Central Europe has joined the electric vehicle (EV) revolution, brushing aside doubts that it would be left behind. But will this create the new high-tech sector the region so badly needs?
Carmaking is already vital to the region, with Slovakia and Czechia producing 1.22mn and 1.16mn cars respectively, making them the biggest manufacturers per capita in the world, though they rank only 15 and 16 in gross terms. Poland and Hungary are not far behind, producing 451,000 and 406,000 respectively.
Slovakia is the most dependent. A country of only 5.45mn people, it has four major car producers – Volkswagen (VW), Kia, PSA, and Jaguar Land Rover. The whole car industry, including the network of suppliers, represents a massive 50% of total industrial production, 47% of exports and 14% of gross domestic product. Some 177,000 people are employed by the four original equipment manufacturers (OEMs) and the Tier 1 suppliers.
There had been fears that the shift towards EVs could threaten the region’s automotive industry because the exclusively foreign-owned carmakers might focus on EV production in their home markets, leaving their Central European plants to keep turning out petrol and diesel models until they were phased out under national or European Union rules.
This has not happened and Czechia, Slovakia and Hungary now all produce electric models. Nevertheless, the regional industry still faces a massive long-term challenge because of the much lower interest in owning cars among young people, and because electric cars are much simpler in construction and require less labour. The German Ifo Institute for Economic Research forecast this month that the German auto sector could lose 178,000 jobs by 2025 because of these trends.
In the short term, the industry has also been hard hit by the coronavirus (COVID-19) pandemic, with European passenger car sales down by almost 25% last year, a drop of some 3mn units.
Central Europe will still remain a good place to build cars for the foreseeable future and electric and hybrid vehicles will be one of the few growth segments of the market, so carmakers have invested heavily in converting their plants in the region to produce EVs.
This will protect the industry as the EU moves to phase out new cars based on internal combustion energy technology on the grounds that they contribute to global warming. In 2020, European legislation enforced that the average carbon dioxide output of new cars across a manufacturer’s fleet be reduced to 95 grammes of CO2 per kilometre. This will have to be reduced by another 15% by 2025.
Apart from EVs, the region – particularly Hungary and Poland – is also becoming a new centre for electric battery production, and is competing for a new VW gigafactory. This fits with European Commission plans to encourage nearshoring of battery production, so that Europe can produce enough batteries by 2025 to power its fast-growing fleet of EVs without relying on imported cells. Czechia also has significant deposits of lithium, the key metal in the new generation of batteries, which will help achieve the Commission’s goal of the EU becoming almost entirely self-sufficient in lithium by 2025.
Most excitingly, electromobility offers the possibility of creating a new high-tech regional industry, which could have a series of spin-offs for local economies. Electric mobility is already stimulating innovation and generating start-ups across the region, raising hopes that it will help Central Europe make the shift from assembly line industries to high value-added sectors. Hungary has been most active in pursuing this strategy.
However, the region is being held back by low sales of EVs, partly caused by weak investment in charging networks, which creates “range anxiety” and deters purchases.
Also, the incentives offered by Central European governments to encourage electric car sales are much less generous than in Western Europe, while incomes are lower, putting EVs out of the reach of most people, particularly as the EV second-hand market is not yet well developed. Hiking taxes on petrol and diesel would be another way to encourage people to shift to EVs but this raises issues of equity, as it would hit the many poor Central Europeans still driving 20-year-old cars around their much improved roads.
The result is that while the proportion of pure EVs sold in the EU more than trebled in 2020 to reach 10.5% – up from 3% in 2019 – EV sales still only represent less than 2% of new car sales across Central Europe, with Hungary leading Czechia and well ahead of Poland and Slovakia.
Lagging sales are bound to affect EV investment in the region in the long run, even if for the immediate future cars will be still mainly shipped west. Central Europe’s lack of ambition in electric mobility – as demonstrated by the current Next Generation EU fund plans currently being submitted to the European Commission – could therefore end up costing it dearly.
Below, bne IntelliNews reporters from the four Central European countries examine the EV revolution in their countries and assess which of them is currently leading the regional race for foreign investment (FDI) to transform their carmaking industries.
