A home to premium carmakers, the move will strengthen Hungary’s economy.
In a strategic move, BMW stated, it will be investing $1.17 billion (1 billion euros) for a new car factory in eastern Hungary.
The move is likely to add to Hungary’s growing strength as a center for premium car manufacturing in the region.
BMW’s new plant will be built near the city of Debrecen, 230 kilometers east of Budapest, with a production capacity of 150,000 cars a year, said BMW.
The move will expand BMW’s car making capacity in Europe, where 45% of its cars are sold.
“Our new plant in Hungary will also be able to manufacture both combustion and electrified BMW models – all on a single production line,” said Oliver Zipse, BMW AG Board Member for Production, in a statement.
Incidentally, Audi and Daimler have their plants in Hungary; Audi also has a big engine production plant where it has launched serial production of its electric engines.
Already car manufacturing activity accounts for one third of Hungary’s exports and with BMW contribution this could rise to 40% if not more, said Peter Virovacz, an analyst at ING in Budapest.
As per Virovacz, BMW’s new plant could partly offset an expected slowdown in the economic growth of the country in 2019 and 2020 when European Union stimulus funds will be weaned off; on the downside the project will add to Hungary’s dependence on the auto industry with its economy being exposed to cyclical slump in car sales in case of a downturn in the global economy.
“The biggest question mark regarding this investment will be the Hungarian labor market … it is already very hard to find 1,000 employees, let alone in 2 years from now,” said Virovacz.
Along with the rest of the other Central European states, Hungary has been struggling with a serious shortage of workers, partly due to a mass emigration to the west for higher wages.