Is Brazil ready for Tesla? And is Tesla ready for Brazil?

. Feb 20, 2020
Tesla assembly plant in Tilburg, The Netherlands. Photo: Nadezda Murmakova/Shutterstock Tesla assembly plant in Tilburg, The Netherlands. Photo: Nadezda Murmakova/Shutterstock

Tesla, the electric vehicle manufacturer founded by entrepreneur Elon Musk, is negotiating with the Brazilian government to build a new plant in Brazil. While negotiations are in their early stages, the truth is that Tesla might need more than tax breaks to gain a footing in the local market. 

After a meeting with U.S. Chargé d’Affaires Bill Popp, Science and Technology Minister Marcos Pontes—alongside congressmen Eduardo Bolsonaro and Daniel Freitas—announced the plan to organize a Brazilian mission to visit the company’s facilities in the U.S.

</p> <p>According to Mr. Freitas&#8217; staff, the visit could happen as early as March and may even include the presence of President Jair Bolsonaro and Economy Minister Paulo Guedes, “strengthening negotiations even further”. </p> <p>Mr. Freitas—the author of a bill that aims to zero industrial taxes on producing or importing electric vehicles—has confirmed the information reported earlier by news website <a href="https://www.nsctotal.com.br/colunistas/loetz/primeira-conversa">NSC Total</a>. Eduardo Bolsonaro also confirmed the news on <a href="https://twitter.com/BolsonaroSP/status/1230494377165967361">his Twitter account</a>. </p> <p>On February 19, representatives of the Science and Technology Ministry told<strong> The Brazilian Report</strong> in an emailed statement that Marcos Pontes had met with Daniel Freitas, who “presented the idea to expand the Brazilian market toward electric vehicles, not only to [Tesla] but to everyone interested in investing in this technology in the country”. </p> <p>The ministry&#8217;s response goes on to say that the company was mentioned as an example of production, job creation and taxes in scale, which would be important to Brazil and neighboring countries. Tesla has yet to reply to a request for comment at the time of publication. </p> <h2>Is the Brazilian market worth it?</h2> <p>Carmaking is a capital-intensive activity, above all when it involves brand new technology. For the sake of comparison, Tesla is currently investing <a href="https://www.dw.com/en/tesla-factory-outside-berlin-to-cost-4-billion/a-51286353">EUR 4 billion</a> on its new Gigafactory near Berlin, the fourth of its kind and the second outside the U.S. While the influx of money would be more than welcome for Brazil, the country&#8217;s actual ability to generate enough demand to be worth a shot is another issue.</p> <p>In an annual report, the National Association of Carmakers (Anfavea) considered the past ten years as a <a href="http://www.anfavea.com.br/anuario2020/anuario.pdf">“lost decade,”</a> with sales ending 2019 at just 2.84 million vehicles—1 million below the 2012 record. Moreover, <a href="http://www.anfavea.com.br/docs/release_fevereiro_2020.pdf">Anfavea says that</a> “without help from headquarters [abroad], many carmakers could have collapsed due to the long recession in the second part of the 2010s.”  According to the data, there was an influx of USD 24.1 billion for investments from overseas to Brazilian branches. <strong> </strong></p> <p>Estimates for 2020 are more optimistic, with an estimated 9.4 percent in overall vehicle sales and 7.3 percent in production. But, for better or for worse, the sector of electric vehicles has its own dynamics. </p> <div class="flourish-embed flourish-chart" data-src="visualisation/1426191"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <h2>A little help </h2> <p>Being new technology, electric vehicles are typically more expensive around the world. In Brazil, for instance, the most popular models range between BRL 135,000 and 205,000, making them luxury items. </p> <p>While technological advances—such as cheaper, more efficient batteries—tend to reduce production costs, the demand for this environmentally friendly mode of transport has traditionally been spurred with subsides. But, <a href="https://www.reuters.com/article/us-tesla-results-subsidies-factbox/factbox-electric-vehicle-subsidies-under-pressure-in-some-tesla-core-markets-idUSKBN1ZS1H9">as Reuters reports</a>, even key markets such as the U.S. and China are planning to phase out subsidies in the coming years. Others, such as the Netherlands, have maintained subsidies but are working to gradually charge equal tax rates for electric and conventional vehicles.    </p> <p>In Brazil—where the carmaking industry <a href="https://brazilian.report/business/2019/03/29/brazil-auto-industry-subsidies/">has always been reliant on government incentives</a>—the current program, entitled Rota 2030, foresees lower manufactured goods tax (IPI) for electric and hybrid vehicles, with rates ranging from 7 percent to 20 percent depending on size and efficiency. They are also exempt from import taxes, which local startups consider <a href="https://brazilian.report/tech/2019/06/29/dream-of-a-brazilian-made-electric-car/">detrimental to domestic carmakers</a>.  </p> <p>For Ricardo Guggisberg, president of the National Association for Electric Vehicles (ABVE), it is difficult to compare Brazil to other countries given its economic situation. While he thinks it is unlikely that Brazil will start its own subsidies policy, the progress achieved with current tax incentives does make the case for introducing more. </p> <p>“The incentives we’ve managed over ten years had results (&#8230;) we consumed 10,000 electric vehicles. Only last year, 11,000 were sold. So there is a demand in the market,” he told <strong>The Brazilian Report</strong>. </p> <p>In his view, tax cuts such as the IPI exemption proposed by Congressman Daniel Freitas would help immensely, but the overall growth of the industry is a combination of the market’s maturity, incentives, and economic growth. He does believe however that the advantages of the product are already making a case for more sustained growth, as he expects sales to double in 2020. </p> <h2>Roadblocks</h2> <p>Tesla (or any electric carmaker willing to set foot in Brazil) has other risks to take into consideration, namely the infrastructure and <a href="https://brazilian.report/newsletters/brazil-daily/2020/02/11/brazilian-industries-complain-qualified-workers-trump-trade/">skills gaps</a>. </p> <p>ABVE estimates that there are only between 200 and 300 public recharging stations in the country. This scarcity, says Mr. Guggisberg, makes consumers wary. However, he believes this kind of infrastructure is set to follow the demand.</p> <p>On the other hand, he thinks that the major challenge will be to find the specialized workforce needed not only to design and build the cars but also to work on their maintenance.</p> <p>“We don’t have [enough skilled workers]. We must invest in academia to train professionals able to assemble these vehicles in Brazil, and also to provide technical assistance for electric vehicles because they have specific standards of safety,” he added.

 
Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, she worked as an Editor for Trading News, the information division from the TradersClub investor community.

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