【Editor's Note】

As one of the co-organizers of the 33rd Gerpisa International Forum on the Global Automotive Industry, Xuanyuan Academy interviewed more than a dozen participating experts, all from countries and regions where Chinese automobile exports are currently popular. On the one hand, through their perspectives, we can understand the development status of China's automobile industry in their respective countries and regions; on the other hand, we also invite these outstanding global automotive experts to offer suggestions on how Chinese automobiles can develop steadily in the local market.

Today's interviewees are Professors Adriana Marotti de Mello and Roberto Marx from the University of São Paulo . Adriana is from School of Economics and Business and Roberto is from Polytechnic School.

Professor Adriana Marotti de Mello is also an Associate Editor of the International Journal of Automotive Technology and Management (IJATM) and coordinator of the Mobliab project at the University of São Paulo. Her research interests include transitions towards a circular economy, especially concerning sustainable urban mobility and circular ecosystems. She is a member of several international networks, including Gerpisa, the Sustainable Transitions Research Network (STRN), and the SSCP/KAN Circular Economy Task Force, and she has been a visiting scholar at Fudan University.

Professor Roberto Marx obtained his Ph.D. in Production Engineering from the University of São Paulo in 1996. He serves as a temporary advisor to FAPESP, CNPQ, and CAPES, and is an Associate Editor for the Strategic, Organization, and Work section of the Gestão Produção journal.

The following is the transcript of their interview (with some deletions).

01 If you had to choose one word to describe the overseas progress of Chinese auto brands or products, what would it be? Why?

I think it would be “fast”, From our perspective in South America, the internationalization process of Chinese autos seems to be progressing very quickly, possibly because our understanding isn’t as deep as it could be. Given the significant investments Chinese companies have been making in R&D for years, the speed of this development has indeed surprised us.

Another fitting term could be “impressive.” The strides taken by the Chinese auto industry in the past decade or so are truly remarkable. Brands like BYD, Chery, Geely, and Great Wall have gained prominence. In fact, I think most electric cars in Brazil are manufactured by BYD, while Chery’s hybrid models are also gaining popularity.

02 In your country, do you think the globalization strategy of Chinese auto companies reflects long-term thinking?

Actually, in Brazil, We have some doubts about this point. Over the past decade, there have been two notable examples where things didn't go as planned. For example, JAC Motors entered into an agreement with the state government of Bahia to establish a manufacturing plant in Brazil, partnering with a local investor under a joint venture arrangement, and received financial backing from the government. However, due to market downturns, the factory plans fell through. This occurred around 2014, and with Brazil facing severe economic and political turmoil in 2015, the company eventually pulled out.

Similarly, Chery inaugurated a plant near São Paulo in 2014 for the production of vehicles and engines. By 2022, they had shuttered the facility but pledged to repurpose it for the manufacture of new energy vehicles. But until now, this initiative has yet to materialize.

Thus, from our standpoint, questions remain about the sincerity of these companies' commitments to investment and local production, and whether they genuinely embody a long-term vision.

But as for electric vehicles, some new factories are being built in Brazil for the production and sale of new energy vehicles. I think its development process may be more stable.

03 What is the image of Chinese auto brands in Brazil?

Speaking specifically about BYD, its reputation is on the rise, although there are still some issues with after-sales. These service-related problems appear to stem from the rapid growth of the brand.

When it comes to quality, significant improvements have been observed. Initially, Chery’s offerings in Brazil did not meet high standards, and their vehicles were not highly regarded. However, newer models, particularly electric ones, have been well-received, thanks to their contemporary designs and infotainment features.

Moreover, Great Wall’s Haval lineup is positioned as a luxury option in Brazil, often competing head-to-head with brands like Volvo, with similar pricing levels.

Nonetheless, apart from BYD, most electric vehicles in Brazil tend to be quite expensive, commanding prices far above those of conventional gasoline or hybrid vehicles.

04 Considering HEVs, PHEVs, and BEVs, what differences do you see in the strategies of  Chinese auto brands in Brazil?

Chinese brands exhibit different focuses in Brazil. For instance, Great Wall Motor emphasizes hybrid SUVs, typically priced higher. BYD, however, provides a range of products including hybrid SUVs and compact electric vehicles.

But the problem is that only in big cities like Sao Paulo and Rio de Janeiro can find sporadic charging stations. I think this is one of the problems we are facing. There are not many places where cars can be charged, and most consumers who buy pure electric cars charge at home.