The Czech Republic has Central Europe’s only significant home-grown car brand, Skoda Auto, which after its takeover by VW in 1994 has become the German carmakers’ value brand. Skoda already produces several plug-in hybrid models but it is now set to become part of VW’s ambitious plans to be the world’s leading EV producer by 2025, a year in which it aims that one in five VW cars sold will be electric.
After spending €32mn on converting the Mlada Boleslav plant, Skoda began rolling out the Enyaq IV last year, the brand’s first fully electric vehicle, based on VW’s mass-market platform for battery-powered cars. It is adding a coupe version and has plans for a smaller EV by 2025 and a mid-sized one later in the decade. Skoda also produces high-voltage batteries at its Mlada Boleslav plant.
Marketing director Martin Jahn said recently that Skoda will not be among the fastest carmakers in going electric, as it is strong in slow adopting markets, but chairman Thomas Schäfer insists that it will still be fully electric in 10 years. Skoda Auto plans to invest €1.4bn over the next five years into EVs.
Hyundai, which operates the country’s second-largest car plant in Nosovice, also started EV production last year, with the Kona Electric battery-electric vehicle rolling off the production lines, the first electric car to be manufactured by Hyundai outside Korea. Toyota’s Kolin plant intends to start producing hybrid models later this year.
In terms of batteries, there is great excitement over VW’s announcement in March that it plans to build six gigafactories, with a total capacity of 240 GWh, enough to produce cells for almost 5mn cars annually. One of these factories will be sited in either Poland, Slovakia or the Czech Republic by 2027.
The Czech Republic is pushing hard to secure the VW gigafactory. According to Industry Minister Jan Havlicek, the negotiations on the VW plant are linked to the previously announced project of state-controlled energy group CEZ to build a battery factory in northern Bohemia, as it could become a joint venture. "We are discussing it intensively, it is related to the CEZ gigafactory project, which I consider to be one of the priorities and a key investment in the coming years,” Havlicek said. “We must not miss this opportunity, we are also following the connection to lithium mining, although it is not a condition, but it would be an excellent chain.”
CEZ wants to use lithium from the Cinovec area in the Krusne Hory Mountains for the production of batteries. Cinovec is the largest lithium resource in Europe, and is also forecast to be one of the lowest-cost deposits to exploit. European Metals, the Australian mining group, is currently preparing a project to start mining.
Czechia could also become a source of high-purity manganese (HPM), which is an essential input in nickel-manganese-cobalt (NMC) batteries, which are increasingly in demand for EVs. Canada’s Euro Manganese expects to make a decision next year on launching a project in Chvaletice in the Pardubice region, which entails re-processing Europe’s largest manganese deposit, contained in historic mine tailings. By processing these tailings, Euro Manganese could produce an estimated 49,000 tonnes per year (tpy) of HPM, half EU’s requirements by 2025.
The shift into electromobility and battery technology also has the potential to create other spin-offs. But the EV industry complains that it has yet to get much help from the government. Incentives are far from generous – the state currently offers them only to businesses to purchase electric cars – and the roll-out of charging stations has been very slow. In 2020, the country recorded 808 charging stations, though there are now innovative plans to convert lamp posts in Prague into charging stations, which could add 400 to those numbers over the next two years.
Sales are nevertheless rising rapidly from a low base. While in 2019 there were only 756 new battery electric cars registered in the country, in 2020 this number amounted to 3,262 cars. Sales of plug-in hybrid cars in Czechia also expanded at a similar pace: in 2019, there were less than 500 sold, while in 2020 their sales reached 1,978. In terms of the total fleet of registered passenger electric cars, this amounted to 7,103 cars, or almost 10,000 when plug-in hybrids are included.
Slovakia, the biggest producer of cars per capita in the world, has 15 electric or hybrid models in production, with VW’s Bratislava plant producing the electric e-Up! since 2013. The country’s Kia (South Korea) and PSA (France) plants also produce electric models and the French manufacturer plans to assemble batteries as well.
Slovakia is also in the running for VW’s gigafactory, and domestic firm InoBat Auto aims to build a 10 GWh plant by 2024 in conjunction with Wildcat Discovery Technologies of the US.
