Hungary Ends the Special Treatment for BYD and CATL’s Factories

For years, Hungary has been one of China’s most important industrial partners in Europe, particularly in electric vehicles and batteries. Under Viktor Orbán, the Hungarian government actively courted Chinese manufacturers and offered major investors a combination of state support, infrastructure and a political environment that was unusually welcoming to Chinese industry.

The results are difficult to miss. BYD is building its first European passenger car factory in Szeged, while CATL is developing one of Europe’s largest battery plants in Debrecen. BYD has also moved its European headquarters and an R&D centre to Budapest, turning Hungary into an important part of the Chinese EV industry’s European expansion. Now the relationship is entering a different phase.

That shift is bigger than a routine change of government. In April 2026, Péter Magyar’s Tisza party won a landslide election, taking 141 of the 199 seats in parliament and ending Orbán’s 16 years in power. Magyar was sworn in as prime minister in May 2026, and his government is now taking a closer look at some investment agreements made under the previous administration and wants tighter environmental and labour oversight around large industrial projects. Electrive reported that the review also affects BYD and CATL, including earlier investment and state-support arrangements. That means some of the biggest Chinese investments in the country are being examined much more closely than they were under Orbán.

BYD’s Szeged factory is entering a different phase

The Szeged plant is one of the most important pieces of BYD’s European strategy. Announced in December 2023, the project is designed to become the company’s first European passenger-car production site, with capacity expected to reach around 200,000 vehicles a year over time. BYD has repeatedly described local production as central to its plans for a deeper presence in Europe. There is a straightforward commercial reason for that. Vehicles produced in Hungary are built inside the European Union, which means they are not subject to the additional duties currently applied to EVs imported from China. Local production can therefore help BYD reduce its exposure to the EU’s trade measures while also shortening the distance between production and its European customers.

Szeged has moved beyond the purely construction phase, with trial production underway since early 2026, but the project is running behind its original timetable. BYD had initially expected series production to begin at the end of 2025. That target slipped, and BYD executive vice president Stella Li told Reuters in June that full vehicle assembly is now expected to start in the fourth quarter of 2026. The political change in Budapest lands right in the middle of that ramp-up. The construction site has also had a difficult year on the safety front. Two workers have died there in 2026: one during loading and crane operations in February, and another after being hit by a lorry in June. Both incidents triggered separate police investigations, and professional safety bodies have since called for stricter inspections given how unusual it is to see two fatal accidents in a matter of months, even on a project of this scale.

One of the most sensitive issues is the use of Chinese workers during construction. According to Nikkei Asia, agreements made under the Orbán government promised state support and allowed for the possibility of employing around 10,000 Chinese workers on the project. China Labor Watch has separately alleged, based on interviews with Chinese workers, that shifts have reached up to 14 hours a day, seven days a week. The politics around the project go beyond labour conditions too: former foreign and trade minister Péter Szijjártó, who negotiated BYD’s original settlement in Hungary under Orbán after 224 rounds of talks, resigned his parliamentary seat to join the company in July 2026 as head of external relations and new business development. Magyar reacted sharply, saying working for BYD was “equivalent to entering the service of the Chinese Communist Party” and that Szijjártó’s move to a company that received Hungarian state subsidies would be seen as corruption elsewhere in Europe. The government now also intends to review the subsidies, approvals and state commitments tied to that original deal.

BYD has also run into trouble over how it handled soil excavated from the construction site. Hungarian police opened an investigation in May into claims that soil contaminated with alkylbenzenes above the legal limit was moved from the Szeged site to nearby farmland, and the government fined the company 10 million forints, roughly €27,000, over the incident. BYD executive vice president Stella Li publicly rejected the allegations as a false claim and said the company had hired lawyers to respond. Follow-up testing between April and June ultimately found no contamination above the legal limit in the surrounding farmland, but the episode still added to the pressure on the company at a time when the new government was looking for reasons to tighten oversight. Bloomberg reported on the police probe as it opened.

CATL has its own problems in Hungary

CATL’s project in Debrecen is even more important from the battery industry’s perspective. The €7.34 billion plant was originally designed for 40 GWh of annual cell capacity, with a long-term target of up to 100 GWh, which would make it one of the largest battery manufacturing projects on the continent, built by a company that now supplies close to 40% of the world’s EV batteries. Module assembly is already running there, but cell production itself has been delayed.

Cell production has run into its own safety problems. In early August, nine employees showed elevated nickel exposure during preparatory work at the plant, and a follow-up inspection found protective equipment was lacking in some areas. Regulators responded by halting work in three parts of the cell-production building until CATL fixes the gaps, while still allowing equipment debugging to continue. The company’s permit situation is mixed: the first production phase received its licence on 25 August, but the application to expand into the plant’s second phase was rejected days earlier over errors in the site-planning documents.