For example, purchasers of BYD electric cars receive a free home charger installation, facilitating home-based charging solutions for EV owners.

Due to Brazil's extensive territory and long-distance travel requirements, akin to China, hybrid vehicles enjoy greater popularity compared to pure electric ones, largely due to the lack of widespread public charging infrastructure.

05 Recently, labor issues at BYD’s factory in Brazil have drawn attention. How do you think this will impact BYD in terms of labor relations and compliance with local production regulations?

As far as I know, the problem with this incident is that BYD outsourced the construction of its factory in Bahia, Brazil. The form of outsourcing is actually very common in Brazil, but the problem is that the company hired by BYD did not comply with Brazil's regulations on worker safety, salary payment, etc. They were even accused of treating workers as slaves. It is said that the people there work more than 12 hours a day and the housing conditions are also very poor, so there are many problems.

Unfortunately, I don't think this situation is rare. Similar incidents may also be found in other industries, such as a big news we heard two years ago about the employment environment in the winery industry in southern Brazil. Some very traditional winery companies use workers as modern slaves, and we often hear about such incidents in Brazil. This has nothing to do with the automotive industry or Chinese companies. So the incident of BYD factory workers is not unusual, but it is bad for the image, especially for Chinese company.

Of course, in my opinion, this to some extent amplifies the prejudice that some people may have towards Chinese brands, who claim that Chinese brands use forced labor. But it is actually not uncommon for other companies in Brazil, especially in the construction and agriculture sectors, to adopt this subcontracting method.

Regarding the incident, representatives from BYD also introduced to local media how they complied with the regulations, and I think they also have an excellent PR team. Of course, this will slightly affect the image of this Chinese company, but in reality, most people have not really heard of this matter, and I don't think it will have a significant impact on sales data.

06 How should a production management system be restructured to comply with Brazilian labor laws while ensuring efficiency? What are key strategies for establishing positive relationships with unions? What are crucial strategies in negotiating with local unions?

Brazil’s automotive sector is a cornerstone of its economy, accounting for approximately 25% of industrial output and contributing around 5% to the total GDP through direct and indirect employment and corporate activities.

Although there is no domestic auto manufacture in Brazil, the branches of giant global companies such as Volkswagen, Mercedes Benz, General Motors, and Stellantis have strong capabilities in Brazil and have established a complete automotive parts supply chain. Therefore, this is a powerful industrial sector dominated by European, American, and Japanese companies such as Toyota, Honda, General Motors, Stellantis, and Volkswagen. These are the main leading companies that have established an influential organization, the National Association of Automobile Manufacturers of Brazil (ANFAVEA). It represents the interests and voices of the entire industry and maintains a very long-standing close relationship with the government. The government provides them with funds, incentives, and sometimes direct investment, such as offering negative interest loans, to stimulate industrial development and create more job opportunities.

So, ANFAVEA is indeed making great efforts to protect its automotive industry in Brazil, and its influence is significant. What we are seeing now is a game between Chinese companies and ANFAVEA. I am not familiar with Chinese companies, so far they do not belong to this circle. So in my opinion, to enter the Brazilian automotive industry, they must reach an agreement with ANFAVEA in some way to join this circle.

Because so far, I believe that the Brazilian government has a good relationship with Chinese car manufacturers. President Lula visited BYD a few months ago, and previously visited factories in Bahia and Sao Paulo to learn about production.

In terms of trade unions, I think the situation is more complicated because conflicts between businesses and workers are more common in Brazil and other capitalist economies. Our automobile workers' union has always been very strong. For example, the Metalworkers' Union in the ABC region, which helped support Lula's political rise in the area. Do you know that Lula was a union leader of Metalworkers before becoming president? So you can see how important the automotive industry was and still is in Brazil, with the main union leader of this industry becoming the president.

Due to the importance of related enterprises and sales revenue, this has created a very modern relationship between unions, enterprises, and governments. In recent years, the influence of trade unions has gradually weakened, but regardless, it remains a very important industry in Brazil. Therefore, Chinese companies must respect such situations and try to establish connections with companies and unions to some extent, as I believe this will be a key factor for these companies.

Taking Chery as an example, they had conflicts with the labor union when closing this Chery factory in Sao Paulo, so this is to some extent a bad signal.

