Brazil's delay in electrifying its transport fleet — a process slowed by a short- and medium-term focus on hybrid vehicles — should prolong the use of internal combustion engines and demand for gasoline in the country.
The outlook is aligned with the final text from the UN Cop 28 climate summit in Dubai that mentioned a global reduction — but not a phaseout — of fossil fuels for the first time.
With a mature and structured biofuel market, the country is not likely to move away from alternatives linked to ethanol and biodiesel anytime soon, extending flex options and mixtures with fossil fuels. Brazil's continued reliance on flex fuel vehicles — that can burn either gasoline or ethanol — is also the result of a lack of adequate infrastructure for battery-powered units and the high price of electric vehicles (EVs).
As a consequence, hybrid vehicles, with both a flex motor and battery-charging capability without the need of charging by cord, are seen as an interim solution for reducing greenhouse gas emissions until the market is developed enough to stop using fossil fuels.
Hybrid vehicles took a bigger slice of Brazil's vehicles market in 2023. Flex fuel vehicles' share dipped slightly, but still held more than 80pc. According to estimates from Brazilian carmaker association Anfavea, hybrid sales should rise to 117,900 units in 2024 from 73,600 units this year.
A recent study by consultant Alvarez & Marsal indicates that flex cars could fall to around 50pc of light vehicle registrations in 2030 from almost 99pc, with hybrids gaining around 39pc of market share over the same period.
But to achieve the net zero target by 2050, established at Cop 28, hybrid vehicles and hydrous ethanol might not be enough. Electric cars may be required earlier than expected to meet the goals, said David Wong, an Alvarez & Marsal director specialized in the automotive sector.
"Brazil will go through a hybridization period of the transport vehicle and, later on, by pressure of the automakers and the scale it will have, this battery product will be cheaper than the hybrid engine," Wong said.
Sales of battery-powered EVs will increase to 24,100 in 2024 from 15,200 units in 2023, according to Anfavea. The organization predicts the hike even considering the return of an import tariff in January. The resumption of taxes will be gradual, with different values for each type of EV, and will include exemption quotas, Anfavea president Marcio de Lima Leite said.
An important factor for this forecast is the expected EV domestic supply growth in 2024. Chinese automakers GWM and BYD are scheduled to start operations in Brazil in May and December, respectively. Volkswagen, Fiat and Renault — which already operate in the country — will also launch electrified products in the period, Wong said.
Increased domestic supply should decrease the price of battery-powered electrics, but Wong said there are uncertainties surrounding costs. It will be necessary to observe how the automotive industry will act with the return of import taxes, with or without subsidies, he said.
As for long-distance heavy vehicles, such as trucks, hydrogen remains the most efficient path to transition. "When you throw hydrogen directly into a motor for combustion, there is practically no significant technological change in the equipment," Wong said.