Yet the country is still just forming its electromobility strategy. At the end of 2018, the Slovak Ministry of Economy proposed an Electromobility Action Plan for 2019- 2020, including the provision of financial support for purchasing an electric car or plug-in hybrids and building a network of an additional 1,500 charging stations by 2025.
"Slovakia does not have a clear idea of how it will fulfil its obligations in the area of electromobility development and infrastructure for alternative fuels," said President of the Association of the Automotive Industry of the Slovak Republic Alexander Matusek.
Consequently, like Czechia, Slovakia lags behind Western European countries in sales of battery EVs – just 918 were sold last year – and in building charging stations. According to the 2020 Progress report of EAMA, the country has 649 charging points.
Poland is home to factories of Fiat, Opel and Volkswagen, but none of these makers is currently producing EVs.
Poland has, however, ambitions plans of its own. The production of Poland’s first domestically manufactured EV, Izera, in the southern town of Jaworzno in the industrial and mining region of Upper Silesia is expected to launch in 2024, ElectroMobility Poland (EMP), the state-owned company responsible for the project, said in December.
But even if Poland does not (yet) make any e-cars on its own, it has become the market’s key player via covering some 30% of Europe’s demand for e-car batteries. That is thanks to the 20-GWh e-car battery factory – the largest in Europe – operated by Korea’s LG Energy Solutions in Kobierzyce near Wroclaw in the south-western part of the country. Lithium-ion batteries now represent 2% of Poland’s total exports and are the largest single item, amounting to as much as a forecast €5bn this year.
LG Energy Solutions is planning to expand the plant at a cost of €300mn so that it will become the world’s largest, making 100 GWh worth of lithium-ion batteries for cars a year, 60% of Europe’s current demand.
LG is not the only manufacturer choosing Poland to make lithium-ion car batteries or related products. Belgium's Umicore is planning to build a battery component factory in central Poland and another one in Radzikowice in the south-west.
Yet Poland still lags Western Europe in terms of its charging network, having only 1,364 charging points compared with over 33,000 in Germany. Its incentives are also far less generous, although a new scheme is meant to come into operation this year.
Consequently, Poland’s electric car market is still very small. Sales of pure electric cars were just 3,683, admittedly a huge jump of 147% versus 2019 but still an insignificant portion of the market.
When German carmaker BMW announced plans in 2019 to build a €1bn assembly plant in Debrecen, near the Romanian border, it aimed to produce 150,000 models a year using internal combustion engines. After a delay because of the pandemic, the project is now back on track as an EV plant.
Audi and Daimler, which are already present in Hungary, are already producing hybrids. Audi began serial production of the Audi Q3 plug-in hybrid at its plant in Gyor last year and Daimler has invested €140mn to add fully electric vehicles to the production palette at its Hungarian base this year. Audi, one of the largest investors in Hungary, with a total of €9bn spent over the past 25 years, launched production of electric motors at its Gyor plant in July 2018.
Japan’s Suzuki exclusively manufactures hybrid Suzuki Vitara and SX4 S-Cross models for the Hungarian and EU markets.
The Hungarian government has supported these investments with generous subsidies as part of its push into electromobility. It is also pushing aggressively into battery production.
The world’s leading EV battery producers have established their presence in the country. Korea's SK Innovation plans to spend $2.3bn – the largest Hungarian greenfield investment to date – to start to build a 30-GWh plant in Hungary this year; it already has two, one of them producing 7.5 GWh of batteries a year and another making 10 GWh.
South Korean Samsung SDI and the Japanese GS Yuasa have already picked Hungary for their European manufacturing hubs.
The government is also backing autonomous driving. It has funded ZalaZone, a unique race track for testing autonomous cars. Hungary even has a domestic firm in this space: AImotive, which is developing technology using cameras and AI so a car can detect its surroundings. AImotive has become the largest VC-backed company developing automated driving technology in Europe, with total funding of $75mn.
This government's enthusiasm for the segment is reflected in domestic sales, which are supported by subsidies and a charging roll-out programme. Purely EV car sales reached 3,046 last year, just below the significantly richer Czech Republic, which has much higher overall car sales.