Brazil, electric vehicle production and Great Power Competition

The competition in the global electric car (EV) industry has intensified since 2022, with the US and Europe on one side and China on the other. This competition is not just about market dominance but also about the control of supply chains, which is a crucial aspect of the EV industry. The struggle for control of supply chains is on three fronts: control of natural resources such as lithium and its refining, the production of inputs such as batteries, and the assembly and sale to the end consumer. In this context, Latin America, and particularly Brazil, has emerged as a contested terrain. Brazil, as the region's leading economy, has built a supply chain for EV and electric bus (EB) production through Chinese investments from companies such as BYD and Great Wall Motors (GWM) and the support of the Brazilian government. This not only strengthens Brazil's position in the global EV market but also has significant geopolitical implications, as it shifts the balance of power in the global EV industry.

Electromobility policies and productive investments

The Brazilian economy is the largest in Latin America, the most important automotive market in the region, and the sixth largest globally, which underscores the immense potential for electric vehicle consumption. According to Masiero et al. (2017), the construction of this industry in Brazil started in 2006, with the creation of the Electric Vehicles programme through the partnership of the Brazilian and Paraguayan co-owned hydroelectric company Itaipu Binacional with the Swiss KWO and the Italian automaker Fiat, for the research and development of EV models, such as the Palio Weekend Electric. Under the same programme, the country's first 100% electric bus was launched in 2010. Although not yet commercialised, the first manned electric aircraft was also developed in LA in 2015, as well as battery production and recycling. 

The government has been a steadfast supporter of the nascent industry. In 2010, the Brazilian Ministry of Science invested USD 5 million in creating a network of institutes for developing EV-related technologies. In addition, the federal government's Innovation Projects Fund (FINEP) was financed in partnership with Brazilian companies such as Petrobras, disbursing USD 55 million between 2010 and 2014.

Then, in 2015, import tariff exemptions were established for electric and hybrid vehicles, amounting to 35% and 7%, respectively. However, in 2024, Lula Da Silva's government gradually reinstated the tariffs in order to protect domestic production. In the case of electric cars, in January 2024, they went to 10%, in July to 18%, and by 2026, the original tariff of 35% will be reinstated. On the same dates, hybrids were taxed at 15% and 25% and will reach the same value as electric cars in 2026. 

Unlike the measures imposed in 2024 by the US, Canada, Mexico and Europe against China, they make sense in Brazil because its industry is on the rise, with access to a large internal market and another external market, that of Latin America. Moreover, its links are with Asia and not with the West, i.e., with the electricity industry's technological leader, who will seek to invest more in the nation to avoid protectionist measures. 

Finally, in 2024, the government launched the Green Mobility and Innovation (Mover) Programme, which includes extensive fiscal incentives over 4 years. In 2024, support will be USD 681 million and USD 759 million in 2025, with a target of USD 2 billion by 2028. 

Investments by foreign companies

In addition to national and governmental projects, foreign companies have invested in the country, especially Chinese, such as BYD and Great Wall, and to a lesser extent the Dutch company Stellantis, the German companies VW, BMW and Audi, the Japanese Toyota and General Motors. The previous context allows Brazil to move away from the US sphere of influence while approaching China, which has the technology to consolidate the state's industrialisation policy in electromobility.

BYD (the world's largest EV company) has been present in Brazil since 2015, when it signed an agreement with Marco Polo, a Brazilian company, to build an EB plant. That same year, the Chinese company put into operation a factory dedicated to the production of 100% electric buses in Manaus (located on the Amazon River), with an assembly capacity of 1,000 units per year. It also produces the necessary batteries for them. In 2017, in the city of Campinas, it opened a factory to make solar panels. In 2020, it inaugurated a lithium ferrophosphate refining plant also in Manaus. In 2024, it will invest more than USD 600 million in a plant with a capacity for 150,000 electric vehicles annually. Investments already made by BYD could reach more than USD 1.1 billion by the end of 2024, close to the investment projects that other companies expect to complete by 2028. The Asian manufacturer has consolidated a complete supply chain, which will allow it to export its vehicles throughout Latin America. 

In 2021, Chinese-owned Great Wall bought Mercedez Benz's Iracemápolis factory, which had closed in 2020 due to the pandemic, to adapt it to EV production. In 2022, it announced it would invest USD 1.64 billion until 2032. In 2022, Volvo (owned by Geely), meanwhile, launched a USD 284 million investment until 2025.

The development of the Brazilian supply chain places the South American country as a strategic area for securing entry into LA markets. Companies from all over the world are interested in expanding their presence in Brazil. In 2024, Stellantis announced a USD 6 billion investment in Brazil and the rest of South America. There are also investment plans from other companies. Toyota will invest USD 2 billion (MUSD) until 2030. Volkswagen will invest USD 1.8 billion between 2024 and 2028. BMW announced in 2022 its investment plan until 2030, amounting to USD 1.7 billion. Finally, GM will be USD 1.4 billion until 2028. While these projects in progres are to strengthen their productive capacity, BYD has already consolidated its position. 

The China Nexus and EV exports

China is Brazil's main trading partner, accounting for 26.4% of its exports and 23.7% of its imports. South American countries send raw materials and buy manufactured goods, including EVs, crossovers, and hybrids. In 2023, Brazil imported just over 79,000 light cars (less than ten passengers), of which 46,000 came from China (58.76%) (see Table 1), followed by Germany (6.26%) and Slovakia (6.10%), where the dominant companies are VW, Kia and Stellantis. According to IEA data, 52 thousand new EVs were registered in 2023, 33 thousand more than in 2022 (a growth of 181.1%), which shows Brazil's potential to absorb production and its capacity to consolidate the transition towards electromobility. On the demand side, there is capacity for tariff policies starting in 2024 to incentivise the consumption of domestically produced cars. For China, tariffs are not a problem, given that companies like BYD can produce domestically and further incentivise investment in the Amazonian nation. 

On the supply side, Brazil's potential is also clear. In 2023, it exported more than 46,000 units (see Table 2), the main destinations being Argentina (34.96%), Colombia (31.22%) and Chile (8.96%). In addition, almost all of its foreign sales (97.08%) go to Central and South America. Brazil is positioned as an export platform for the LA region. The cases of Colombia and Chile are significant, as they have enacted important measures and laws that ensure the transition towards electromobility and will be a market that can be covered by Brazilian production. Consolidating the non-fossil transport supply chain will allow the region to advance in the change of energy matrix. Although there are European, Japanese, and North American companies, China already leads the region, so that competition will increase. Western companies seek to close the gap, further incentivising their production. Thus, North American companies are losing ground in Latin America, as only GM has announced investments. However, it has had difficulties meeting its production targets and has faced various quality problems with its vehicles. For its part, Tesla has not announced any projects for 2024, while its CEO Elon Musk faces restrictions and bans on the operation of one of his most important companies, such as Twitter. 

Finally, Brazil has built the foundations for the production of EVs, which it will be able to export throughout the Latin American region, thus contributing to the transition towards electric transport and the change of the energy matrix. The implementation of an industrial policy, combining public resources (for research, infrastructure and subsidies) with private investment, explains the recent success of this industry. The Amazonian country is moving away from the US sphere of influence and approaching that of the Red Dragon through technological and industrialisation projects. It is thus becoming the port of entry for electric transport in LA, which comes from China but will be produced domestically.