Brazil raises tax rate or affects Jianghuai Automobile

From September 16 onwards, Brazil’s new taxation policy to increase taxation on the automotive industry will begin to take effect. Imported automobiles or automobile production companies that do not meet the requirements of the Brazilian government to complete the localization rate will be raised by 30%. Affected by this, the price of imported cars in the Brazilian market will increase by 25% to 28%.

For Chinese automobile and component exporters, this will weaken their products’ competitiveness in Brazil. Among the most influential are the Jianghuai Automobiles, which perform well in the Brazilian market.

The Brazilian government stipulates that automakers must comply with the government's three regulations before they can enjoy the industrial product tax preferential policies, that is, maintain the existing tax rate unchanged; otherwise, the tax rate will increase by 30 percentage points. The provisions include: 1. More than 65% of parts used by automobile manufacturers are produced in Brazil and other countries of the Yugoslavia (Argentina, Uruguay and Paraguay); 2. More than 0.5% of turnover will be used for research and development; 3. At least six The production process is completed in Brazil, such as stamping, painting, injection molding, and engine manufacturing.

There are not many independent brands that China exports to Brazil, mainly Jianghuai Automobile, Lifan Automobile and Chery Automobile. Analysts said that raising the automobile product tax this time, compared with China's 250% increase in tariffs on imported vehicles many years ago, is for the same purpose, that is to protect local automobile manufacturers and introduce foreign technology. Because the auto product tax only restricts car imports, it does not restrict the establishment of auto factories in Brazil.

The most affected is Jianghuai Automobile. From January to July this year, Jianghuai exported more than 27,000 cars to Brazil, surpassing the sum of other Chinese brands sold to Brazilian cars in the same period. According to statistics, JAC ranked 14th in sales in Brazil with a market share of 0.92%. In 2010, the company also signed an agreement with Brazil’s SHC Corporation. From 2010 to 2020, it has exported a total of 620,000 vehicles to Brazil. It seems that Jianghuai Automobile is changing its strategy.

Analysts said that the models exported by JAC Automobile to Brazil mainly consist of low-end vehicles, which are low-cost strategies and do not consider the effect of making money. Therefore, even if the tariffs are raised, the company is unlikely to increase the price of the products, which ultimately affects It is car sales. However, on the other hand, the major market for China’s auto companies is the domestic market, and even foreign exports are mostly concentrated in East Asia, Southeast Asia, and Africa. South America is not a large exporter, so the impact on Chinese auto companies is not that great. .

Analysts said that in the long run, countries such as Brazil, Russia, and India are encouraging car manufacturers to build factories and promote the development of local technologies. Therefore, the transfer of the automobile industry is the trend of the times. Building a plant in the world’s fastest growing automobile industry is also beneficial to automakers.

In August, there were rumors that Jianghuai planned to invest US$600 million to build a plant in Brazil in order to increase its market share, and the company stated that the project was in great uncertainty and was still in negotiations. It would announce it when the company deems it appropriate. Analysts said that the company had originally intended to build factories, and the policy of increasing tariffs is bound to promote the company's decision-making.

In addition, analysts said that the automotive industry as a whole is in a cyclical down cycle, although the valuation level is already relatively low, there may be a decline, when the absolute price declines, the entire listed company may also face in this round of decline Loss. In the short term, investment opportunities have not yet arrived. In the long term, if over a period of more than one year, industry leaders such as SAIC and Futian will have a good performance.