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Samsung's Hungary Gigafactory, A Sign That The EU EV Market Is About To Get Brutal

Summary

Samsung is building a gigafactory in Hungary in anticipation to what will likely be an increase in EV production by cart companies already producing cars in Central Europe.

Signs of a pivot in EV production in Central Europe may be a signal that major car manufacturers are gearing up for a brutal EV market share battle.

In this battle, Tesla is likely to end up the loser, because of its pure EV business model. Competitors have deeper pockets and continue to profit from ICE sales.

Samsung (OTC:SSNLF) announced it wants to build a gigafactory in Hungary, meant to produce 50,000 full EV batteries per year. I personally do not believe that this will be the only gigafactory to be announced in the Central Europe region in coming years. I fully expected this to be the case, as I pointed out on numerous occasions in my coverage of Tesla. Most Tesla watchers, especially the Tesla bulls assumed for a long time that the EV battle will be won on range, and in the case of Tesla, on luxury and high-tech. But in reality the EV battle, just like any car battle will be won on the quality/price ratio that can be provided to the customer. Preferably, this best quality for the money offer can be offered by the producer at a net profit. That will be the endgame for EVs, but we will not get there for a while. The fact that EV production in Europe shows signs of pivoting towards lower cost Central Europe, may signal that we are gearing up for the beginning of the real competition for the growing EV market, which will involve sacrificing profit for market share.

From this perspective Samsung's decision to build the gigafactory in Hungary makes perfect sense. After all, this battle to provide the best quality for the money cars has led to the Central European region becoming one of the world's main car producing region per capita. Poland, Czech Republic, Slovakia and Hungary collectively produce about 3.5 million cars, with a collective population of about 63 million people. Only Germany beats this region in car production per capita in Europe, but we should keep in mind that even many of the German factories source their parts from the same region. To put the growth of car manufacturing in this region into perspective, back in 2000, these four countries were collectively producing only 1.3 million cars.

To understand the reason why car production is moving into that region, we should consider Daimler's (OTCPK:DDAIF) decision to offer more affordable cars to consumers. Part of its strategy was to maintain some of its luxury, while dropping prices. To do that, it decided to move some production to Hungary in 2008, where it found that it was able to save about $1,500 per car in labor costs. In other words, Daimler can offer $1,500 worth of savings on a car of the same quality, or it can book the savings as profit, either way making its business more successful.

Samsung chose to build its plant in Hungary, not only due to the same considerations as car producers, but also because it correctly anticipates that EV production is set to also pivot to the Central European region, therefore it is seeking to produce close to future customers. I...


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