Green wave and Chinese pressure motivate investment in the country

A new investment cycle for automakers is underway. Since the beginning of the year, R$66 billion has been announced to be invested until 2032, according to the National Association of Motor Vehicle Manufacturers (Anfavea). The total released since the end of last year reaches R$86 billion (see details in the topic “Investments that automakers announced for Brazil”, below).

The companies’ priority will be the incorporation of new technologies, especially electrified, hybrid and biofuel-powered vehicles, in addition to the development of new models. “A sunny horizon has opened up for the industry”, highlights the director of tax incentives at PwC, Frederico von Ah.

According to him, Brazil is fully embracing new trends for the automobile industry, which include decarbonization, “greener” vehicles and electrification. It is a new scenario for the segment, which has faced difficult times in recent years, marked by the postponement of investment announcements amid a scenario of inflation and high interest rates.

The companies’ strategy is based on the Mover program, launched by the government at the end of last year with the aim of encouraging the modernization of this industry in the country. “It provides more predictability to companies and reflects the automakers’ optimism for the country”, highlights the president of Anfavea, Márcio Leite.

Mover was created as a provisional measure, and days ago the government sent a bill to Congress to replace it.

Green technologies can boost Brazilian automakers

The leading partner of the automotive sector at KPMG in Brazil, Ricardo Roa, states that the set of investments announced in recent months drives the Brazilian industry towards energy and technological transformation: “It is an attempt to demonstrate that the country can be a protagonist in this scenario”.

One of the milestones of this process is electrification. Another is the use of alternative fuels, such as ethanol and green hydrogen. “A window of opportunity is opening for the country”, highlights Roa.

This occurs at a time when, according to experts consulted by People’s Gazette, there is a tendency towards consolidation of the sector and the concentration of production in a few countries. Further development of more global vehicles is also expected, based on unique platforms.

For Von Ah, Brazil’s biggest opportunities lie precisely in the development of vehicles with green fuels. The country has a strong tradition in the area since the 1970s, with the development of Proálcool and ethanol-powered combustion engines, and, more recently, at the beginning of the 21st century, with the development of the flex engine.

A study carried out by LCA Consultores and MTempo Capital calculates that the country could have gains of approximately R$2.3 trillion by 2050 if a decarbonization route driven by hybrid engines, which combine fuel and electricity, prevails.

On the other hand, according to the same study, a bet on fully electric cars would be harmful to the country and would cause losses of around R$5 trillion in the same period. This is because these vehicles do not add much value to the production cycle, and the country does not have a production chain for manufacturing batteries and equipment intensive in basic inputs and national components.

Pressured by Chinese companies, automakers look to Brazil again

The development of alternative fuel technologies in Brazil has caused the automotive industry to once again turn its eyes to the country. “He returns to be the protagonist”, highlights Roa. Currently, Brazil is the eighth largest vehicle producer in the world.

In addition to the tradition in developing technologies for biofuels, extra help to stimulate the automobile industry in Brazil came from China. Two automakers from there are entering the country with full force, BYD and Great Wall Motors (GWM). “Companies already established in the country ‘shook’ with the announcement of these investments”, says Marcelo Frateschi, EY leader for the automotive sector.

The two companies will occupy facilities left behind by automakers that ended production of passenger vehicles in Brazil: BYD will build its factory on the former Ford site in Camaçari (BA), and GWM will take the place of Mercedes-Benz in Iracemápolis ( SP).

BYD intends to invest R$5.5 billion in the Bahian factory. The goal is to put it into operation at the end of 2024. In the first stage, the company will start with an installed capacity of 150 thousand vehicles. Initially, they will be assembled with kits imported from China and the expectation is that at least 25% of the components will be produced in Brazil. The intention is to employ around 10 thousand people.

By 2026, GWM intends to invest R$4 billion in the country. The money is part of a broader package of R$10 billion, which must be applied until 2032. The application of resources includes the purchase of the Mercedes factory, the creation of a dealership network, the hiring of specialized professionals and the development and testing vehicles aimed at the Brazilian reality.

