For national electric cars, government taxes imported goods and reduces competition

The resumption of tax collection on the import of electric cars opens a new chapter in the long history of State incentives for the production of vehicles on Brazilian soil, generally at the expense of barriers to imports.

The taxation, announced by the government of Luiz Inácio Lula da Silva (PT), responds to a request from automakers established in the country. According to official statements, the objective is to “develop the national automotive chain in this sector, accelerate the decarbonization process of the Brazilian fleet and contribute to the country’s neo-industrialization project.”

The understanding is that limiting competition – instead of encouraging it – will boost Brazilian industry. This is what led the country to ban the import of vehicles between 1976 and 1990 and to make it difficult on other occasions – such as from 2012, with Inovar-Auto by the Dilma Rousseff (PT) government, which kept the country far from technological vanguard and was condemned by the World Trade Organization (WTO).

“We must encourage national industry towards all technological routes that promote decarbonization”, said vice-president and Minister of Development, Geraldo Alckmin (PSB).

Behind the vaunted good intentions is the risk that automakers will settle under government protection, as has happened before. The loser is the consumer, who will immediately pay more for electric cars, in exchange for a supposed benefit in the future – the development of a local production chain.

Taxes on imported electric cars had been zero since October 2015 and its continuation was a demand from electric car sellers to develop the market in Brazil. Car manufacturers in the country, on the other hand, maintained that such incentives could harm local production.

The Chamber of Foreign Commerce (Camex), of the Ministry of Development (MDIC), struck the gavel and decided to end the exemption. Taxes will gradually rise depending on the model (“pure” electric vehicles, mild hybrids or plug-in hybrids), reaching 35% in July 2026 – which is the tax charged today on combustion-powered imports.

Currently, electric vehicles are exempt (zero tax) and hybrids collect 4%. The first increase comes into force in January 2024, when the rates rise to 10% and 12%, respectively.

From 2024 to July 2026, part of imports will continue to be made with reduced or zero tax, through decreasing quotas. Between January and July next year, for example, companies will be entitled to import US$130 million in mild hybrids, US$226 million in plug-in hybrids, US$283 million in pure electric vehicles and US$20 million in trucks electrical.

In conversations with journalists, importers admit that they expected the tax to rise at some point – but not so abruptly. The taxation was announced on the 10th, to take effect in less than two months.

Government talks about encouraging production; electrical sector sees insecurity to invest

The objective of taxation, according to the MDIC, is to encourage the local production chain and nationalize production, that is, to attract foreign companies to manufacture electric cars here.

On the one hand, the Brazilian Electric Vehicle Association (Abve) says that the decision responds to the lobby of associations that defend fossil fuels. The group also criticizes that in the medium term the measure casts a shadow of insecurity for companies that intend to make or have already announced investments in the manufacture of electric and hybrid vehicles in Brazil.

“The result will be very bad for investors and the market. It will increase the price of electric and hybrid vehicles in Brazil and will affect the investment decisions of companies that were betting on stable rules to produce electric vehicles in the national territory”, pointed out the president of Abve, Ricardo Bastos.

The executive is also director of government relations at the Chinese GWM. The company purchased a deactivated Mercades-Benz factory and intends to start producing in Brazil next year.

Abve also considered the federal government’s decision untimely: “It was announced before the government itself had defined what the future Brazilian automotive policy will be, since the provisional measure on the new Green Mobility and Innovation-Mover program [que substituirá o atual Rota 2030] It hasn’t even been sent to the National Congress yet.”

On the other hand, the National Association of Motor Vehicle Manufacturers (Anfavea) endorsed the government’s decision and considered it a major advance for the market and competition, to guarantee predictability of investments by new and traditional manufacturers.

For the entity, the exemption period over the last eight years was important, but also sufficient for the introduction of these technologies in Brazil. “The gradual increase in the tax will also allow the import of these vehicles without major impacts in the coming years,” said Anfavea, in a note.

“There needs to be a balance between the speed of electrification and the economic capacity of the Brazilian consumer, so that there is an effective fleet renewal, and not excessive regulatory pressure that pushes customers towards used, more polluting and unsafe models”, said the president of Anfavea, Márcio de Lima Leite.

“That’s why Brazil must take advantage of ethanol and other biofuels to make a smooth transition to electric fuels and with a high level of decarbonization, compared to other countries that do not have these renewable and sustainable fuel alternatives”, added the leader. .

