China taps Brazil for EV investment

BYD, the world’s largest electric vehicle manufacturer, has announced plans to establish an industrial complex in Brazil’s northeastern state of Bahia, signalling a political win for Brazilian President Luiz Ignacio Lula da Silva’s vision to “reindustrialise Brazil” with support from China. The Shenzhen-headquartered Chinese company intends to invest $600 million, creating over 5,000 jobs and producing electric and hybrid cars, electric buses, and trucks in Camacari, near Bahia’s capital, Salvador. The move marks another milestone in China’s ambitious automotive expansion abroad.

China’s involvement in Brazil’s automobile industry holds significant symbolism, with BYD opting to set up shop in an abandoned Ford factory and Great Wall Motor taking over an old Mercedes-Benz factory. Western car manufacturers like Ford and Mercedes-Benz have departed Brazil in recent years, contributing to the country’s deindustrialisation challenges.

Brazil presents attractive opportunities for Chinese automakers, with almost half of China’s current investments in South America being in Brazil, a middle-income country with a population of 203 million and a growing middle class. The lack of geopolitical tension between Brazil and China, in contrast to other regions, encourages Chinese manufacturers to see Brazil as an export platform for other South American countries.

In return for BYD’s investment, Brazil offers significant concessions, including a 95% value-added tax break until 2032, no car ownership tax for electric vehicles up to 300,000 reals ($62,375), and access to the nearby Aratu Port for importing raw materials and exporting products. Brazil also plans to improve road infrastructure to the port and consider removing property taxes in collaboration with Camacari city hall.

While Brazil’s electric vehicle market is still in its infancy, Chinese automakers believe they can establish themselves early and succeed in the long term. Chinese electric models, with their affordability, are more suitable for middle-income markets like Brazil, where consumers have limited budgets.

However, challenges lie ahead, including improving the country’s infrastructure to support electric vehicles and navigating geopolitical tensions. Experts caution that the rhetoric of China’s role in reindustrialising Brazil may be overstated, as no country has successfully achieved this goal. Despite generous tax breaks, concerns persist about the sustainability of profits for car companies in Brazil over the long term. Nonetheless, the collaboration between Chinese carmakers and the Brazilian government is set to bring new energy to the nation’s automotive industry.