Car makers vie for influence with government over market in Brazil

A dispute over the Brazilian market between the main car manufacturers operating in the country has pitted China’s BYD, with a growing presence in Brazil, against Toyota, General Motors, Volkswagen, and Stellantis.

This week, the car makers represented by Brazil’s National Association of Automobile Manufacturers, active for more than seven decades, published a letter to President Luiz Inácio Lula da Silva in June.

The companies claim that investments and jobs would be at risk if the government accepted a request from the Chinese manufacturer to temporarily reduce the tariff on imports of dismantled electric or hybrid cars.

“Contrary to what they would have you believe, the import of sets of parts will not be a transitional stage towards a new industrialization model, but will represent an operational pattern that will tend to consolidate and prevail, reducing the scope of the national production process,” the text, published on a social network by Volkswagen President Ciro Possobom, reads.

The letter points out that the industry plans to invest BRL 180 billion over the next few years. “This virtuous cycle of strengthening the national industry will be put at risk and will suffer a severe blow if the incentive to import dismantled vehicles to be finished in the country is approved,” the letter goes on to say.

In a statement to Agência Brasil, Chinese manufacturer BYD said that the position of the associated automakers is a reaction against innovation and the move to open up of Brazil’s market.

“It is a kind of emotional blackmail with a corporate veneer, repeated for decades by the barons of industry to protect a business model that has left the Brazilian consumer last in line for modernity. The irony is that while the cards are piling up in Brasília, consumers have already made up their minds,” the company said.

According to BYD, what competitors call unfair practice is nothing but competition. “Now, a Chinese company comes along and speeds up the factory’s operations, lowers the price, and puts electric cars in the garage of the middle class, and the dinosaurs freak out,” it adds.

Chamber of Foreign Trade

The Chamber of Foreign Trade, linked to the Ministry of Development, Industry and Trade, is holding an extraordinary meeting Wednesday (Jul. 30) to discuss the car makers’ demands.

On the one hand, the associated automakers want to bring forward the increase in import tariffs for dismantled electric cars from 2028 to 2026, which could be detrimental to BYD. On the other hand, the Chinese manufacturer is asking for a temporary reduction in the import tax on dismantled vehicles, claiming they need time to nationalize production.

BYD

BYD says that the temporary tax reduction requested by the company is reasonable, as it makes no sense to apply the same level of taxation on imported ready-made vehicles as on vehicles assembled in the country.

“This is nothing new. Other automakers have adopted the same practice before having full local production. The competitors’ annoyance is not about taxes, assembly, or jobs, but rather the loss of a leading role—the fact that a new player has arrived offering more and charging less,” he added.

BYD maintains that the reduction in tariffs would be temporary—only until the company completes work on the factory in Camaçari, Bahia. “In less than a year and a half the first stage of the factory works in Camaçari will be completed. Everything has been planned from the start,” the company stated.

Local manufacturing

Brazil’s vice-President and Minister of Development, Industry, and Trade Geraldo Alckmin explained that the government meeting at the Chamber of Foreign Trade will discuss possible changes to the transition phase ahead of the hike in import tariffs for electric and hybrid cars.

Alckmin said that, in 2023, when Lula took office, the import rate for ready-made vehicles from abroad was 35 percent and zero percent for electric and hybrid vehicles. As a result, the government decided to make a transition to end the exemption gradually, year by year, until it reached the 35-percent tax levied on other imported vehicles.

“Build your factory in Brazil, manufacture in Brazil, because the tax rate will be the same as for combustion cars—which has always been 35 percent according to the World Health Organization,” said the vice-president at a press conference on Monday (28).

The strategy was a success, Alckmin said. “You have countless companies opening factories in Brazil. You have the Chinese GWM, in Indianópolis, São Paulo, which bought the factory that was closed at Mercedes-Benz. There was BYD in Camaçari, which bought the factory that was owned by Ford,” he added.

The minister said that one possibility being studied by the chamber is to extend the import exemption quota to make time for China to nationalize production.

A quota that used to include 50 thousand exempt cars in the first year will drop to 40 thousand in the second, and 30 thousand in the third. “You have an increasing tax and a decreasing quota,” he explained.

The chamber, he said, may decide on a intermediate solution between BYD’s request and that of the automakers.

“On the one hand, it can meet the 35-percent rate by 2026, which is the association’s request. And instead of meeting the request for a tariff reduction, I’m establishing a quota until July 1, 2026. This will be discussed at the Executive Management Committee of the Chamber of Foreign Trade, and then at the chamber itself, which is made up of 10 ministries,” he concluded saying.