary

In July 2018, BMW announced the opening of a car plant in Debrecen, investing one billion euros. There were delays, but at the end of November 2022, the Germans announced that they would invest another billion euros, also in a city in eastern Hungary.

In August, the world’s largest battery manufacturer, China’s CATL, announced the opening of a mega-factory worth more than 7 billion euros in the same Hungarian city for the production of batteries for electric vehicles.

In December 2021, EcoPro BM from South Korea announced that it will also open a factory for the production of battery components (cathodes) in Debrecen with an investment of 700 million euros.

These plants, like others, will produce at full capacity after 2025.

Debrecen – Fame and history in a small “Calvinian Rome”

The city is famous for its “Debrec sausage”, which in Hungarian is called “debreceni kolbász”, and in the original recipe, the spicy pork sausage was seasoned with paprika, garlic, pepper and marjoram. The Germans call them “Debrecziner”, and the Italians call them “Salsiccia di Debrecen”.

The city was in the spotlight in the autumn of 2009, when the local football team Debrecen reached the group stage of the Champions League. They lost all six matches and conceded 19 goals in a group with Fiorentina, Lyon and Liverpool. The most famous player to play for the team in this century is Baláš Džujak.

The settlement was first mentioned in 1235 under the name Debrezun, and in the 16th century it was already a large and prosperous market where salt, furs, livestock and horses were sold. The first printing press in Hungary was brought here in 1561, and the city was known as the “Calvinian Rome” because of the importance of the Protestant community in this part of Europe.

Debrecen was located on the medieval trade route through which salt from Dei and Djibouti was transported to the west, via Simleul Sylvania, Tashnad, Salacea, Debrecen and then Solnok.

Photo by Olezzo, Dreamstime.com

During the revolution of 1848 there was heavy fighting, but the darkest moments were in 1944, when the Jews were deported to Auschwitz on “death trains”.

Today, Debrecen is famous for the Jazz Festival, the Flower Carnival and the Great Church in Calvin Ter (Kalvin Square). The city also has several museums that are respected in Hungary.

How the city grew after 2000 and the “Orbán effect”

After the fall of communism, cities such as Budapest, Győr and Sopron attracted almost all the foreign investment that came to Hungary, but after 1998 the second most populous city, Debrecen, began to gain more importance. It invested in infrastructure and education, and early results were visible: the Israeli pharmaceutical company Teva opened a plant, as did National Instruments, an integrated circuit company that had a plant only in Texas.

Hungary has a developed automotive industry with many component suppliers and several car manufacturers. Audi has been producing engines since 1994 and cars since 1999, Suzuki since 1992 and Mercedes since 2012.

More than 430,000 cars are produced in Hungary every year, and the automotive sector, including many component manufacturers, employs a total of 180,000 people.

One thing has been hugely important in the development of the city: it is the fiefdom of the Fidesz party, led by the nationalist Prime Minister Viktor Orbán, who has been in power in Hungary since 2010. Orbán is known for his disputes with other EU countries, attacks on democracy and the good relations it maintained with Russia and China. Few EU leaders are as controversial as Viktor Orbán.

The Prime Minister of Hungary, in his fourth term, opposed the introduction of sanctions against Russia after the invasion of Ukraine.

Hungary has the highest level of inflation in the EU, although it has limited the prices of a number of basic products. price increases reached a record level.

For Debrecen, the rise of Orbán has been very favorable, and after 2010, a lot of money has been allocated to the city, from the modernization of the center to investment in infrastructure. Close associates of Orban received monetary contracts.

The city struck a big blow in 2018, when it managed to convince BMW to open a plant with a promised investment of one billion euros. Debrecen gained a lot of credibility after receiving BMW’s investment, especially because the Germans were going to produce electric cars in eastern Hungary.

It was clear that battery manufacturers would follow suit, and the biggest success came in autumn 2022 when CATL, a Chinese company that is the world’s largest manufacturer of batteries for electric vehicles, announced that it would invest more than 7 billion euros in Debrecen. , which will become one of the largest plants in Europe.

The Hungarian state will offer the Chinese more than 800 million euros in benefits, from land to infrastructure and tax exemptions. Hungarian Foreign Minister Péter Szijjártó said that talks with CATL began in the spring of 2020, with Chinese sites being hosted in Serbia and Poland at the time. Hungary came out strong in the race and won.

Why so many companies come to Debrecen and Hungary

Three countries account for the most investors in Hungary’s automotive industry: Germany, China and South Korea, and officials in Budapest have promised to do everything possible to attract companies to open factories for the production of batteries (and other components) for electric cars, as well as for the production of electric cars .

Government figures show that over the past six years, announced investments in the battery industry amount to €14 billion.

