The EU Pariah Helping China Launch Its Electric Car Invasion
Hungary’s prime minister, Viktor Orban, has become a crucial figure in China’s strategy to dominate Europe’s electric vehicle (EV) market. Orban’s red-carpet treatment of Chinese President Xi Jinping during his visit to Budapest last year appears to have paid off, with the Chinese car giant BYD announcing plans to establish its European headquarters in Hungary.
By securing a foothold in Hungary, BYD will be able to bypass EU tariffs imposed on Chinese electric vehicles last year, potentially undermining the EU’s attempt to protect its struggling carmakers from a flood of cheap imports. This move is likely to deepen the split between Orban and the rest of Europe, with the Hungarian leader already being viewed as the bloc’s pariah.
“It completely allows them to get around the tariffs,” says Matthias Schmidt, founder of European consultancy Schmidt Automotive Research. “It allows them tariff-free access to the European Union member states.”
Chinese Threat
Orban’s decision to turn Hungary into a Trojan horse for BYD comes at a critical time. In April, BYD leapfrogged Tesla and Peugeot to join the top 10 sellers of battery electric vehicles (BEVs) in Europe, according to industry analytics firm Jato Dynamics. Analysts predict that BYD will only increase its market share once it starts producing cars from its plant in Hungary.
“If they are already selling a lot of cars, all of them imported from China, some of them exposed to the tariffs, then I cannot imagine how fast they’re going to grow once they start producing locally,” says Felipe Munoz, a Jato analyst.
The arrival of BYD marks a new development in the market, with Orban’s Hungary at the epicenter. Last year, Hungary pulled in 31% of all Chinese investment into Europe, more than Britain, France, and Germany combined, according to a study by the consultancy Rhodium Group and the German think tank Merics.
Consequences for Europe
Experts believe that if this flood of investment continues, it will put more pressure on manufacturers across Germany and France. “If there are more factories like this in future, and if production by Chinese automakers within Europe rises, then that would probably intensify the challenge that Chinese EV makers already pose to European and especially German carmakers,” says Andreas Mischer, a Merics analyst.
The European Council on Foreign Relations (ECFR) warns that the European car industry could be crushed by China. “China’s expansion is driven by potent, subsidised industrial policy ecosystems,” the ECFR report said. “Europeans are not up against Chinese businesses – they are up against the strategic ambitions of the Chinese Communist Party, which wields the collective financial firepower of the world’s second-largest economy.”
Political Ramifications
Orban’s wooing of China comes with political risk, particularly with the US. Many of Donald Trump’s inner circle admire Orban’s muscular, anti-woke populism. However, even if this means they are inclined to take a softer approach with him, Hungary could still suffer if the EU seeks to appease the US president by taking a tougher stance on China.
“The most extreme measures would be basically limiting production,” says Gregor Sebastian, a senior analyst at Rhodium Group, highlighting how Brussels is already investigating BYD’s investment in Hungary. “That would affect not just BYD,” Sebastian says. “It would have a strong deterrent effect as well.”
Uncertain Future
Despite the challenges, not everyone is sure that Chinese carmakers will overrun their German and European rivals anytime soon. Matthias Schmidt believes that BYD’s sales volumes are not big enough to justify its Hungarian factory. “It’s a chicken-and-egg situation,” he says. “They are betting that going forward, they will have enough demand in Europe to reach a relatively high and healthy utilisation rate at that production site in Europe.”
In contrast, Felipe Munoz from Jato argues that the Germans and French will struggle to match the agility and pace of the Chinese upstarts. “I was at the Beijing Motor Show a few weeks ago, and the speed at which they are presenting and introducing new cars is impossible to match,” he says.
The future of Europe’s car industry hangs in the balance as China’s influence grows, and the EU faces a critical decision on how to respond to the challenge.
