In at least one global economic ranking, Slovakia consistently occupies first place – car production per capita. The sector accounts for 13% of Slovakia’s GDP, almost 50% of its industrial production, and 46% of the country’s exports, but this reliance is also fraught with risks, particularly in times of growing digitisation and green ambitions.
According to the Automotive Industry Association of the Slovak Republic, the sector employs 177,000 thousand people, with tens of thousands more jobs linked to the sector.
Slovakia is home to manufacturing plants for major companies including Volkswagen (Bratislava), Kia (Žilina), PSA Peugeot Citroën (Trnava), and Jaguar Range Rover (Nitra). In 2019, these manufacturers produced more than a million cars. In a country of 5.5 million people, that amounts to 202 cars per 1,000 inhabitants.
Despite these impressive numbers and the sector’s crucial role in the Slovak economy, there are downsides: the country’s reliance on the sector has left it vulnerable to shocks, and hamstrung the national leaders’ ability to make decisions that would impact these multinational companies or global markets.
The good kind of dependency?
The uptake in digitalisation and the adoption of the European Green Deal has seen the car industry undergo a seismic transformation. The pandemic has added to this, intensifying existing challenges and adding new ones.
According to the 2019 OECD Economic Survey for Slovakia, the country’s development strategy – based on an export-oriented manufacturing industry – has seen diminishing returns since the 2008-2009 financial crisis, spurred by the subsequent slowdown in world trade growth.
The report recommends a slew of changes for the country, including enhanced efforts to share foreign companies’ know-how with local firms, better preparation of the workforce for increased digitalisation and automation, greater economic diversification, and a strengthened role for the services sector.
Projections point to an increase in demand for highly-skilled technical positions, such as overseeing digitalisation and automating processes, and a related decrease in manufacturing jobs. For some time, the industry has been sounding the alarm over the notoriously low numbers of students studying in technical fields in Slovakia.
The pandemic hit the automotive industry at a time when major investments were already earmarked for green transformation. Sales of vehicles fell 32% percent in 2020 in Europe, leading to massive job cuts in automotive regions.
Threats to employment have pushed the Slovak government to introduce, for the first time, the so-called Kurzarbeit scheme, under which workers are often obliged to accept reduced working hours and pay.
Emission targets, electromobility and batteries
Reacting to the emission standards agreed at the EU level, most large producers in Slovakia have announced transition strategies towards sustainable development, says József Berényi, vice-chairman of Trnava Self Governing Region, home to a plant operated by PSA Peugeot Citroën.
“Kia has the ambition to produce one million environmentally-friendly vehicles by 2026. Last year, PSA Peugeot Citroën produced its highest ever number of Peugeot e-208 models, which have zero tailpipe emissions. Volkswagen also communicated its electromobility ambitions,” Berényi told a European Committee of the Regions-organised Green Transformation Summit “Automotive regions – crucial for success!”
“The pandemic brought the market to a halt. Producers cut costs, investments, and are doing the best they can to keep the employees on board. The EU’s ambition of emission reductions now seems much less realistic. The testing of new technologies cannot happen as rapidly as originally planned,” Berényi added.
The European emission targets have pushed carmakers to embrace electromobility. At present, Slovakia lags behind in electric vehicle production, but things will look more optimistic by the mid-2020s according to the Slovak Battery Alliance, a member of the European Battery Alliance.
The organisation aims to put Slovakia on the European map in the development and subsequent production of batteries, to satisfy the expected growth in demand.
The Slovak Ministry of Economy is trying to get several sustainable transport projects into the EU lists of Important Projects of Common European Interest. Slovak firms have tabled five projects in the area of batteries – should a project be included in the list, this makes it eligible for higher state aid.
“Slovakia needs to find a small segment where it can be elite,” the general director of the competitiveness department at the Ministry of Economy, Tomáš Kakula, said at a EURACTIV.sk event on the transformation of the automotive industry.
Obstacles for research
Support for innovation, start-ups and industry clusters, and the transfer of know-how, are crucial, said analyst Monika Martišková from the Central European Labour Studies Institute (CELSI), adding that “this is a first precondition to be able to keep certain functions of the [automotive] sector in Slovakia”.
Whilst Slovakia is far from the top of the European Innovation Scoreboard, coming in at 21 in the rankings, private research and development (R&D) funding has doubled over the last 10 years, largely thanks to the automotive industry. Slovakia still has an uphill battle, however, to achieve the same level of private R&D expenditure as its European partners.
“In Czechia, the private sector invests more than 400 million euro, which is far more than Slovakia, even when you consider the size of the country,” explains Vladimír Baláž from the Prognostic Institute of the Slovak Academy of Sciences. Hungary, for its part, produces far fewer cars than Slovakia but has double the expenditure on R&D.
While the automotive industry accounts for a third of private R&D funding in Slovakia, the country still finds itself in a considerably weaker position than Czechia or Hungary, both of which boast larger development centres.
As a result, Volkswagen chose Mladá Boleslav in Czechia as one of its e-mobility sites, whilst BMW plans to produce electric vehicles in its Hungarian plant in Debrecen.
[Edited by Sean Goulding Carroll]