Companies come to Hungary because subsidies are high, taxes are among the lowest in the region, wages are much lower than in France and Germany, and the infrastructure is in good shape and there has been significant investment over the last 15 years. It is very important that Germany is not too far (for example, from Debrecen to Munich 900 km, to Berlin 1100 km and to Vienna 500 km).

Debrecen also has an international airport with flights to cities such as London, Paris, Munich, Milan, Malmö and Tel Aviv. And the university is becoming more and more efficient, so it is very likely that companies will have somewhere to recruit, at least initially.

Debrecen also has good negotiators, as well as people who know how to write investment projects well. Officials also boast that red tape is low, so permits for major projects are obtained quickly.

For German car companies, having battery plants nearby is important, and at the huge CATL plant to be built, Mercedes, which has a plant in Kecskemet, 180 km from Debrecen, will be the biggest customer. And BMW will need a lot of batteries for electric cars after 2025, because it will produce only electric cars at the new Hungarian plant.

South Korean giants SK Innovation and Samsung SDI said that the decision to invest in Hungary also came because German car factories are located there (some in production, others under construction).

This will be important for Debrecen and its proximity to Romania, and the new factories will definitely be staffed by Romanian citizens because people will be needed. Debrecen is 90 km from Oradea and 110 km from Satu Mare.

Foreign companies are also attracted to Hungary because taxes are among the lowest in the EU.

The level of subsidies is also high, reaching 15% of the investment cost.

It is also important that the Hungarian state kept its word in most cases when it came to investments in road and rail infrastructure promised to companies opening factories.

For the industrial park in Debrecen, Hungarian officials have promised a total infrastructure investment of more than 300 million euros.

Debrecen and the railway

By rail, Debrecen is 39 km from the Romanian border (Valea lui Mihai) and 105 km from Oradea and 106 km from Satu Mare. The distance to Budapest is 221 km, to the border with Ukraine (Chop border point) – 120 km. It is 130 km from Debrecen to Slovakia.

Hungary has invested in the modernization of the railway infrastructure, work is underway, for example, between Budapest and Lokoshaza (28 km from Arad), and there are also plans to electrify the section Debrecen – Biharkerestes (18 km from Oradea).

Previously, the Moscow-Budapest train stopped in Debrecen, but for more than ten years this train no longer runs.

The authorities have pledged to open new railway lines to connect the industrial park, where the new CATL plant will be, to Hungary’s railway network. The biggest rail project to help freight trains in Hungary is the so-called “Budapest Bypass Line”, which will mean that trains crossing Hungary from east to west will be able to bypass Budapest.

The dark side of investing

There are critical voices in Brussels and Berlin who say that Hungary is becoming too dependent on China, since the biggest investments come from that country. The Chinese have also carried out infrastructure works in Hungary, and China’s influence on the economy of our neighboring country can become dangerous, considering that many other EU states try to have as few economic ties with China as possible.

But when it comes to EV batteries and related components, China is the number 1 country with strong know-how and very large companies. The Chinese will dominate the field of batteries for electric cars for a long time.

The Chinese are playing a central role in the modernization of the Budapest-Belgrade railway, a project worth more than 2 billion euros, and in Hungary there was a big scandal when it was revealed that Fudan University in Shanghai could establish a campus in Budapest, with an investment of 1.5 billion euros from the Hungarian state

Another issue that is often raised is that there is a shortage of skilled labor in the battery industry, but companies will also be able to hire people from Romania and Slovakia and facilitate the upskilling of some workers.

There are also doubts about the ability of Hungary’s national energy grid to supply the necessary energy for several battery plants that require a lot of electricity, given that we are talking about a series of industrial machines with very high consumption. With 15% of Hungary’s national energy mix coming from nuclear and nearly 4% from solar, officials in Budapest say fears about the national power grid are unfounded.

After 2025, more large car plants will be operational, and electricity and gas consumption will increase significantly, putting pressure on the grid. The concern is especially great because energy prices have risen sharply this year.

Another question is whether the schools and hospitals will cope, or whether there will be enough housing to accommodate the several thousand people who will come to work in the new factories.

Debrecen’s water supply has been debated, with some experts warning that the future CATL plant in particular will require an extremely large amount of water, with the most pessimistic forecasts indicating that the plant will need almost as much as the city’s entire population consumes.

During the communist period, Debrecen used much more water than it does now, and there are experts who wonder how the needs of the large factories that will open in the next 3-4 years will be met. The press reported that CATL is looking at ways to reuse wastewater and may also invest in drilling to access more groundwater.

Sources: Financial Times, Automotive News, Reuters, Deutsche Welle, Le Monde

Photo source: Dreamstime.com