In fact, the unions in the automotive industry can be said to want the industry to grow and develop, and they are willing to cooperate rather than engage in radical confrontation. So I think this is very important for Chinese companies and needs to be considered more.

07 What roles should Chinese managers and local managers play respectively? How should a management system be constructed?

I have some understanding of BYD because a group of students in my academic lecture interviewed a local BYD company in Brazil. Based on what I learned from them, there are some communication difficulties between the Chinese manager and the Brazilian manager. Even though they all speak English, they do not speak the same 'language' due to significant cultural differences. But I think what my students want to express is that the dialogue is not easy, and they are a bit too focused on authority, but it is also difficult to generalize.

I learned from my students that they can interview BYD's Brazilian manager, but cannot interview BYD's Chinese manager. Especially Brazilian managers are mainly responsible for sales functions because they have a better understanding of how Brazilians buy cars. In terms of financial functions and some more strategic functions, there are more Chinese managers working in these areas. So in most cases, Brazilian managers are mainly concentrated in the sales and operations departments.

But when a newcomer comes to another country, it is a common process and a way to understand the local culture. I think the situation was the same when Japanese companies started producing in Brazil, such as Honda and Hyundai, which also experienced the same difficulties and faced the same challenges in Brazil. How to cultivate local capabilities and effectively communicate with local teams, and combine the two.

And companies like General Motors and Volkswagen have an advantage. They started producing complete vehicles in Brazil in the 1950s, and have been doing so for about 70 years now.

So, over time, they gradually acquired and improved these abilities. I think the Chinese will soon learn how to do this.

08 Beyond localizing sales channels and production, what other areas should Chinese auto makers explore for collaboration in regional markets? What are the key factors involved?

I think it is very important for Chinese companies to truly understand the Brazilian market. For example, the integration of biofuels is one of Brazil's main policies.

Brazil's laws, regulations, and policies are not limited to the development of pure electric vehicles, but only stipulate that cars should reduce emissions. And a very successful way to achieve this is to use biofuels, such as ethanol. That's why we're not too worried about the impact of achieving full electrification in Brazil, because using biofuels will lower our emissions, and we have a complete value chain to produce biofuels and promote them nationwide.

This type of fuel, which is pure ethanol engines were developed by Brazil in the 1970s. In the early 1970s, there was a global shortage of oil and high oil prices, while Brazil relied heavily on imported oil, which was detrimental to the overall economic development. So the Brazilian government invested a lot of funds and energy in researching alternative energy sources. Given that Brazil has a large amount of sugarcane raw materials and has become the largest sugar producing country, ethanol produced based on sugarcane raw materials naturally becomes an alternative energy source to oil. And engines using this fuel basically do not need to make too many adjustments and improvements, compared to gasoline fueled engines.

At the beginning of this century Volkswagen collaborated with Italy's Magneti Marelli to develop the flexible fuel engine – which can either use pure ethanol or gasoline, in any given mix. Currently, the vast majority of cars sold in Brazil uses this technology. Toyota combines hybrid vehicles with this flexible fuel engine, making it very attractive to the Brazilian market.

In Brazil, you will find that ethanol is easily accessible and everyone is using it. You can purchase ethanol at gas stations and mix it with gasoline in your tank, regardless of the ratio. For example, 30% ethanol and 70% gasoline can be mixed freely, which is cheaper. This is a unique situation in Brazil, where this technology is not used in the United States, Europe, Japan, or even in Argentina and Paraguay in South America.

For cars modified with internal combustion engines, in Brazil, if you consider current and future hybrid vehicles, it is a very important issue that hybrid vehicles must be equipped with both flexible fuel engines and electric engines. I think the Chinese should study how to combine the existing technology with ethanol, which is a strategy worthy of attention. And I think it's only a matter of time before Chinese companies have this technology.

09 How can the labels of "outcomer" and "intruder" be mitigated? What suggestions do you have for Chinese auto companies to shape their global image?

I think this will happen naturally over time. If you have a good product and it is locally produced, it will naturally develop.

Korean Hyundai is an example. About twenty years ago, Hyundai cars were equivalent to inferior cars in Brazil and nobody wanted them. Later, they developed an exclusibe model for the Brazilian market, which is a small and compact car with good performance and reasonable price. Subsequently, the market accepted it, which was the result over time.

