Central Europe has become a hub for the automotive industry in recent years. Since the collapse of communism in 1989, the whole region has worked very hard to attract investors from the area, with clear results. Today, 25% of automotive factories in Europe (out of 194 in total) are located in CEE countries. Even more impressive is that the four biggest producers in Central Europe (Czechia, Slovakia, Romania, Hungary) manufactured over 3 million passenger cars in 2022 – one-third of the entire automotive production of the EU. The sector is one of the most important pillars on which much of the region’s economy and labor market rests.
But as Greek philosopher Heraclitus once said, “There is nothing permanent except change.” Life does not stand still, and solutions that previously proved successful begin to fail over time, superseded by new projects, concepts, and ideas. The same is happening in the automotive sector.
The European Union has already banned registering new cars with an internal combustion engine starting from 2035. In general, there is a growing trend to replace combustion cars with electric ones that are ultimately greener and less harmful to the environment. CEE countries are responding to the change by boldly entering the e-car industry. At the same time, they have an opportunity to exploit their own underdevelopment in automotive development and have the possibility to turn this weakness into an advantage.
Bergmann, Elmo, Melex
In truth, it is difficult to see electric cars as the latest fashion trend. The first e-automobiles were built in the 1830s. Until the early 1900s, electric taxis were quite common in New York. But the development of the internal combustion engine in the 1920s put an end to that – as it offered a much higher range of possibilities. Nonetheless, experiments with electric cars continued, even in Central Europe.
During communist times there we even some successes in this field. In East Germany (DDR), the Deutsche Post started using Bergmann electric cars for delivering mail in the 1950s. In Bulgaria, the ELMO 70 was born in 1970. It looked like Soviet Moskvich but had an electric engine and the capability of covering 240 km without the need to recharge – quite impressive, even by today’s standards.
In Poland, there was Melex. This 2-seater e-minicar was created in 1971 with a maximum speed of 30 km/h and a range of up to 80 km. Its quiet motor and small size were great for working in places such as hotels, hospitals, and zoos; it is still used on golf courses today. These examples alone show that Teslas are not so revolutionary in the automotive market.
This does not change the fact that a revolution is taking place in the automotive market – forced by the climate policies implemented by the world’s most developed countries. It is for this reason that EVs are becoming increasingly popular.
It’s enough to compare the figures. In 2013, 206,000 e-cars were sold worldwide. In 2022 – 10,522,000 units. According to forecasts, this rate of growth in EV sales will continue for years to come. The trend is so strong that there is already speculation about the twilight of traditional motoring – and the economic overshoot caused by this techno-civilizational change.
These changes will primarily affect EU countries. For many years, Europe has been a powerhouse in the manufacture of combustion engine cars. German, Italian, and French enterprises – and their large army of sub-suppliers – generate the second largest share of the trade surplus of the entire Union. The automotive industry in the EU gained a positive trade balance of EUR 112.2 billion in 2021. This sector was only outperformed by the chemical industry, which generated a profit of EUR 185.8 billion. Other areas lagged far behind: the engineering industry made a profit of EUR 51.9 billion, and the food industry EUR 21.8 billion. This juxtaposition of figures shows the automotive industry’s importance for the European economy.
The supremacy of the European automotive industry goes far beyond Europe. For example, German automotive companies in 2021 controlled 26% of the car market in China. Chinese firms have “only” a 44% share of this market. But the picture looks very different for the EV market. There, Chinese manufacturers control 80% of the domestic market. They also have a strong global position; for example, they are the world leader in the production of lithium-ion batteries, which accounts for approx. 40% of the value of an electric vehicle. It is clear that the Chinese are vying for the top position in the area of e-motorization that the Germans have achieved in combustion engine cars.