CATL has also been fined 10 million forints (€27,350) for environmental permit breaches, after inspectors found waste was stored without proper hazardous-waste labelling and the building itself lacked adequate security and a compliant operating log. A separate incident in June, where the plant illegally discharged a green-coloured liquid through a sewer line, led authorities to pull CATL’s wastewater pre-treatment permit until the company cleaned up the municipal drainage system. In June, the authorities also revoked the operating licence of Semcorp, a Chinese battery-separator maker whose plant sits next to CATL’s in Debrecen, after finding elevated metal concentrations in the local groundwater.

The clearest sign of the new approach came on 16 August, when Hungary’s Ministry of Transport and Investment announced that so-called “key investment projects” would no longer be exempt from standard environmental, nature-protection and urban-planning rules, a special status that had let large foreign investors, including CATL and BYD, bypass some of the checks other companies face. Under the new rules, a violation can now cost a company its building permit for at least six months.

Prime Minister Magyar went further in early September, announcing that the maximum fine for the most serious pollution violations by large manufacturers will rise to €13 million, or 5 billion forints, alongside a new environmental authority dedicated to monitoring battery manufacturing, recycling and decommissioning. He also outlined a “three strikes” rule: if a large company breaches environmental regulations a third time within five years, the minimum fine will be at least half a percent of its annual net revenue. Magyar illustrated the point with Samsung SDI’s plant in Göd, fined repeatedly in 2022 and 2023 for exceeding emissions limits, saying a half-percent fine there would land around 5 billion forints too, which is a useful reminder that this crackdown isn’t aimed at Chinese companies specifically.

Hungary is not turning against Chinese investment

It would be tempting to describe the latest developments as Hungary turning its back on China, but the story is actually quite simple: Hungary won’t approve any worker’s or environmental standard violations anymore. It’s applying pressure on manufacturers to follow the rule of law, and that’s the game BYD and CATL need to play now, alongside South Korean investors like Samsung SDI who are being held to the same new standard. The country has invested years in building a position as one of Europe’s most important EV and battery manufacturing centres, and it isn’t giving that up. CATL, for its part, isn’t slowing down elsewhere in Europe either: the same summer it was being fined in Debrecen, it also signed a deal with Dutch energy firm Alfen to bring 5 GWh of its sodium-ion grid storage systems to the continent. BYD and CATL, for their part, have committed billions of euros, tens of thousands of jobs are tied to their projects, and a network of suppliers has grown up around them, so both companies have strong reasons to fall in line.

There is also a straightforward European industrial logic behind the strategy. Chinese manufacturers increasingly want to produce inside Europe because local manufacturing can reduce logistics costs, provide greater control over supply chains and, in the case of electric vehicles, avoid the additional duties imposed on Chinese imports. No company will give up on that opportunity over a bit more regulatory scrutiny. The new government has signalled that large investors will still be welcome, but that the rules surrounding them will be enforced more strictly.

FAQ

Why is Hungary increasing pressure on BYD and CATL?
Hungary’s government changed in May 2026, when Péter Magyar’s Tisza party took office after ending Viktor Orbán’s 16 years in power. The new government is reviewing investment, subsidy and labour agreements that the Orbán administration made with Chinese manufacturers, and it removed the special exemption that let large projects like BYD’s and CATL’s bypass standard environmental and planning rules.

What happened with BYD’s factory in Szeged?
BYD’s Szeged plant has been fined 10 million forints after Hungarian police investigated claims that contaminated soil was moved off the construction site, and two workers have died there in separate accidents in 2026. Trial production has been running since early 2026, but full vehicle assembly has slipped to the fourth quarter of 2026, about a year behind BYD’s original plan.

What problems has CATL faced at its Debrecen plant?
CATL has been fined 10 million forints for mishandling hazardous waste, had a wastewater permit pulled after an illegal discharge, and had cell production halted in three areas after nine workers showed elevated nickel exposure. Its application to expand into the plant’s second phase was also rejected over errors in the site-planning documents, even though the first phase received its licence the same week.

What changed in Hungary’s regulations on 16 August 2026?
Hungary’s Ministry of Transport and Investment ended the “key investment project” exemption that had let large foreign investors, including BYD and CATL, skip standard environmental, nature-protection and urban-planning checks. Under the new rules, a violation can cost a company its building permit for at least six months.

Is Hungary turning against Chinese investment?
Not based on what’s happened so far. The government has said large investors remain welcome, and Prime Minister Magyar has applied the same tightened rules and fine structure to non-Chinese companies too, citing South Korea’s Samsung SDI as an example. The change is about enforcing existing standards rather than blocking Chinese manufacturers.

Will BYD and CATL leave Hungary over the new rules?
There’s no indication of that. Both companies have committed billions of euros and tens of thousands of jobs to their Hungarian projects, and local production remains the main way they avoid the EU’s tariffs on Chinese-made EVs and batteries, so both have strong reasons to comply rather than walk away.

Featured Image: BYD