Brazil grants BYD exemption from EV tariff hike, but not for as long as sought

The Star

3 days ago

Brazil announced a compromise in a dispute between Chinese EV maker BYD and traditional carmakers on Thursday, granting the company a short-term tariff break while moving forward with hikes that will hit it more aggressively in the long run.
The decision was reached in a closed-door session of the Chamber of Foreign Trade (Camex) on Wednesday but not released publicly until Thursday. It follows weeks of heavy lobbying on both sides, with carmakers warning of mass lay-offs and BYD accusing rivals of trying to shut out competition.
Under the measure, BYD will be allowed to import up to US$463 million worth of semi-assembled electric and hybrid vehicles over a six-month period without paying import taxes. This tariff-free window will apply during the first half of 2026, offering short-term relief as BYD ramps up local production.
Separately, the government decided to bring forward a previously scheduled levy increase.
The import tariff for electric and hybrid vehicle kits will now rise to 35 per cent in January 2027, a year and a half earlier than the original July 2028 timeline. Fully assembled vehicles will reach the same 35 per cent rate by July 2026, as previously planned.
BYD had requested a reduced tariff through mid-2026 to ease the ramp-up of its new manufacturing plant in Camaçari, Bahia State.
The company, investing R$5.5 billion (US$978 million) in the facility, argued that temporary relief was necessary as it builds up its local production capacity.
But the proposal triggered an immediate backlash. In a joint letter to President Luiz Inácio Lula da Silva, the National Association of Automotive Vehicle Manufacturers, or Anfavea, warned that the exemption could put R$180 billion in planned investment at risk and eliminate as many as 50,000 jobs.
Signed by officials from Toyota, General Motors, Stellantis and Volkswagen, the letter accused BYD of seeking an unfair advantage and said Brazil risked becoming a low-complexity 'screwdriver economy'.
Six state governors, mostly from Brazil's southern and southeastern industrial heartland, also opposed the measure, urging the government to delay the decision and consult regional leaders.
Thursday's announcement attempts to strike a balance. BYD receives limited short-term relief, while Anfavea gets the accelerated tax schedule it sought.
Anfavea praised the compromise, describing the six-month exemption as 'the upper limit' of what the industry could accept without jeopardising existing and future investment.
'We hope this matter is now definitively closed, with no room for further extensions,' Anfavea President Igor Cavet said.
He also credited the outcome to coordinated pressure from carmakers, labour unions, governors and lawmakers, calling it a demonstration of the sector's strength.
'This is not just about the automotive industry,' he added. 'It's about the kind of industrial future we want for Brazil, one that generates innovation, skilled jobs and a stronger domestic supply chain.'
For its part, BYD remained defiant. In a sharply worded open letter, the company referred to its rivals as 'dinosaurs' that panicked when forced to lower prices and offer better technology.
The company, however, is yet to react to the government's decision.
BYD began assembling its first vehicle in Brazil in July using semi-knocked down kits, in which the car arrives mostly built. The company plans to switch to fully knocked-down kits within 18 months and eventually reach 70 per cent local content by 2028 under an agreement with the Bahia government.
The company is expanding its complex in Camacari, where construction on a second production facility is under way.
Along with a rival Chinese brand GWM, BYD has rapidly captured market share in Brazil's electrified vehicle segment. Together, they account for more than 80 per cent of electric car sales and nearly half of all hybrid sales in the country. - SOUTH CHINA MORNING POST