I think the strategy of Chinese companies is also very interesting because they start selling high-end and expensive cars like Volvo, which is very Chinese and no one defines what it really is. Yes, it really looks like a Swedish Chinese, with a Swedish heart and a Chinese brain, and so on. There are also Great Wall Motors and BYD, which have a high-end technology car image in Brazil. If you have good after-sales service, there will be a warranty. I think the warranty period of BYD cars exceeds 10 years, which is a good guarantee for consumers.

10 How are Chinese auto makers performing in Brazil's aftermarket currently?

I heard from a taxi driver that there is a problem with his headlights, and the cost of replacing them is very, very high. It is very difficult to find a replacement, so we must consider such things. I don't think it's very good at the moment, but there is a trend of improvement. This is a crucial point for people to accept these cars. Not only must the car itself be a good car, but the after-sales service should also be comparable to other more established companies.

Brands like Volkswagen and Toyota, which are locally produced, have a large inventory of parts that can be easily found in the aftermarket when you need them, and the prices are cheap. But sometimes if you have an imported Chinese car and your headlights have problems, you have to import parts. So sometimes it takes several weeks to find a part. Therefore, I believe that strengthening local production is very important.

11 Are you familiar with the ongoing price wars in the Chinese auto market, and do you anticipate this trend spreading to Brazil?

This is good news for consumers, as there are numerous brands and diverse car models available. But the problem that a price war may bring is that manufacturers have meager profits.

In Brazil, the situation is completely different. Because there are fewer locally produced brands in Brazil. At present, there are mainly five or six companies: Volkswagen, Toyota, Honda, General Motors, and Stellantis. This may be due to policy choices made in the 1950s when Brazil's industrialization began, starting with international brands such as Volkswagen partnering with Brazilian companies to establish joint ventures, but gradually these Brazilian companies were sold. Then, relying on multinational corporations became a policy choice, especially in the automotive industry.

Of course, these companies have also attempted to protect the domestic market from the impact of all foreign companies, including other domestic companies. So they made efforts to avoid this situation, but the government did not make any effort or provide incentives to support domestic enterprises. This is the key, perhaps a power struggle. Because these companies have a significant voice globally and exert great influence on the government through organizations such as the National Association of Automobile Manufacturers of Brazil (ANFAVEA).

Unlike China, which has always wanted to build a Chinese car brand, it is difficult to achieve such a dream in Brazil, at least in the automotive field. From a historical perspective, Brazil was once a Portuguese colony. Later, the British came, although not officially, it was also equivalent to colonial rule. Later, the Americans came, and some governments in Brazil's history followed the instructions of the United States. So unfortunately, even today, we are still more or less influenced by this cultural factor.

Regarding the influence of the United States, this is a complex story, and for many managers, entrepreneurs, and corporate leaders in Brazil, from a right-wing perspective, they uphold a liberal economic view. So they are not really considering national sovereignty, but rather thinking about how to obtain more profits.

So far, car prices in Brazil have been very high over the past few decades. So even today, many people in Brazil still don't have cars and have to use public transportation or motorcycles. Those who can afford cars are from higher classes, while the poor and middle to low-income groups can only buy second-hand cars.

Brazilian car companies have higher profit margins than any other place in the world, and there are many studies that can prove this. Because there are only a few traditional brands in Brazil, there is some kind of tacit understanding between these brands. They protect the market, set prices and sell at that price, and there is no real competition between them. They even tend to sell fewer cars, but the sales profit of each car is higher, so there is definitely room to lower the price without compromising the quality.

When the Chinese came here, to some extent, they provoked the price war. For example, although BYD cars are not cheap, they sell electric cars at the price of gasoline cars. For example, BYD's cheapest car is priced similarly to gasoline cars. So, ANFAVEA will demand an increase in tariffs, and the government's increase in tariffs is not only to protect our domestic industries, but also to effectively protect our jobs and industries.

We hope that the arrival of Chinese companies can lower the entire price system, create employment opportunities locally, and carry out production. I think this will be a very interesting forward-looking measure for Brazil and its industry.

This could be a new era for Brazilian industry.

Author / Adriana Marotti de Mello

( School of Economics and Business,

the University of São Paulo),

Roberto MARX（Polytechnic School,

the University of São Paulo)

Article source / Xuanyuanzhixue Wechat Official Account

Interviewer / Meng Wei, Zhang LinyuSmart

Editor / Xuanyuan's Editor