INSIGHT: Latin America’s nascent EV market increasingly a Chinese affair

SAO PAULO (ICIS)–Latin America’s take-up of electric vehicles (EVs) has started to gain momentum, said the International Energy Agency (IEA) this week, with Chinese producers drawing customers with sharply lower prices than western, established brands.

Globally, electric car sales stood at 14 million in 2023. The IEA predicts this could reach around 17 million in 2024, more than one in five cars sold worldwide.

In the IEA words, these figures are already showing the update in EVs is “shifting from early adopters to the mass market.”

Comparatively, Latin America’s numbers are still very low, however, with EV sales in 2023 at 90,000 units, according to the IEA’s Global EV Outlook 2024, its annual report on the industry.

In Brazil, Latin America’s largest economy with 215 million people, sales stood at 50,000 units in 2023, which tripled 2022 sales but still represented just 3% of the market.

In Mexico, a 130-million-strong country, EV sales in 2023 stood at 15,000, up 80% year on year but still only a market share of just over 1%.

Elon Musk’s Tesla reported on Wednesday that Q1 sales and earnings fell due to increased competition from hybrid models.

Meanwhile, China’s EV market has grown exponentially in just a decade as the state helped to ensure firms could compete in favourable conditions.

The government took the decision to strongly develop its EV sector, with billions of dollars spent in subsidies over the last decade and a half, and now western players are playing catch up.

BRAZIL ETHANOL EXCEPTION
As well as Europe and the US, another key automotive market for EVs was Brazil.

There, however, producers at least had a green fuel to justify their inaction: ethanol, which since the 1970s started to transform Brazil’s transport emissions landscape, although at the time the decision was mostly taken to avoid oil shocks the world had just witnessed.

By the 2010s, when the key Paris Accord and successive upgrades to it were agreed, Brazil had already achieved some of the targets for transport emissions reductions.

The country’s growing role as one of the world’s breadbaskets and ethanol-powered cars are, of course, related.

Transport is going electric, however, and there are some attempts from western established players to start closing Brazil’s gap with the rest of the world – as well as the Chinese producers’ presence.

“Growth in Brazil was underpinned by the entry of Chinese carmakers, such as BYD, Great Wall, and Chery, [whose models] immediately ranked among the best-selling models in 2023. Road transport electrification in Brazil could bring significant climate benefits given the largely low-emissions power mix, as well as reducing local air pollution,” said the IEA.

“Today, biofuels are important alternative fuels available at competitive cost and aligned with the existing refuelling infrastructure. Brazil remains the world’s largest producer of sugar cane, and its agribusiness represents about one-fourth of GDP.”

The Brazilian government approved at the end of 2023 the so-called Green Mobility and Innovation Programme, which provides tax incentives for companies to develop and manufacture low-emissions road transport technology, with nearly Brazilian reais (R) 19.0 billion ($4.0 billion) to be deployed up to 2028.

Several major automotive producers do commercialise hybrid ethanol-electric models, but all-electric models have been more elusive.

In comes China, again. BYD said earlier this year it plans to invest $600 million in a new plant in Brazil, its first outside Asia, aiming to produce 150,000 units per year.

General Motors, long established in Brazil, also said around the same time it was to invest $1.4 billion up to 2028 at its Brazil facilities to implement a “complete renewal” of its vehicle portfolio, focusing on EVs.

Stellantis – the company resulting from the merger of Italian-American conglomerate Fiat Chrysler Automobiles and France’s PSA Group – said recently it would invest €5.6 billion up to 2030 in South America, with most of the funds channelled to its Brazilian operations.

These investments, overall, have given the beleaguered Brazilian automotive sector the impetus to potentially recover part of its old glory. Just a decade ago, Brazil produced well over 3 million cars per year. In 2023, it produced 2.3 million.

But Chinese producers’ strong entry into Brazil’s market – as well as Mexico’s – could have lasting consequences for consumption patterns.

Earlier in April, a source at a chemicals producer in Brazil, for whom the established producers are a key customer, conceded with some apprehension it had just purchased a China-made car.

“Chinese brands are newcomers and as such they are disrupting the market with lower prices. I paid for my electric car around R150,000 [$29,200], but some of the established brands are selling their EV models for well over R200,000,” the source said.

