Inclusion of combustion engine cars in extension of tax incentives changed scenario in Brazil

01/25/2024

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Shilpan Amin and Santiago Chamorro — Foto: Gesival Nogueira Kebec/Valor

General Motors announced this Wednesday (24) a robust investment program for Brazil, totaling R$7 billion from 2024 to 2028. The amount will be used to renew its entire product line and update plants. However, the plan breakdown disappointed expectations that the automaker could give some indication of the strategy it will adopt to electrification of vehicles produced in Brazil.

GM’s next investment cycle was the most awaited in the sector, as the company is the only one among the most traditional automakers to consider producing 100% electric vehicles and skipping intermediate phases with hybrids, as the other two giants—Volkswagen and Stellantis—have been defending.

However, recent measures announced by the government have shifted the scenario and could cause a possible review of the strategy. The most controversial rule is in the paragraph added at the last minute to the text regarding the extension of tax incentives for automakers operating in the Northeast and Central-West regions. The text was approved by Congress at the end of the year and benefits GM’s rival Stellantis.

The original text extended benefits only to hybrid and electric models, but internal combustion engine vehicles were included at the last minute.

The change impacts investment decision in a company as GM, which will celebrate 100 years in Brazil in 2025, and which has been always dedicated to producing combustion engine cars despite CEO Mary Barra’s declared intention to produce only electric vehicles worldwide from 2035.

The issue regarding tax incentives in Brazil was discussed in a meeting between the automaker’s leaders, President Lula, Vice-President Geraldo Alckmin, and Chief of Staff Rui Costa. In the meeting, GM’s plan to lay off 1,200 employees at the end of 2023 was questioned. By court decision, the cuts were replaced by a voluntary layoff program. The company’s leaders said that was a “specific” need to cut jobs.

GM International President Shilpan Amin, who is in charge of all company operations outside the U.S., came from Detroit especially to announce the investment plan to the Brazilian government.

During his two-day visit, he expected to unveil the investment in an interview after the meeting. However, President Lula was quicker and announced the amount of the company’s investment on social media. “The investment comes at a good time, with the return of the Brazilian economy to growth with programs such as the New PAC and the New Industrial Policy,” Mr. Lula posted on X.

In the automobile industry, all activity is linked to investments. As GM’s last investment cycle (2019-2024) of R$10 billion is about to end, it was time to renew it.

The announcement put an end to rumors about the possible departure of the company, which has one of the largest industrial complexes in the country, with 13,400 workers in three vehicle plants in São Caetano do Sul, São José dos Campos (São Paulo), and Gravataí (Rio Grande do Sul); one stamping parts plant in Mogi da Cruzes (São Paulo); and one engine plant in Joinville (Santa Catarina).

During the interview, the investment announcement was overshadowed by the reporters’ insistence on asking about vehicle electrification plans. Mr. Amin and Santiago Chamorro, GM’s president for South America, answered all questions, but did not clear doubts. They chose to keep the mystery alive.

“Some markets will go electric faster than others,” Mr. Amin said. According to him, the possible production of electric or hybrid vehicles will depend on market developments, consumer interest—which GM intends to capture through research—and “building a bridge” until Brazil is included on the electrification map.

The executive said the meeting with President Lula was “fantastic.” “I believe President Lula’s mindset is aligned with ours,” he said, when commenting on the need to decarbonize transportation.

Mr. Chamorro was even more enigmatic: “Brazil has strong potential for electric vehicles as a source of minerals to make batteries. And consumer demand and curiosity are there. I wouldn’t say yes or no, but there is potential.”

For now, GM will meet the potential demand by importing fully electric vehicles. In addition to Bolt, which is already being offered in the country, the company will bring electric versions of two other cars, Blazer and Equinox.

A large part of the new investments will be allocated to renewing the entire line, in addition to updating production processes, including sustainability solutions.

On February 1, it will be Volkswagen’s turn to announce a new investment cycle. The last program, worth R$7 billion and announced in 2021, will end in 2026.

Investments by automakers are confirmed as the government solves pending issues awaited by the industry. In the last days of 2023, the government presented Mover (the new stage of Rota 2030), a program offering tax breaks in exchange for companies meeting decarbonization targets and investments in research and development.

Furthermore, at the beginning of this month, imported electric vehicles were once again charged with Import Tax, which will gradually increase, signaling that the government seeks to protect the local industry.

*Por Marli Olmos — Brasília

Source: Valor International

https://valorinternational.globo.com/