South America’s automotive powerhouse, Brazil paints its own picture.
Recent investments by global automakers confirm that when it comes to competing in South America’s lucrative vehicle market, the road runs through Brazil.
Recent investments by global automakers confirm that when it comes to competing in South America’s lucrative vehicle market, the road runs through Brazil.
With a long history of making cars, trucks, buses and farm equipment, Brazil is South America’s hub for motorized vehicles. In addition to hosting manufacturing plants of the top global OEMs — think Stellantis, Mercedes, Honda, Hyundai, GM, Ford and Volvo — Brazil also boasts an impressive roster of supplier companies represented by its Union of Retail Trade of Vehicle Parts and Accessories.
Last May, Stellantis announced plans to invest $6.1 billion in Brazil between 2025 and 2030, which the automaker described as the “largest investment in the history of the Brazilian and South American automotive industry.” The investment will support the production of flex-hybrid vehicles, meant to give Stellantis a jump on the competition for clean energy autos in South America.
“This announcement solidifies our trust and commitment in the future of the South American automotive industry and is a response to the favorable business environment in Brazil,” Stellantis CEO Carlos Tavares said in a statement. “South America will take a leading role in accelerating the decarbonization of mobility, together with our employees, our supply chain network and our partners.”
Who Needs EVs?
Like Stellantis, other major automakers are investing in Brazil, not to make EVs, which cost too much for the average South American consumer, but rather hybrids, which come at a significantly lower price. In the process, they are leveraging incentives available under the new Green Mobility Innovation program launched by Brazilian President Luiz Inácio Lula da Silva, as well as Brazil’s vast supplies of ethanol, an economical clean energy fuel.
“We say here in Brazil that we are not electric, we are eclectic,” says André Jalonetsky, communications director for Anfavea, the Brazilian automotive industry’s trade association. “If the goal is decarbonization,” Jalonetsky told Site Selection in September, “we don’t need electrification in Brazil.”
In April, Honda announced an $807 million investment in its plant in Itirapina, outside São Paulo, meant to focus on new technologies and the development of a hybrid-flex model for the Brazilian market able to run on ethanol. Similar investments are being made by Volkswagen, GM and Toyota. Anfavea’s Jalonetsky says Brazil has also become a beneficiary of nearshoring within the industry.
“For us,” he says, “it has produced some very positive effects. We are a stable democracy that’s closer to the U.S. than China. And we have a lot of experience and expertise in this.”
Volkswagen’s Woes
Volkswagen’s September 2 announcement of possible plant closures in Germany rattled its home country and sent shockwaves across its borders. Officials of Europe’s largest carmaker cited a projected inability to hit critical cost-cutting targets and a precipitous drop in European auto sales. As explained by CFO Arno Antlitz, who addressed employees at the company’s Wolfsburg headquarters, the threatened retreat “has nothing to do with our products or poor sales performance. The market simply is no longer there.”
Those explanations aside, auto industry analysts were quick to point another worrying trend, namely China’s increasing penetration of the European EV market. Earlier this year, the European Federation for Transport and the Environment reported that made-in-China vehicles — including Teslas — accounted for 19.5% of battery-powered EVs sold in Europe in 2023, likely to soar to over 25% this year as Chinese brands such as BYD ramp up exports of competitively priced, well-performing electric vehicles.
Volkswagen employs about 120,000 workers at 10 plants across Germany. After cancelling a longstanding pledge that would have barred layoffs through 2029, Volkswagen denied a report in September that it was contemplating a reduction in force of up to 30,000 workers. After that, German Economy Minister Robert Habeck said that Berlin is examining ways to support the company in order to avoid massive job cuts.
“VW,” he said, “is of central importance to Germany.”
U.S. to China: Nip It in the Bud
China’s EV sales in U.S. market are meager by comparison to Europe, having accounted for some $368 million in 2023. But the potential for that to change explains the Biden Administration’s 100% tariffs — up from 25% — imposed on imported Chinese EVs.
Announced in May and joined by Canada in August, the U.S. measures took effect in September. They also include a 25% tariff on Chinese batteries, battery components and critical minerals — up from 7.5%.
“What’s occurring in Europe gives us a peek behind the curtain of what could happen here,” says John Voorhorst, vice president of economic growth and innovation at the Ann Arbor-based Center for Automotive Research. “It’s a daunting prospect to see companies like BYD producing high-quality electric vehicles and selling them for a third of what our current EV manufacturers can produce,” Voorhorst told Site Selection in September.
Still, Maybe Not So Bad
The issue has sparked an angry exchange of words, with the U.S. accusing China of unfair trade practices “carefully targeted at strategic sectors,” and China’s foreign minister suggesting that Biden Administration officials “may be losing their minds.” But Voorhorst recommends recalling a similar episode from the past, when in the 1980s the U.S. imposed stiff tariffs and quotas on autos imported from Japan. Forty years later, U.S. roads teem with Japanese cars, while Toyota and Honda continue to invest billions in auto plants spread across the U.S. South and Midwest.
“Over time,” Voorhorst says, “concessions were made on both sides, and I think we came to a reasonable, peaceable accommodation.”
These new tariffs, Voorhorst suggests, could allow for the introduction of Chinese autos at “a proper cadence.” In the long term, he believes, “we can expect to see more Chinese vehicles in the U.S. market. And over time, our Big Three will start to look at opportunities to form alliances or joint ventures with some of these Chinese companies to start to produce those vehicles in our domestic market.”