It is noteworthy that automakers established in Brazil also had the benefit of the exemption when importing electric vehicles – and even so they asked for the tax to be returned.

For some market observers, the reason is simple: to make competition more difficult. The “invasion” of Chinese trams in recent times, facilitated by zero tax, forced traditional brands to lower prices for their models and, consequently, profit margins.

For experts, barriers harm consumers

Experts consulted by People’s Gazette They understand that the Brazilian government was protectionist towards automakers installed in the country – limiting competition and hindering consumer access – and left market development aside.

In their opinion, car factories in Brazil have already received many incentives over the last few decades and need to update themselves, instead of putting pressure to stop technologies that are already a reality abroad.

“The return of taxation is bad. Every method of protectionism ends up not developing the national industry”, says Murillo Torelli, professor of Taxation in the Accounting Sciences course at Universidade Presbiteriana Mackenzie.

For him, the measure will delay the electrification of the national market. “Automakers in Brazil have always had a lot of protection from the government. The automotive market is a huge source of revenue for the government, from the production phase to maintenance, such as IPVA”, he says.

For economist Raphael Galante, from Oikonomia Consultoria Automotiva, taxing electrical imports is an entry barrier that does not encourage electrification in the Brazilian market.

“Many countries are riding the wave and in Brazil this will delay for decades what would take ten, 20 years to happen”, he says. “Competition is the best way to evolve. But it is easier, faster and more practical to ‘kill’ the competition than to invest in your own electrification”, he adds.

According to him, after the return of taxation, four Chinese brands that were meeting with dealerships to evaluate selling cars in Brazil hit the brakes. “They stopped the plans and are now reviewing them,” he says.

But the government’s decision also has defenders. Antônio Jorge Martins, coordinator and professor of automotive courses at FGV, believes that the return of the tax favors nationalization, that is, the production of Brazilian electric vehicles by companies that decided to invest in the country.

The expert believes that, as the production of electric vehicles begins here, it is fair that taxes be charged on imported ones. “It’s good to have nationalization gradually, creating competition, which everyone will evolve in the future”, he says.

Like the others, however, Jorge argues that competition is the best way. Abroad, he says, the dispute has been intensifying. Tesla and GWM are gaining ground, while traditional automakers are falling behind because they can’t keep up.

“The factories using these new technologies are increasing the level of competitiveness and affecting these traditional companies. It will hit Brazil at some point”, he says.

Electric cars in Brazil are still in “first gear”

Today Brazil does not produce 100% electrically powered vehicles, only hybrids. All pure electrics are imported from Europe, the United States and Asia, mainly from China.

This reality begins to change with the installation, in Brazil, of two Chinese manufacturers, BYD and GWM. Both already sell electric and hybrid cars in the country and, therefore, have tested the market.

BYD announced an investment of R$3 billion to install three production lines within the same manufacturing complex, in Camaçari, Bahia, where Ford operated until 2021.

According to BYD, the industrial hub in Bahia will be the company’s largest outside of China. “Which is a clear message of how the company believes, bets and invests in the long term in the potential of the Brazilian market, one of the most important in the world”, says the company.

Great Wall Motors (GWM), in turn, purchased the Mercedes-Benz factory in Iracemápolis (SP), which has been deactivated since 2020 and has plans to start producing in 2024.

In the last two months, electrified vehicles represented almost 5% of light vehicle sales in the country, according to Anfavea – in October, exclusively electric vehicles accounted for 1.1% of sales and hybrids, for 3.5%.

Anfavea maintains that, with national production, the share of electric vehicles in the light vehicle market will reach between 12% and 22% in 2030 and, depending on the scenario, 32% to 62% in 2035.

The car electrification process is widely discussed by the market, which anticipates operations and investments. But before a stronger expansion in the number of electric cars traveling across the country, there are very relevant challenges that need to be resolved.

One of them is the price. A more basic electric vehicle costs from R$150,000. There is also a need for local battery production to reduce technology costs and investments in infrastructure, such as power generation, transmission lines and the creation of charging points.

“The popularization of electric vehicles in Brazil is an important step towards sustainability and the reduction of carbon emissions. However, it is essential to find a balance that protects the national market, while at the same time not making the acquisition of these models unfeasible due to increase in prices”, comments Luca Cafici, CEO of InstaCarro.