Automakers to invest nearly US$8 billion in Brazil by 2026

RIO DE JANEIRO, BRAZIL – Despite unfavorable production and sales figures, far below what would be needed to justify a production capacity of up to 5 million vehicles per year, most Brazil-based automakers do not seem to have lost confidence that this market will one day be much better than it is.

This thesis is confirmed by the cycle of multi-billion investments already announced and yet to be announced in the coming months.

Suppose we add up the active programs announced in 2018. In that case, twelve vehicle manufacturers will arrive at R$49 (US$10.2) billion in investments in Brazil by 2026.

If we estimate the expenditures already made, there is still about R$37 billion (US$7.9 billion) to be deployed over the next five years, including 2022 on the account.

Unlike at the beginning of the last decade, this time, there will be virtually no investment in increasing production capacity – there is already more than enough of that.

Resources will be invested mainly in the development and launch of products that incorporate new, more digitalized, and connected technologies, but above all, in line with the evolution of Brazilian legislation on emissions, energy efficiency, and vehicle safety, which is forcing manufacturers to introduce advanced systems – which is good, but inevitably makes vehicles more expensive.

Resources are also being used to modernize production lines, in many cases by introducing digital, robotic manufacturing processes as part of Industry 4.0.

All the new investments are justified to a reasonable extent not by the non-existent growth of the Brazilian market or exports but by the good results and the return to profits in South America.

It may seem strange that automakers made more money in 2021 with less than half the installed production capacity and a 33% drop in sales compared to 2019, but that is exactly what is happening with the successful strategy of selling less at higher prices.

The return of positive numbers to the South American bottom line was Volkswagen’s justification for the new R$7 billion packages in Brazil and Argentina announced at the end of 2021, which includes the Polo Track project to introduce a new entry-level model that will undoubtedly outsell the Gol and is built on a simplified version of the VW Group’s global MQB platform.

The same goes for the Stellantis Group, which with its Fiat, Jeep, Peugeot, Citroën, and Ram brands, posted an eye-catching operating profit of 882 million euros last year, which not only maintains the current plan of R$16 billion and a dozen launches by 2025 but should also guarantee new investments even before the current package expires.

Seven light vehicle manufacturers (passenger cars and commercial vehicles) have already announced new and ongoing programs totaling R$30 billion to be implemented in the 2022-2026 period. This amount is likely to be increased by several billion in the coming months, with announcements to this effect expected.

Among the new investments, Renault has already approved a new plan for Brazil, but without giving figures, which will replace the short-term program of R$1.1 billion in the last 12 months, starting in the second half of the year.

The automaker said it would introduce a new platform, the CMF-B, in its production line in Paraná and build a new SUV on it.

The arrival of the new platform may also bring investment to the country from partner Nissan, which will be able to produce cars on the same basis in Resende (RJ).

Toyota ended an investment cycle in the country in 2021 that totaled R$6 billion in a decade, with R$1 billion spent only last year for the production of the Corolla Cross SUV in Sorocaba (SP).

Rafael Chang, president of the company in Brazil, has already stated that a new package is currently under consideration and may be announced before 2022.

An investment program already underway that has not yet been publicly announced is that of Hyundai, which is building its first engine plant in Piracicaba (SP) in the same area where it has been producing cars since 2012.

According to the manufacturer, no figures or other information have been announced, as some definitions are still pending with the matrix in Korea. Still, more factual data should be communicated in the middle of this year.

Honda is another manufacturer investing in the country but prefers to keep quiet about the value and direction of the resources, which will be used mainly for the development of the already launched City Hatch and sedan, as well as the new HR-V soon to be launched.

After investing R$1 billion in its second Brazilian plant in Itirapina (SP), completed in 2015 but not operational until 2019 due to the market downturn, Honda has reduced its portfolio in the country, lowering expectations and not announcing any new investments in its automotive business.

The Stellantis Group is expected to add more funds to the current R$16 billion packages in 2019-2025. More money will undoubtedly be needed given the announced intention to launch 16 new Brazilian- and Argentine-made models over the next three years, in addition to 28 new models and seven hybrid and electric vehicles, including imported vehicles, as well as the possibility of producing flex-hybrid vehicles in Brazil, which is under consideration.

At least one investment is already planned for the period after 2026: When it took over the plant in Iracemápolis (SP) acquired from Mercedes-Benz, the Chinese company Great Wall Motors announced its intention to invest R$10 billion in its operations in the country over the next ten years. By 2025, it will be R$4 billion, and by 2032, another R$6 billion.

Since many things can change between now and then, this second part was not included in this survey.

ONE PREMIUM BRAND HAS EXITED, FOUR OTHERS ARE INVESTING

For the four premium brands that started assembling their cars in the country in 2013, the high added value of their products again justified local production, albeit with low volumes.

While Mercedes-Benz closed its plant in Iracemápolis (SP) at the end of 2020 and sold it to China’s Great Wall a year later, competitor BMW announced new investments of R$500 million for the end of 2021 to assemble another model in Araquari (SC) and renew the four already made (X1, X3, X4 and Series 3).

Without giving figures, Audi also announced at the end of 2021 that it would resume assembly of the Q3 in São José dos Pinhais (PR), at the plant of its partner Volkswagen, after more than two years standstill.

The investment is not expected to be high, as the production volume is low, and the vehicles will be assembled with imported parts in an already finished production line.

Even JLR, which had been assembling Land Rover SUVs in Itatiaia (RJ) since 2016 and had reduced local operations to a single model, the Discovery Sport, announced in early 2021 that it would resume assembly of the Evoque at the unit, also without specifying investments.