New government plan gives Brazilian auto industry a 15-year road map

New government plan gives Brazilian auto industry a 15-year road map

At last, after several postponements, Brazilian president Michel Temer announced the Route 2030 Programme for the auto industry which consists of a 15-year plan (uncommon in Brazil) divided into three five-year periods.

The bill still has to be approved by the National Congress in November, after the general election scheduled for October when, in addition to the president of the republic, state governors, senators and federal deputies will be chosen.

However, the plan should have a smooth run through congress after 18 months of discussions in the ministries of industry and finance.

The proposed measures offer the necessary predictability and legal security to encourage both automaker and supplier investment and long-term strategies.

All companies wanting to sell motor vehicles in Brazil, whether locally made/assembled, or imported built-up, must abide by these requirements:

  • Compulsory compliance with the Brazilian Vehicular Ticketing Programme.  Each automaker's corporate average efficiency must improve, with no fiscal incentive, by 11% in each five year period thus reducing fuel consumption and CO2 emissions. There are additional fuel efficiency incentives which, if achieved, will trigger a 1% cut in excise tax (IPI) for specific models.
  • Vehicle safety. All models registered in Brazil must adopt new factory-installed equipment following a timetable to be established and already drafted.

Route 2030 creates stimuli for investment in research and development (R&D) in the country and incentives for new technologies and processes. All automakers may register but must prove their R&D expenditure. Some of this investment will be tax deductible.

Investments deemed strategic may also lead to tax discounts. Such items as gearing up for Industry 4.0 advanced manufacture, connectivity, new propulsion technologies, autonomous driving (and its components), nanotechnology, exclusive research, big data, data and predictive analytics and artificial intelligence, among others, are covered.

The new mandate also encourages supply chain technology development. Companies which import components not made locally will see the current 2% custom duty cut to zero provided they invest in R&D the equivalent of that 2% duty cut through existing funds or partnerships with science and technology institutions, universities or independent technical organisations.

The federal government has also updated excise tax rates for hybrid and electric vehicles. These changes, together with incentives for local R&D, will make these vehicles more attractive to consumers.

Route 2030 has no protectionist bias unlike Inovar-Auto, which applied between 2012 and 2017. That programme offered tax credits (on excise tax) to premium automakers Audi, BMW, Daimler and JLR to set up assembly plants in Brazil.

Now the incentive mechanism will be more transparent and less subject to the country's fiscal issues.

Currently, the Brazil auto industry:

  • operates 65 factories in 10 states and 42 counties
  • Has capacity for 5m vehicles yearly (three shifts)
  • Provides 1.3m direct and indirect jobs
  • Represents 22% of industrial GDP and 4% of country GDP
  • Is the eighth largest world market and ninth biggest producer (in 2017)