Installed capacity should not increase

Expansion of installed capacity, for now, has been ruled out. Companies based in Brazil can produce up to 5 million vehicles per year, but much of this potential is still idle: the best performance was recorded in 2019, when 2.94 million units were produced.

Experts point out that, in practice, the new investments will change the profile of production capacity. “The objective is to meet the global demand for new technologies. Latin America is an interesting market for the development of new platforms and, possibly, for other countries”, highlights Frateschi, from EY.

One of the intentions is to take advantage of excess idle capacity to transform the units into export platforms for other countries. Last year, the country sold 403,900 vehicles abroad, according to Anfavea, 16% less than in 2022.

According to Roa, one of the challenges for Brazil will be reaching trade agreements to make exports viable. “It is necessary to promote new fronts beyond Argentina, Colombia and Mexico, with which Brazil already has agreements”, he says.

Another interesting front, in the opinion of the KPMG executive, would be India. “There is room for hybrid vehicles powered by ethanol,” says Roa. The country is the world’s second largest producer of sugar cane, behind only Brazil.

The scenario for a greater volume of Brazilian vehicle exports does not depend exclusively on the implementation of trade agreements, highlight the analysts interviewed by People’s Gazette. Another need is related to logistics. “What will be done when the market heats up again, especially in terms of market supply?” asks Von Ah.

It is a scenario that is starting to gain strength given the drop in interest rates, which could lead to a recovery in the segment. Vehicle production grew 8.9% in the first two months compared to the same period in 2023.

Fleet renewal is affected by macroeconomic issues

Another challenge for the recovery of the Brazilian automobile industry, experts point out, is related to the renewal of the Brazilian vehicle fleet. “Reducing idleness in Brazilian factories also involves measures to encourage fleet renewal”, highlights Roa, from KPMG.

A study released by the National Union of the Automotive Component Industry (Sindipeças) in the first half of last year shows that, at the end of 2022, the average age of the Brazilian fleet was ten years and seven months. It is a situation that has been going on since 2012 and that gained strength in 2019.

Factors of an economic nature are mainly responsible for the situation. Among them are the reduction in purchasing power and the increase in family defaults; increase in the inflation rate during the pandemic and resilience in subsequent years; increase in production costs; increase in fuel prices until mid-2022; and increase in the Selic rate, which only started to fall in August last year.

The investments that automakers announced for Brazil

Check below the investments announced by automakers for Brazil since the end of 2023. The disbursements in the list below total R$86 billion until 2032.

BYD

• How much: R$5.5 billion
• When: not informed
• What: production of hybrid and 100% electric vehicles at the former Ford plant in Camaçari (BA)

Caoa (Chery and Hyundai brands)

• How much: R$4.5 billion
• When: until 2028
• What: increase production of the Chery and Hyundai brands at the Anápolis (GO) factory and in plans for electrification and production of hybrid vehicles

General Motors

• How much: R$7 billion
• When: until 2028
• What: renewal of the product line and modernization of factories

GWM

• How much: R$10 billion
• When: until 2032
• What: production of hybrid vehicles at the former Mercedes Benz unit in Iracemápolis (SP)

Hyundai

• How much: R$5.5 billion
• When: until 2032
• What: development of new technologies for hybrid, electric and green hydrogen cars

Nissan

• How much: R$1.5 billion
• When: until 2025
• What: production of two new sports utility vehicles, one of which is also destined for the foreign market

Renault

• How much: R$2 billion
• When: until 2027
• What: development of a large sports utility vehicle

Stellantis (Fiat, Jeep, Peugeot, Citroën and RAM brands)

• How much: R$30 billion
• When: 2025 to 2030
• What: production of ethanol-powered hybrid cars

Toyota

• How much: R$11 billion
• When: Until 2030
• What: industrial restructuring with the closure of the Indaiatuba (SP) factory and expansion of capacity in Sorocaba (SP) and development of flex hybrid vehicles

Volkswagen

• How much: R$9 billion
• When: until 2029
• What: development of a new platform for the production of hybrid ethanol vehicles