The chance of the century
Chinese expansion in this area could prove to be a threat to the automotive industry in Central Europe. Today, it is largely combined with the German automotive industry and forms an important link. But as internal combustion engine vehicles become a thing of the past, this could change. “German car manufacturers, failing to keep up with trends in electromobility, are increasingly tying their fate to the PRC. In the future, their cars may rely even more than before on Chinese components and technologies to the detriment of Central Europe, but also local sub-suppliers. It is also possible that they will locate production in China, aimed at the European market, much more frequently than at present,” according to an analysis by the Polish think tank, the Center for Eastern Studies.
But it is impossible to predict what the future will look like based on today’s data. “It is not in the stars to hold our destiny but in ourselves,” wrote William Shakespeare in the play “Julius Caesar.” Central European countries are trying to shape their own destiny in the EV market by, for example, producing lithium-ion batteries, a key component in e-cars.
Today, Hungary is the world’s third-largest producer of these batteries. Poland – the fourth. Hungarians generate 4% of the global production of batteries. Investors from China and South Korea built factories in this country able to produce batteries for over 500,000 cars. Poland, in turn, accounts for 3.1% of the global production of batteries for e-cars. 90% of batteries exported from Poland are lithium-ion batteries, making Poland the largest European producer of electric car batteries. The export of lithium-ion batteries and their components has exceeded 2% of the country’s total exports.
Hungary and Poland do not concentrate only on batteries. Warsaw has ambitions to create its own EV brand. A factory producing a small e-car called Izera in the southern part of the country is to be open in 2024. Izeras are slated to hit the roads in mid-2026. At the same time, a South Korean manufacturer of copper foil used in electric-car batteries, SK Nexilis, started building a factory in Stalowa Wola. This plant should be ready in mid-2024 and will become an important part of the supply chain needed in EV production.
Attracting outside investors
Meanwhile, Budapest has been attracting foreign investors in the field of EVs. BWM, Audi, and Daimler started producing (or are close to it) their versions of hybrid and electric cars in factories there. Japan’s Suzuki also manufactures its hybrid models for the EU market in Hungary. What is more, the government supports the development of autonomous driving. It has funded a race track for testing autonomous cars and created a firm (with total funding of USD 75 million) that is developing technology for cameras and AI helping to detect the surrounding of autonomous vehicles.
So far, Czechia has gained the biggest slice of the EV industry in Central Europe. Skoda, which used to be a Czech firm (now it is part of the Volkswagen group), has already been producing different hybrid models in this country. But ambitions are much bigger.
By 2025, VW wants to make Skoda one of the biggest EV producers in the world. One of the steps towards this project is a giant factory producing batteries for Volkswagen cars—the cost of this investment: EUR 4.4 billion. The Czech government heavily subsidizes these investments, hoping to lead the country through a historic shift in the automotive market.
The country’s EVs-friendly climate also benefits others. Hyundai has already built its factory in the country, and Toyota is trying its hand at it. Manufacturers of semi-finished products necessary for producing e-cars are also being established in the Czech Republic. Besides, there are 49 Electric Vehicles start-ups in this country. That shows how important part of the Czech industry EV production has become.
Contrary to Czechia, Slovakia needs to catch up in this field. It has started building a factory to manufacture batteries, but it won’t be finished until 2024. Right now, it produces hybrid and electric cars for South Korean Kia, French PSA, and German Volkswagen, but the scale of this production is smaller than in neighboring states. The country still needs to form an electromobility strategy, which is critical for its industry, given that the automotive sector currently represents 14 percent of Slovakia’s GDP.
Romania is only taking its first steps in this field. It will not be until 2024 that Ford plans to build the first electric car factory there for USD 300 million. Other countries of the region have yet to achieve even this level. And this best demonstrates the scale of the challenge facing Central Europe as a whole. The ability to adapt to the challenges of the new economy associated with Industry 4.0 will become the measure of success in the first half of the 21st century.
New opportunities represent an opportunity for former communist countries to catch up with the developmental lag of the previous century. But these opportunities must be seized – or else these countries will fall back into dependent development from which they will not be able to recover for many decades.
