Brazil is the world’s seventh largest economy and the 8th biggest automotive producer. When it comes to producing new light vehicles, Brazil is the 6th largest producer. This industry comprises 5.5% of the GDP of the country contributing an amount worth BRL 266 bn.
Although Brazil is the world’s 8th biggest automotive producer, production has significantly dropped in the last few years. But data shows that light vehicle production increased by about 120% from 2003 to 2013.
Auto production is concentrated in the south and southeastern part of Brazil. In São Paulo, there are 419 auto parts producers. The top 5 automotive producers for passenger cars include Volkswagen, Fiat, General Motors, Ford, and Renault. Despite the economic crisis, OEMs still continue to invest in the country. In fact, Sao Paulo, Brazil still receives the highest share when it comes to investments.
BNDES Financing New Investment
The major driver for the purchases of buses and trucks in the market is the Brazilian Development Bank (BNDES). This is a state-controlled bank that finances certain sectors in the economy with interest rates below the market interest rates. The automaking industry receives more than 25% of the bank’s total financing share. In 2014 alone, the bank invested disbursed about 5.3 billion Brazilian Real.
Apart from the state-controlled bank providing investment grants, Chinese companies like BYD are also investing in the electric vehicle market which is a huge potential market. In fact, it is expected that by 2020, the electric vehicles will reach 35,000 units. This is a huge opportunity especially since Chinese investors are willing to invest in producing electric vehicles in São Paulo. While the Japanese company, Mitsubishi is working on electric buses, Volvo has been producing hybrid buses here since 2012.
The BNDES is coming up with new financial incentives in financing research and electric buses. The government is finding ways to reduce the tax for owning electric vehicles. There are also efforts from the government to install new charging stations.
Bigger Opportunities in the Automotive Industry
With incentives and programs that are created and implemented by the government to boost investments and to attract more investors in the industry, there are numerous business opportunities. With the higher local production and the local presence of OEMS and Tier 1 suppliers, the automotive industry is expected to keep growing.
Hence, with increased government and financial backing, the market entry of Brazilian automotive industry seems promising. With foreign players already in the local market, processes are already in place for further foreign involvement. The alternative energy driven auto industry like the electric car segment also hold opportunities.