While inaccessible for most Brazilians, where the minimum monthly wage stands at R1412 ($275), those who can afford SUVs are increasingly turning their eyes to Chinese brands.

“They are good cars, and the prices are just so competitive – the choice for me was clear,” the source concluded.

According to automotive publications, the cheapest EV car sold in Brazil, at R120,000, is manufactured by Chery Automobile, a state-owned Chinese manufacturer which is the third largest in its home market.

CHINA MOVES INTO MEXICO
China’s approach to subsidising its EV industry is causing concern, especially in the US, now also in a race to prop up its own EV sector.

Twenty Chinese EV companies have set up operations in Mexico, which is part of the tariff-free North American trade deal USCMA between Mexico, the US, and Canada.

Washington fears Mexico could act as the gate of entry into the USMCA free trade zone after the US imposed hefty tariffs in most EV-related Chinese goods, precisely because of the generous state support they enjoy at home.

Last week, Mexican media reported how the US had put pressure on Mexico to withdraw subsidies or any other Federal or state support for Chinese EV manufacturers; Mexican states are in a race to attract foreign direct investment (FID) in manufacturing, tapping into the nearshoring trend.

Also last week, the Mexican Association of Automotive Distributors (AMDA) showed its concerns about Chinese firms “invading” the country’s automotive sector, according to a report in ABC Noticias.

Since 2020, Chinese-manufactured products and brands have gained traction among Mexican consumers, capturing 8.2% of sales during the first quarter of 2024.

Guillermo Rosales Zarate, AMDA’s president, said this influx had played a pivotal role in the industry’s recovery following the challenges posed by the Covid-19 pandemic, but the polite words stopped there.

AMDA published a report, compiled with official data from Mexico’s statistical office Inegi, which showed the sharp increase in China-made automotive parts and vehicles now present in the market.

“In this first quarter, the sale of products imported from China, manufactured in China and imported into the Mexican market, and sold through the various participating brands, already represents 19.2%,” said Cristina Vázquez Ruiz, coordinator of economic studies at AMDA.

“If we extract Chinese brands from this percentage, this would represent 8.2% [of car sales in Mexico].”

The IEA in its annual report stayed away from this controversy. The IEA is a lobby group which advocates for greener technologies and decarbonisation, as most of its key member countries – and financiers – lack the traditional energy sources of their own: the green transition for most of them is a simply a strategic must do.

“Given its proximity to the US, Mexico’s automotive market is already well integrated with North American partners, and benefits from advantageous trade agreements, large existing manufacturing capacity, and eligibility for subsidies under the IRA [US regulation propping up green investments],” said the IEA.

“As a result, local EV supply chains are developing quickly, with expectations that this will spill over into domestic markets. Tesla, Ford, Stellantis, BMW, GM, Volkswagen (VW), and Audi have all either started manufacturing or announced plans to manufacture EVs in Mexico.”

Elsewhere in Latin America, EVs update has been rather poor. In Colombia, a country of 50 million, sales in 2023 stood at 6,000 units.

In Costa Rica, with a population of five million, sales stood at 5,000 units. The IEA did not have date for other countries in the region.

ELECTRIC BUSES STRONGER
Uptake of electric buses in Latin America, especially in urban areas where much of the investments required come from public or semi-public entities, has been stronger.

City buses are easier to electrify than long-distance coaches thanks to their relatively fixed driving patterns and lower daily travel distances.

Once again, Chinese manufacturers are exporting “large volumes” of electric buses, accounting for over 85% of electric city bus deployments in Latin America, said the IEA.

“Cities across Latin America, such as Bogota and Santiago, have deployed nearly 6,500 electric buses to date. There are also longer-standing programmes, such as the Zero Emission Bus Rapid-deployment Accelerator partnership that was launched in 2019 to accelerate the deployment of zero-emission buses in major Latin American cities,” it added.

“Buenos Aires is targeting a 50% zero emission bus fleet by 2030, and a wider study of 32 Latin American cities expects that 25,000 electric buses will be deployed by 2030, and 55,000 by 2050.”

Globally, almost 50,000 electric buses were sold in 2023, equating to 3% of total bus sales and bringing the global stock to approximately 635,000, concluded the IEA.

Front page picture: EV charging points.
Source: Shutterstock

Insight by Jonathan Lopez