Car manufacturers compete for influence with Lula

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On the one hand, BYD, the Chinese giant leader in sales of electrified vehicles in Brazil (and in the world) and main beneficiary of the current import quota, has seen its demands supported mainly by Minister Rui Costa, of the Civil House, who considers the Camaçari factory, in Bahia, as a political and economic asset in his state.

On the other hand, traditional car manufacturers, such as Volkswagen, GM, Toyota, Stellantis and Renault, are trying to block the extension of tax advantages for the import of spare parts and electric vehicles. United within the National Association of Automobile Manufacturers (Anfavea), they benefit from the support of the technical sectors of the Ministries of Development, Industry, Trade and Services (Mdic) and Finance, led respectively by Vice President Geraldo Alckmin and Minister Fernando Haddad.

In this core, the dominant opinion is that the renewal of the quota could discourage investments in the industrial and technological development of the country, objective of the Nova Indústria Brasil (NIB) plan, led by the Mdic, even if the energy transition is an important subject for the economic team.

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In January, the limit of approximately 463 million US dollars (FOB value, a measure used in foreign trade that excludes freight and insurance, equivalent to 2.46 billion reais at Friday’s exchange rate) on imports of electric and hybrid vehicles under the SKD regime (an acronym in English which indicates that the car arrives semi-disassembled, with the body already painted and most systems installed) and CKD (when the parts arrive separately and must be welded, painted and assembled locally) expires. BYD, which recently opened its factory in Bahia, benefits from SKD. Car manufacturers that produce in the country are holding their noses.

For the benefit to be renewed, approval is required from the Chamber of Foreign Trade (Camex), an organization made up of representatives from ten ministries. In practice, however, it is the decision of President Lula that prevails, which will determine how the departments will vote within the collegiate body.

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In a recent meeting with BYD representatives, Lula heard the request to extend tax exemption quotas, but avoided giving a direct answer. The president, according to his interlocutors, responded that the Chinese would benefit from the same conditions granted to companies located in Brazil. When contacted, the Palácio do Planalto, the Mdic and the Fazenda did not respond.

In another meeting, this time with representatives of Anfavea and the ABC São Paulo Metalworkers’ Union, the president acted in favor of traditional car manufacturers. After learning that Colombia had not reinstated an automobile trade treaty with Brazil (which included a quota of 50,000 Brazilian vehicles shipped to that country at a reduced rate), which had expired in September, Lula asked Chancellor Mauro Vieira to act.

According to those present at the meeting, Lula told Vieira that Colombian President Gustavo Petro had committed to restoring the agreement during a bilateral meeting they had the previous month, in New York. After revealing that he was interceding for Brazilian automakers, he asked the foreign minister to let the Colombian government know that he would not go to the Community of Latin American and Caribbean States (CELAC) summit in the neighboring country if the problem was not resolved. A few days later, the agreement was renewed, shortly before Lula traveled to Colombia, in the middle of COP 30, for the meeting.

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Traditional car manufacturers, which already face difficulties in exporting, consider the issue of quotas for importing kits for electric cars as an industry priority. Privately, its representatives say the current regime favors companies that are limited to basic assembly, with little job creation in the country, while penalizing those that have invested for decades in local factories, research and suppliers.

In conversations with ministers and technicians of the Lula government, the leaders of the oldest local manufacturers say that, if BYD manages to maintain the exemption regime for semi-knocked down kits for longer, the message sent to the manufacturers’ headquarters will be that it is more worth importing practically finished cars than expanding local production.

For BYD, faced with price blockages in the American market and in the main European countries, Brazil became a decisive market, where it quickly dominated the electric segment. In conversations in Brasilia, its representatives affirm that the tax advantage for the importation of kits is temporary, does not only serve the company and is part of a transition phase aimed at guaranteeing the competitiveness of the segment.

The Chinese company says it is following a similar path to other automakers that have arrived in Brazil in recent decades, starting with the importation of kits and, gradually, localizing the welding, painting and manufacturing of components.

In the agreement signed with the Government of Bahia and the Union, BYD committed to developing a chain of local suppliers and expanding the Camaçari factory to integrate more complex production stages. According to the contract, from July 2026, the Chinese company must increase the local content of its cars and carry out, for example, welding and painting locally.

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Behind the scenes, company executives say that, without quotas, it would make no sense to hire 2,000 additional employees to create a new team and import complete lines of ready-made cars, which would harm the PT’s electoral plans in Bahia, which involve the re-election of the current governor, Jeronimo Rodrigues, and Rui Costa, candidate for the Senate.

BYD has invested in a close relationship with Rui Costa and Lula himself: in addition to taking over the factory abandoned by the American Ford in Camaçari, in 2021 the company sought to play a leading role in government agendas related to the energy transition. For example, he was at COP30, in Belém.

From a market perspective, BYD’s rise helps explain the escalation of the conflict. According to consultancy Kalume, the company recorded 87,500 vehicles registered from January to October this year, 13% more than last year as a whole. Even limited to electrified models, BYD holds around 3.5% of all light commercial car registrations in Brazil and has consolidated a dominant share in the electric vehicle segment.

Opposed to public confrontations, Alckmin signaled internally that the analysis should remain technical. In October, shortly after accompanying Lula at the inauguration of the BYD unit in Camaçari, the MP visited Volkswagen in São Bernardo do Campo (SP). In a speech, he defined the German automaker as “a factory with a capital F.” This sentence was interpreted by the executives present as a criticism of what the Chinese company is still doing and a hint at what the government expects from the country’s auto factories. Recently, Lula and Alckmin honored traditional automakers at the opening of the São Paulo Motor Show, where BYD had a modest presence.

The issue also divides worker representatives. The president of the Camaçari Metalworkers’ Union, Julio Bonfim, defends the renewal of the quota and says that BYD already employs around 1,400 operators and assembles around 350 vehicles per shift. This level is higher than the peak production of the old Ford at the same location.

— The goal is to reach 500 vehicles per team, — he says.

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Moisés Selerges Júnior, president of the ABC Metalworkers’ Union, a region that concentrates combustion vehicle manufacturers, says investments are welcome, provided they generate quality jobs and local supply chains: