Thousands of Chinese electric cars clog Brazilian port

(Bloomberg) — Brazilian ports have been clogged this year with more than 70,000 unsold Chinese electric cars, a sign of how difficult it is for Chinese automakers to maintain strong growth.

Companies such as BYD Corp and Great Wall Motor Co have global ambitions, and Brazil has become an important testing ground for many other large economies’ shift toward protectionism. The country is the world’s sixth-largest car market and success there could boost prospects for the entire region.

But Chinese automakers are facing growing challenges after taking Brazil’s emerging electric vehicle industry by storm. The glut of cars at ports stems from their attempts to avoid new tariffs. Domestic competitors have responded with increased power options and investments. The country’s EV growth rate is slowing.

“The honeymoon is now over,” said Alexander Seitz, executive chairman of Volkswagen South America. The company has been selling cars in Brazil since the 1950s and produces some of the country’s best-selling internal combustion engine models.

BYD’s sales are expected to exceed US$100 billion this year, and Brazil is an important part of that. China is the company’s largest overseas market by a long shot as it faces resistance from U.S. and European governments.

Brazil has exempted electric and hybrid vehicles from a 35% import tax over the past decade to boost the industry. This attracted Chinese automakers, who essentially created a market for them in a country of more than 200 million people. Established local manufacturers – all subsidiaries of multinationals such as General Motors Co – have largely ignored electric and hybrid models.

BYD launched its first batch of cars to Brazil in 2021 and accelerated exports last year. At just 115,800 reais ($19,100), the company’s lowest-cost model is cheaper than rival gasoline-powered cars and is quickly gaining market share. Domestic manufacturers have responded by cutting prices on some models by 30%.

Brazilian carmakers lobbied for the reinstatement of import taxes and eventually won support from President Luiz Inacio Lula da Silva, who returned to power in January 2023. A year later, Lula’s government began reinstating the 10% tariff, with plans to gradually increase it to 35% by mid-2026. (The domestic industry is already working to speed up this.)

BYD responded by supplying large quantities of cars to Brazil before the tariffs were implemented. In early November, a company executive said the port had 35,000 vehicles left, equivalent to about four months of inventory. Alexandre Baldy, senior vice president of BYD Brazil, said it was all part of a plan to impose tariffs early to maintain prices and counteract what he called an “outdated” domestic industry.

“We have shaken up the Brazilian car market to the point of instilling so much fear in our competitors,” Baldi said in an interview. “That’s the utter desperation of the game.”

The share of electric powertrains in Brazil’s total car sales nearly doubled to 7% in January, but has remained at that level since then, according to carmakers association Anfavea. As of October, car companies sold about 2 million vehicles, of which about 140,000 were electric vehicles.

Finding new customers willing to buy electric cars is becoming increasingly difficult in a country that is just starting to build charging stations. Brazil is a large country with long distances between population centers, fueling concerns about how far electric vehicles can travel on a single charge.

“We need to expand our infrastructure,” said Ricardo Bastos, Great Wall Motor’s Brazilian government relations director. “Sales are good today, but they have the potential to grow even more if our infrastructure keeps up.”

To speed up adoption, BYD and Great Wall Motors are more aggressive heading into 2025. They both plan to open factories in Brazil.

For BYD, this is expected to happen in March, when its first electric car factory outside Asia starts producing cars. BYD has invested 5.5 billion reais ($1.1 billion) at the site of the former Ford Motor Co. plant, which it expects will be able to produce 300,000 vehicles per year within two years.

BYD also said it would double the number of dealers in the country. They will promote a fleet of about a dozen models. These include what the company says is the first hybrid pickup truck on the market, which debuted in October.

Meanwhile, Great Wall Motors, which expects sales of more than $28 billion this year, is expected to start operations at the former Daimler plant in May as part of a plan to invest 10 billion reais ($1.6 billion) over about a decade. .

Other Chinese companies have recently announced plans to expand into Brazil amid a wave of tough tax barriers in Europe and the United States. Earlier this year, the Biden administration increased tariffs on imported electric vehicles from China from 25% to 100% to protect the U.S. auto industry from what it called unfair trade practices.

Chery Automobile Company’s Omoda and Jaecoo brands plan to launch multiple models in Brazil by 2026. Guangzhou Automobile Group has committed to invest approximately 6 billion reais ($1 billion). NETA, which is affiliated with Hezhong New Energy Vehicle Group, is currently entering this market. Geely Automobile Holdings Ltd.’s Zeekr recently began launching high-end models in China.

“The Chinese are going to try to conquer this country from an automotive perspective, and we have to see how we deal with that,” Seitz said. “At the end of the day, competition is always good and it forces us to rethink things.”

Established players including Volkswagen AG, Toyota Motor Corp and Renault SA have announced investments of more than 100 billion reais ($20 billion) by the end of the decade. Much of the cash is planned to develop hybrids, including flexible solutions that combine electricity with internal combustion engines powered by gasoline and ethanol, a fuel produced locally from Brazil’s sugar cane crop.

Stellantis, which owns traditional brands such as Fiat, Jeep and Peugeot, plans to start selling electric models of Chinese partner Leapmotor in Brazil early next year.

Emanuele Cappellano, chief operating officer of Stellantis in South America, said the Chinese were not “competing on the same terms” before the new tax on imported electric cars.

Like other companies in Brazil’s domestic auto industry, Capellano believes this will help level the playing field.

—With help from Giovanna Serafim.

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