SHUT out of US markets and under fire in Europe, China’s electric carmakers are zeroing in on the countries where they are welcome. One of the big ones is Brazil.
BYD and Great Wall Motor already dominate electric vehicle (EV) sales in the world’s sixth-largest auto market. Now the two Chinese giants are building factories there too – which will help them sell cars free of tariffs across Latin America, just as President Joe Biden pledges 100 per cent charges in the US.
That may become the blueprint for other industries and regions. China’s powerhouse manufacturers have raised hackles worldwide because cheap exports threaten the livelihoods of local firms and workers. If they want to reach more global consumers – and with price wars raging at home, they do – Beijing’s companies are under pressure to invest, produce and hire in overseas markets instead of just shipping goods there.
Which is exactly what the auto firms are doing in Brazil. BYD hopes to start output by mid-2025 at a new factory that’s on track to be its first outside Asia. Great Wall aims to beat that benchmark by several months – cranking out SUVs near Sao Paulo before the end of this year.
“Chinese brands must invest outside China,” in order to “avoid making protectionism more severe”, said Ricardo Bastos, Great Wall’s institutional relations director in Brazil.
Beijing’s new industrial giants are not welcome in the US. They are viewed with suspicion in Western Europe, though France’s premier told visiting President Xi Jinping last week that his country would welcome a Chinese carmaker. Almost everywhere else, they are forging ahead.
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In South-east Asia, Chinese direct investment almost quadrupled last year, a recent study found. In the auto industry, BYD has a major project in Hungary and Chery Automobile last month announcing production plans in Thailand.
Altogether, Chinese foreign investment along the EV value chain likely set a record above US$30 billion in 2023, according to the Rhodium Group think tank.
In an interview at the company’s Sao Paulo headquarters – furnished with bright red and yellow sofas, and a ping-pong table that’s popular with Chinese workers – Bastos said he sees Brazil as a gateway to the whole region, “from Mexico, Columbia, Argentina to Peru”. Latin America’s car market is worth almost US$130 billion.
Brazil is a major market in itself – and exactly the kind where Chinese producers need to win, according to Yale Zhang, managing director of the Automotive Foresight consultancy in Shanghai. They face “many obvious obstacles that stop them from entering large, developed markets”, he said. “So of course they need to grasp the biggest emerging markets.”
BYD and Great Wall are not yet top-tier players there overall, but their share is rising fast. And in EV sales they have grabbed the leading two spots – impressing even upmarket Brazilian buyers with a mix of low prices and high technology.
Chinese cars were known as “bad and cheap” when they first arrived, says Thiago Luiz Ferraz Pereira, a 38-year-old lawyer in Sao Paulo. “Then came this new wave”. He paid 314,000 reais (S$82,377) six months ago for Great Wall’s Haval H6 compact SUV, picking it over a BMW X3 hybrid model that would have cost about 60 per cent more. “I have a lot more car for a much lower price,” he said.
Still, BYD and Great Wall will not have everything their own way in Brazil. And even under President Luiz Inacio Lula da Silva, a longtime friend of Beijing, there are government-imposed hurdles they will have to jump through.
Stellantis, Toyota and Volkswagen are among global auto giants that have pledged about US$19 billion of investments in Brazil, almost all of it since mid-2023 – vaulting the country above Mexico as the top destination in Latin America.
Most of the cash is going into hybrid cars that have an electric engine and also one that runs on petrol – or ethanol, to take advantage of fuel produced locally from Brazil’s sugar cane crops. EVs are only a smallish slice of the local market right now, but competition is set to intensify, testing the Chinese duo’s ability to keep expanding their share.
All of this is part of Lula’s strategy to re-industrialise Brazil – in a sense, taking a leaf out of China’s book.
There’s been a stark divergence in the economic history of the two countries. Brazil’s auto industry dates back more than a century, to when Ford built a plant there, and it once propelled economic growth. But manufacturing has shrunk rapidly since the 1980s – just when China’s factories were taking off and driving Brazil’s raw materials exports.
A trade unionist who began his career in a city known as Brazil’s Detroit, Lula dreams of an industrial renaissance, and he’s launched a series of plans to rebuild the auto sector and accelerate the green transition.
Lula helped found the Brics group of emerging-market nations along with China, and he’s looking to Beijing to back his dreams. Soon after taking office for the third time at the beginning of 2023, he visited Xi and left with about 50 billion reais in Chinese investment pledges.
Lula is using sticks, as well as carrots like financial support, to pull in investment. He slapped 10 per cent tariffs on EV imports this year, and they will ratchet up to 35 per cent by 2026.
Unlike charges imposed by the US and under consideration in Europe, these ones are not specifically aimed at Chinese carmakers. Still, the policy already led Great Wall to change course and opt for manufacturing the Haval SUV in Brazil – its local bestseller and thus a safer bet – instead of the pickup truck it had previously planned.
What’s more, to export made-in-Brazil cars to other Latin American countries without tariffs, producers need to source about half their components locally. If they cannot meet that criteria, BYD and Great Wall risk losing their price edge.
Both companies plan to start off with what are known in the industry as “knocked down” cars – meaning parts will be imported from China and assembled locally – while speeding up the search for local suppliers.
They acknowledge it will be challenging. There’s a lack of suppliers because the industry in Brazil declined in recent years, said Tyler Li, president of BYD Brazil. Still, he said the company aims to make 60 per cent of components inside the country within five years.
Great Wall’s Bastos said it would help a lot if batteries can be produced in Brazil, and the company “will work to make this happen”.
That’s an example of how the arrival of foreign carmakers can bring knock-on benefits for Brazil – including in employing and training workers, a key priority for Lula.
BYD, whose plant will have an initial capacity of 150,000 cars a year, has committed to creating 5,000 jobs but the actual number will likely be more than double that, according to Li. And that’s just direct employment, not counting gains along the supply chain. BYD is also partnering with a local energy company to build 600 charging stations in eight cities, addressing a shortfall that could limit EV sales.
Great Wall’s operation in Iracemapolis near Sao Paulo will be smaller, with some 50,000 capacity to start with. It’s a conversion of an old Mercedes Benz plant whose taxes once contributed some 40 per cent of the city’s revenue. The new factory will include a research and development centre and could eventually employ 2,000 people, Bastos said.
Bringing in technology and know-how from abroad is how many Chinese industries began their rise to world leadership. Now they are on the other side of the equation – and that brings risks as well as opportunities for Beijing.
China has taken lessons from industrial decline in countries such as Brazil, and government advisors warn against repeating that trajectory. It’s one reason why Xi has made advanced manufacturing a high priority since the pandemic – calling it the country’s “lifeline” and pushing for an economy driven by high-tech products such as EVs.
If those industries are investing and creating jobs abroad, they might be doing less of those things in China, where growth has slowed. What’s more, even though Beijing has backed overseas expansion by Chinese firms, it may worry that they will lose their edge by transferring technology, according to the Rhodium Group analysts.
In the end, as ties with the West sour, foreign investments may be China’s best bet to stay on good economic terms with the rest of the emerging world. That’s where giant consumer markets of the future will be found. But – like Lula’s Brazil – those nations aspire to be producers too.
“Cars are a product that everyone sees every day,” said Zhang, the Shanghai auto consultant. “For any country that has the slightest industrial ambition, to see all the cars running on their streets are 100 per cent brought in from elsewhere – it hurts.” BLOOMBERG
