Why a Chinese car battery plant in Hungary is not a good idea

In November 2023, following the European Parliament issuing official notice of the European Commission’s EV probe in October 2023, Chinese car manufacturer Build Your Dreams (BYD) announced its plans to establish a factory in Hungary.

However, new Hong Kong Watch research exposes that BYD has extensive links to the Chinese Communist Party (CCP), the government of the People’s Republic of China (PRC), and the Hong Kong government, which continue to act collectively to dismantle basic rights and freedoms in Hong Kong.

BYD’s leadership, including founder and current chief executive Wang Chuanfu, maintain numerous direct ties to the Chinese Communist Party. In 2019, a report by Radarlock found that BYD has failed to publicly report the billions of subsidies that it has received from the government of the PRC.

In the same year, BYD jointly won the Chinese National State Council Progress Award with the State Administration for Science and Technology for National Defense (SASTIND) and a partner of the military Aviation Corporation of China (AVIC), which is an award granted to individuals or organisations that have made significant contributions to the scientific and technological development of China.

The battery technology of BYD is also a component of the CCP’s ‘Made in China 2025’ and ‘China Standards 2035’ plans, which seek to make China the leader of global high-tech manufacturing and encourage standardisation among Chinese enterprises, respectively.

BYD has also worked with Huawei to export driverless transit systems to countries that take part in the CCP’s Belt and Road Initiative (BRI). The BRI poses a major risk for the EU market given that the BRI involves high levels of debt-trap diplomacy, corruption, poor risk management, and threats to domestic infrastructure plans, supply chains, and jobs.

Like many other Chinese-owned companies, BYD is subject to the PRC’s National Intelligence Law, which mandates that companies provide information to Chinese intelligence agencies. There continues to be no accountability or transparency for this process, and it poses a risk to foreign partners whose information may be sent to Chinese intelligence agencies too.

BYD has been scrutinised for intellectual property infringement, data security, and economic espionage, accused of copying designs from established automobile manufacturers. BYD has also been criticised following numerous reports of quality control and safety issues, failing to have an eco-friendly ethos, and questionable labour practices in the BYD supply chain.

An Australian Strategic Policy Institute and International Cyber Policy report lists BYD as one of 82 companies that benefits directly or indirectly from abusive labour transfer. Sheffield Hallam University’s Helena Kennedy Centre for International Justice, Nomogaia, and a team of international scholars also found that BYD is sourcing aluminium from Shandong Nanshan Aluminum, which is a parent company of a Uyghur region subsidiary.

Similar to Xinjiang, BYD exploits Hong Kong, where it maintains its subsidiary BYD (H.K.) Co. Limited, which serves as a platform from which BYD manufactures, imports, and exports batteries and battery components for EVs including green cell, rechargeable cell, and dry cell.

In 2022, Hong Kong exported €698,603 worth of electrical apparatus; parts for diodes, transistors, and similar semiconductor devices and photosensitive semiconductor devices to China. Therefore, it is likely that BYD is using Hong Kong as a platform from which to send needed EV components to China given that BYD’s major manufacturing centres are in Shenzhen, Huizhou, Shaanxi, and Shanghai.

According to the international financial services provider Allianz, the EU car industry stands to lose more than €7bn in net profits each year due to Chinese competition.

Boost domestic production, not a back door to China

With this in mind, as well as the economic, ethical and security risks posed to the EU given BYD’s ties to the CCP, PRC and Hong Kong government, BYD does not merit a ‘get out of jail free’ card in the EU EV probe. Germany, and other EU member states, must be cautious not to hand China the keys to their markets.

As German car suppliers adjust to the shift from combustible engines to EVs, and other car suppliers throughout the EU face increasing competition from China, EU member states should look not to China, but at increasing domestic production as well as tariffs against Chinese EVs which continue to flood EU markets.

The European Commission should lead the way by conducting a thorough and independent review into the national security risks and human rights violations posed by BYD, and prevent BYD from breaking ground in the EU until the review is complete.

The EU Commission should also penalise BYD as part of its ongoing EV probe by compensating for the pull effect of BYD’s low EV import tariff by increasing the import tariff on all Chinese EVs from 10 percent to 20 percent or more to offset the fact that Chinese EVs are entering the EU market at a 20 percent lower price than similar EU products.

This should be implemented as a temporary measure until an independent review and the EV probe are complete.

To complement these actions, the European Commission should publish an official list of all EV companies, including BYD, that have ties to the PRC’s human rights violations in Hong Kong or Xinjiang. The European Commission should also create a list of all EV EU companies that are in direct competition with and suffering from Chinese technology and EV companies unfairly dominating the EU market, especially considering their human rights violations.

The European Parliament can also play a part by holding a parliamentary hearings with BYD representatives, as well as expert witnesses, on BYD’s connection to human rights violations in Hong Kong, forced labour in Xinjiang, and the overall interests of the Chinese Communist Party.

These proposed actions may also be implemented in corresponding ways on the country-level among member states. At the end of the day, no matter which actions are taken, the EU must form a united front to ensure that BYD does not establish a factory on EU soil. The establishment of a BYD factory would set a dangerous precedent for allowing Chinese EV companies to outstrip the production of EU EV companies from within the EU.

The EU should act swiftly as more Chinese companies and their EVs continue to overtake the EU market, and prioritise the national security and economic well-being of the EU above cheap but risky EVs from BYD.