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Igor Patrick

Brazil has ended a temporary tariff exemption that allowed electric and hybrid vehicles assembled using imported parts from China to enter the country at sharply reduced costs, closing a measure that fuelled months of confrontation between the government, Chinese carmaker BYD and Brazil’s established automotive industry.
The exemption expired on January 31 and was not renewed, the South China Morning Post confirmed with multiple sources on Wednesday.
Companies such as BYD and Great Wall Motor will once again have to pay import taxes on vehicle kits brought from abroad for assembly in Brazil, reversing a policy introduced as a short-term incentive for new manufacturers entering the market.
In the semi-knocked down model (SKD), vehicles arrive almost complete and need little local labour, while the completely knocked down system (CKD) brings parts separately for assembly in Brazil but still depends largely on imported components.
Under existing rules, SKD kits face an 18 per cent import tax and CKD kits attract a 16 per cent duty. Both rates have risen to 35 per cent, a shift that sharply increases costs for manufacturers that rely on imported parts rather than full local production.


The tariff break began in August after the government agreed to a request from BYD as the Chinese company prepared to launch large-scale manufacturing in Brazil.
Officials presented the six-month exemption as a temporary bridge that would allow assembly to start while factories and supply chains took shape, arguing that the measure would help to attract investment without altering long-term policy.
The exemption allowed up to US$463 million worth of imported kits to enter Brazil without import duties.
The decision quickly drew criticism from rival carmakers and from the National Association of Automotive Vehicle Manufacturers (Anfavea), which represents brands such as Audi, Honda, Renault, Toyota, Volkswagen, Stellantis and General Motors.
Anfavea argued that the measure rewarded simple assembly rather than full manufacturing and risked shifting production away from Brazil’s domestic supply chain. It also warned that incentives focused on mounting imported kits reduced pressure on companies to invest in local engineering, research and development and skilled labour.
The association circulated studies to government officials projecting that a shift from full production to large-scale kit assembly could eliminate up to 69,000 direct jobs and cause losses of up to 103 billion real (US$19.6 billion) across the automotive supply chain.
Igor Calvet, the association’s president, said: “The problem is to maintain incentives for simple high volume assembly without any requirement to add national value.”
Tensions intensified in July, when the chief executives of Volkswagen, Stellantis, GM and Toyota sent a joint letter to President Luiz Inacio Lula da Silva urging him to block the tariff relief.
The letter warned that the measure distorted competition and penalised companies that already manufactured vehicles entirely in Brazil. The incentive put “this virtuous cycle of strengthening the national industry” at risk and could trigger a serious setback for investment and jobs, it said.


Several state governors also entered the debate, particularly from industrial regions with strong ties to the car sector.
In letters to Vice-President Geraldo Alckmin, who chairs the government’s foreign trade chamber, they warned that replacing local manufacturing with kit assembly threatened regional economies and decades of industrial policy built around localisation.
Anfavea said in a statement sent to SCMP on Wednesday that it “supports policies that encourage investment in complete production processes in Brazil”.
Importing kits for simple assembly in the South American country “does not build a strong industry, does not develop local supply chains and does not generate the same level of jobs in the country”, it added.
BYD could still make a new request to the Chamber of Foreign Trade, the government body responsible for analysing the case, a source familiar with the negotiations told SCMP.
It was not immediately clear if the Chinese carmaker would apply for a new relief and BYD has not responded to a request for a comment.
However, last year, the company rejected the criticism and accused rivals of resisting competition. In public letters, it said that assembling vehicles from imported kits already amounted to production in Brazil and dismissed accusations of dumping.
“Our cars are priced significantly higher in Brazil than in China and we comply fully with Brazilian law,” the company said, adding that temporary tariff differentiation was necessary to support investment during the transition to full local manufacturing.
After weeks of political pressure, the government opted for compromise. In late July, the trade chamber approved a limited six-month exemption, capped at US$463 million, while simultaneously accelerating the schedule for higher import taxes.
The move brought forward the rise to a 35 per cent tariff on electric and hybrid vehicle kits to January 2026 instead of mid-2028, addressing demands from traditional carmakers while giving BYD short-term relief as it expanded local operations.
Anfavea accepted the six-month window as the maximum concession it could tolerate and publicly called for no extensions, while BYD welcomed the temporary relief but continued to criticise established manufacturers and defend its business model.

The six-month period has now ended without renewal. No formal request for an extension was submitted to the trade chamber before the deadline and the issue did not appear on the agenda of its January meeting.
Government officials acknowledged lobbying in favour of BYD, particularly linked to its factory project in the northeastern state of Bahia, but allowed the measure to lapse under sustained industry pressure.
The end of the exemption coincides with a major milestone in BYD’s expansion in Brazil. In October, the company inaugurated its largest electric vehicle factory outside Asia in the city of Camacari, on the site of a former Ford plant that closed in 2021.
Lula attended the ceremony alongside senior officials and business leaders, framing the investment as part of Brazil’s push into cleaner transport and industrial renewal.
The 5.5 billion real complex is the largest electric vehicle plant in Latin America. It begins operations with the capacity to produce 150,000 vehicles a year and plans to double output in a second phase.
BYD expects the project to generate more than 20,000 direct and indirect jobs once fully operational. Initial models include the Song Pro plug-in hybrid SUV, the Dolphin Mini electric car and the King hybrid sedan.
Since entering Brazil’s passenger car market in 2022, BYD has sold more than 170,000 EVs and now controls more than 74 per cent of the country’s electric car segment, according to industry data.
It has also climbed to seventh place in overall car sales, overtaking several long-established brands.


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US, European and Japanese manufacturers combined to lobby for an end to favourable rules for Chinese kit imports


US, European and Japanese manufacturers combined to lobby for an end to favourable rules for Chinese kit imports.


Brazil scraps EV tariff break for Chinese carmaker BYD amid pressure from rivals

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}US, European and Japanese manufacturers combined to lobby for an end to favourable rules for Chinese kit imports

US, European and Japanese manufacturers combined to lobby for an end to favourable rules for Chinese kit imports