Carmakers announce big investments in Brazil and a focus on hybrids

Car manufacturers have recently announced investments totalling more than 117 billion Reais ($23.48 billion) in Brazil for the production of cars that use decarbonization technologies, with a focus on hybrid models

Fastmarkets has heard that this is because of the country’s gradually increasing import tariffs and a tax benefit program.

Automotive industry association Anfavea attributed the investment decisions to the “predictability” of the country’s market. The investments, the group added, are part of a supply chain regionalization across the world that has begun to take into account the Brazilian market’s specific characteristics, such as its biofuel capacity.

“We need to study and understand what is happening. China has its peculiarities, and so do the US and Europe,” Anfavea president Márcio de Lima Leite said in a press conference on Thursday March 7.

We need to be a part of the global market, but will work very hard on this regionalization trend
Márcio de Lima Leite, Anfavea president

The association estimated that around 66 billion Reais in capital expenditure has been announced in 2024 alone, although the investment cycle started in 2021 and has now surpassed 117 billion Reais.

Stellantis, Toyota to invest more than $8 billion

Car producers Stellantis and Toyota have announced investments in the past week in Brazil and other South American countries, focused on the development of hybrid vehicles compatible with ethanol biofuel.

Amsterdam-headquartered Stellantis will invest €5.6 billion ($6.13 billion) in South America over 2025-30, and intended to launch 40 new products in the region, it announced on March 6.

The investment will focus on developing decarbonization technologies and the company’s bio-hybrid technology, which combines electrification with hybrid engines powered by biofuels, such as ethanol.

The technology is being developed in Stellantis’ unit in the southeastern Brazilian city of Betim, and should be available by the end of 2024.

In South America’s three main markets – Brazil, Argentina and Chile – Stellantis sold 878,000 vehicles in 2023, giving it a 23.5% market share.

The company did not disclose a breakdown of the investments by country, but it highlighted its interest in countries other than Brazil. For example, it has acquired a 19.9% stake in lithium producer Argentina Litio y Energía, to secure a supply of battery materials.

Meanwhile, on March 5, Toyota announced a plan to invest 11 billion Reais in Brazil by 2030. Of this total, 5 billion Reais will be invested by 2026 to allow the local development of a hybrid vehicle compatible with ethanol.

Investments will also be intended to expand the company’s unit in the southeastern city of Sorocaba, which is currently operating at full capacity.

“Our investments will promote the development of the supply chain of components for electric vehicles [EVs], supporting the decarbonization of mobility in the country and in Latin America,” Evandro Maggio, president of Toyota’s Brazilian branch, said.

According to the Japan-based carmaker, this was the largest and “most important” investment to be made in Brazil since it first started operations in the South American country 66 years ago.

Government incentives

“[The fact that] these announcements [are] happening concurrently is no coincidence,” Anfavea’s Leite said on March 7.

“When the government was exempting new automotive technologies from import tariffs, there was no reason to invest here,” he added. “The US and European markets are weak at the moment, so they would just send their excess production to Brazil. With a gradual increase of tariffs and the [inauguration of the] Mover program, we have a stable framework and predictability.”

On December 30, the Brazilian government announced a plan to grant 19.3 billion Reais in tax benefits to carmakers, intended to incentivize decarbonization and the production of electric vehicles. This so-called Mover program was praised by local carmakers, which expected a recovery in vehicle production and sales in 2024.

Also late last year, the Brazilian government established import quotas for hybrid, plug-in and electric vehicles. Imports that surpass the annual quotas will be subject to tariffs of as much as 35%. This measure followed a request from carmakers which were concerned about an increase in imports of vehicles from China.

In Brazil, the automotive industry accounts for 23.7% of apparent steel consumption, according to national steel association Instituto Aço Brasil. Much of this demand is for high-value products, such as coated and alloy steel.

Fastmarkets’ monthly price assessment for steel hot-dipped galvanized coil, domestic, monthly, exw Brazil, was 5,000-5,500 Reais ($1,004-1,104) per tonne on March 8, down by 4.55% from 5,400-5,600 Reais per tonne on February 9.

Last year, China’s largest EV maker, BYD, unveiled a plan to invest 3 billion Reais to build its first factory outside China in Camaçari, in Brazil’s northeastern Bahia state, to supply the entire region. Later phases of this project should include the processing of lithium-iron phosphate intended for export.

Lithium versus ethanol in Brazil

Brazil’s current outpit of lithium is strongly focused on upstream usages, with spodumene being more abundant, and very little local processing into chemicals such as hydroxide or carbonate. Some market participants believed that this factor, together with the abundant ethanol output in the country, made the electrification of Brazil’s vehicle fleet a distant opportunity.

“Ethanol is currently lithium’s worst enemy in Brazil,” one market participant told Fastmarkets recently.

Fastmarkets’ price assessment for spodumene, min 6% Li2O, spot price, cif China, was $900-1,050 per tonne on March 8. This was unchanged from the preceding Wednesday, when it had jumped by 5.41% from $850-1,000 per tonne assessed on March 1.

Anfavea’s numbers were proof that hybrid vehicles were the preferred choice in the country.

During 2022, new hybrid registrations in the local market came to 31,200 units, compared with 9,600 plug-in hybrids and 8,400 pure EVs. In 2023, the number of hybrids purchased was 42,500 units, while plug-in hybrids reached 32,200 units and pure EVs only 19,300 units.

Keep up to date with the latest news and insights on our dedicated battery materials prices and news page.

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