Mercedes-Benz expands Hungarian factory in efficiency drive

By Gergely Szakacs

KECSKEMET, Hungary, July 13 (Reuters) - Mercedes-Benz has invested 1 billion euros ($1.14 billion) to double output at its Hungarian plant in Kecskemet, the German carmaker said on Monday, responding to what it called increasingly tough global competition in technology and cost.

The Hungarian factory, which will manufacture the new electric C-class, will be Mercedes-Benz's largest plant in Europe and its second-largest globally following the expansion, giving it flexibility to respond to volatile market conditions.

Hungary's government said the investment would boost annual capacity to 350,000 cars per year, while adding 3,000 new jobs in Kecskemet, where Mercedes-Benz employed nearly 5,200 people at the end of May based on company records.

Under former Hungarian leader Viktor Orban, who lost power in an April election, the car and EV battery sectors became mainstays of Hungary's economic growth and employment, with German premium car brands and Chinese battery makers building gigafactories.

Despite strong wage growth in recent years, Hungarian salaries are still among the lowest in the European Union, making the country an attractive target for low-cost employment.

"By locally producing key components such as batteries, we can respond to the demand even faster and more flexibly," Mercedes-Benz CEO Ola Kallenius said at a ceremony to open the new part of the plant.

"That's what makes Kecskemet a key site for our future," he said.

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Hungarian Prime Minister Peter Magyar, who also attended the event, said his centre-right government aimed to create a predictable business environment for foreign investors in Hungary, which faced frequent law changes and ad hoc taxation to plug budget holes under Orban.

"The government aims at maintaining a stable strategic partnership with Mercedes along with other companies who would like to invest with us in Hungary," Magyar said. "But this is by no means a one-way street."

Magyar said all companies in Hungary should uphold regulations, ensure safe working conditions and pay salaries that give workers what he called a secure livelihood.

Mercedes-Benz board member for production Michael Schiebe said the carmaker would also bring manufacturing of two additional models, the electric GLC and the small G-class, to the Kecskemet site.

"Looking ahead, we are planning flexible production axes (with German facilities)," Schiebe said.

"This will allow us to produce models flexibly across locations, adapting instantly to market demand and external factors, and making our global production network even more resilient."

($1 = 0.8743 euros)

(Reporting by Gergely Szakacs; Editing by Louise Heavens and Susan Fenton)