Business Maverick

Business Maverick

Volkswagen investing $1.8bn in Brazil, betting on hybrids

Volkswagen investing $1.8bn in Brazil, betting on hybrids
The Volkswagen Anchieta factory in Sao Bernardo do Campo, Sao Paulo state, Brazil, on Friday, June 30, 2023.

Volkswagen AG said it plans to invest 9 billion reais ($1.8-billion) in Brazil from 2026 to 2028, seeking to electrify its cars in the country with a new hybrid platform and fresh models.

“The new investment project will reach all four of the company’s factories in Brazil: Anchieta, Sao Carlos, Taubaté and Sao Jose dos Pinhais,” Volkswagen do Brasil CEO Ciro Possobom said during a presentation on Thursday. 

The German carmaker, which wants to boost its profits in the region, announced the initiative a week after General Motors disclosed plans to invest 7 billion reais in Brazil through 2028. Stellantis NV is also widely expected to announce its plans for the country by the end of February. New investments by the automotive industry in Latin America’s largest economy come after the government of President Luiz Inacio Lula da Silva published guidelines in December to accelerate the energy transition.

“We are the brand that, after the pandemic, is announcing the biggest investment here in the country,” Possobom said.

The government’s Green Mobility and Innovation programme, dubbed “Mover”, includes fleet sustainability requirements and tax incentives for companies that invest in decarbonisation and the production of new technologies. The programme aims to promote the expansion of investments in energy efficiency, including minimum recycling requirements for vehicle manufacturing and charge less tax to those who pollute less. 

The initiative will offer more than 19 billion reais in tax incentives for companies to invest in decarbonization.

The Brazilian automotive industry is moving to put into practice its decarbonisation and emissions reduction plans in the models produced and sold in Brazil. The initiative is also a response to a new offensive by Chinese brands, such as Great Wall Motor Co. and BYD Co., which have already announced plans to produce electrified models in Brazil starting this year.

Read More: Brazil’s All-Powerful Sugar Industry Sours the Country on EVs

Volkswagen’s new investment comes on top of 7 billion reais committed for the current cycle, from 2022 to 2026. Over the next four years, the German carmaker plans to introduce 16 new products for the Brazilian market. 

Of this total, two new cars will be produced at the Anchieta plant, in São Bernardo do Campo, the company’s oldest plant in the country. Taubate will receive a new vehicle, while Sao Jose dos Pinhais will make a new pickup truck. The Sao Carlos plant will make a new engine, “more technological and efficient,” according to Possobom.

Volkswagen ended 2023 as the second-biggest seller of cars and light commercial vehicles in Brazil, with a 16% stake, according to Fenabrave, the country’s association of auto dealers. Fiat was the market leader with a 22% share. 

“We’re going to bring some imported electric cars, but we’re not going to produce any electric cars yet, and that will be another announcement,” Possobom said.

Unlike other markets, Brazil has been using ethanol to reduce emissions for at least 40 years, and biofuel has emerged as a transitional alternative toward full electrification in the South American country. Instead of massive investments in battery plants for 100% electric cars, companies are seeking to develop hybrid models, where an electric engine will work together with a combustion one, but flex, which can be fuelled with gasoline or ethanol. Toyota Motor Corp. was a pioneer in developing a flex-hybrid solution, selling models with this option since 2020 in Brazil.

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