Hungary's government has confirmed it has poured HUF1.5 trillion (€3.8bn) into its electric vehicle (EV) battery sector, evenly split between direct subsidies and infrastructure development. The scale of support is striking, equivalent to 2% of the country's GDP and close to 3% of its public debt.

Foreign Minister Peter Szijjarto, when asked by independent Telex.hu at a townhall meeting last week, acknowledged the figure, effectively validating estimates by independent media. The admission is the first official confirmation of the scale of the Orban government's financial commitment to a single industrial sector since the pandemic.

The move is part of an aggressive strategy to position Hungary as a European hub for battery production, in line with Prime Minister Viktor Orban's long-standing pursuit of Chinese foreign direct investment (FDI).

Over the past few years, battery and EV manufacturing has grown to represent nearly a third of Hungary's industrial output, fuelled by projects from Chinese and Korean heavyweights such as CATL, Samsung SDI and SK Innovation.

Hungary has become China's leading investment destination in the EU, supported by extraordinarily generous state subsidies, which have drawn scrutiny in Brussels over their potential to distort competition in the single market.

The government's bet is being tested by a sharp global slowdown in EV demand, most notably in Germany, Hungary's largest export market. European carmakers are grappling with sluggish consumer uptake, delays in state incentives and persistently high production costs. In February, Hungary's battery output plummeted 46% year on year.

Despite the downturn, Szijjarto defended the subsidies, arguing that failing to secure investments similar to CATL's €7.3bn plant in Debrecen would have signalled weakness.

"What would you have written on Telex if Hungary had lost the CATL deal to a neighbouring country?" he retorted to a journalist at the event.

The government downplayed environmental concerns of the project amid growing public outrage. The annual water usage by CATL could equal the entire needs of Debrecen, Hungary's second-largest city of more than 200,000. This could lead to conflicts, as that part of the country is one of the most vulnerable to climate change.

Szijjarto maintained that all major FDI deals signed under his tenure have delivered long-term returns, and expressed confidence that the battery sector would rebound and re-enter a sustained growth phase. "Battery production will climb out of its current slump," he added.

Nonetheless, analysts caution that the heavy concentration of resources in a single, volatile sector leaves Hungary exposed, and the latest developments in global trade, including slowing EV demand, shifting supply chains and rising geopolitical tensions, could undermine the long-term viability of this strategy.

While global battery demand is forecast to rise in the coming years, some of Hungary's newer plants may struggle to survive the current downturn, especially if geopolitical or supply chain risks re-emerge. Some of the plants have already begun to lay off staff.

Some analysts have compared this strategy to forced industrialisation in the 1950s, when Hungary sought to become the country of steel and iron, shifting its resources toward heavy industry, even if lacking the necessary resources.

In an earlier interview with bne IntelliNews, economist Dora Gyorffy of Budapest's Corvinus University argued that this strategy prioritises low value-added assembly-line jobs with limited local R&D or supplier opportunities, while circumventing environmental oversight.

Hungary lacks the key inputs, such as raw materials, energy capacity and labour, to sustain the energy-intensive sector Gyorffy said, warning the state-subsidised battery push is leaving the country environmentally exposed and increasingly dependent on China.

Other economists have also warned that by hosting a large part of the battery supply chain, Hungary is likely to inherit the unprofitable and pollution-prone burden of battery waste management, a risk she says was never properly assessed by the government.

Despite Fidesz's anti-immigration rhetoric, the government has facilitated the arrival of tens of thousands of guest workers to staff the expanding industry, leading to conflicts with local mayors and inhabitants.