Today, BYD started construction in phase 1 of its factory in Brazil. The Camacari plant is quite large. Phase 1 alone will involved 26 facilities including production warehouses, test tracks & other structures occupying 1 million sqm! In total, BYD bought 4.6 million sqm of land from local govt. As such, BYD will ideally want to get a lot larger than its phase 1 plan of 150k cars per year.
Eventually, I anticipate Camacari to be BYD’s largest plant outside of China. Why is that? Well, Brazil and rest of South America have many attractive qualities. Most countries in the region are closer to middle income rather than lower income, so larger % of population can afford cars. There are also no local automotive or any other major manufacturing brand/national champions due to Monroe Doctrine. At least that’s what my Mexican tour guide explained to me when I asked him why Mexico does not have domestic automaker. As such, they will open up their market as long as foreign automaker is willing to build cars there. Since BYD is taking over a former Ford plant there, it will be able to hire many workers who have worked in auto industry. South America is also highly attractive to BYD due to wealth of local resources like lithium, iron and copper. Brazil is also one of the more expensive large auto markets due to lack of competition and high taxes. As such, BYD can undercut competition while still make huge profits. This actually applies to other industries. These are the reasons why BYD already invested heavily in Brazil before this year and also why Brazil reached out to BYD for local production.
The Brazilian auto market last year was 2.2 million auto and light commercial vehicles. While that is already a large market, the potential size is even larger. The per capita GDP of Brazil is not far off China. Due to high local auto prices, it’s auto market is 1/11th China’s size despite population being 1/7th China’s size. One can reason that if BYD can build up capacity in Brazil and price entry level models like Seagull, Dolphin, Destroyer 05 and Song plus at 50% more expensive than China (instead of 2x), BYD will be able to significantly expand its market size. In fact, Seagull received 7635 orders in just 4 days despite being priced twice what it cost in China. Imagine the reception if it was 25% cheaper than this. All of this is possible once BYD builds out its sales network, EV charging network, export infrastructure and transportation network to South America. This is not a short term game for BYD. The potential of Brazilian market is enormous over next 5 years. If BYD captures 20% of a 3 million auto market, that would be 600,000 sales per year! Beyond that, rest of South America also suffers from high cost of purchase and lack of competition. BYD will be able to define what NEVs look like and build strong local brand.
But the allure of Brazil and South America goes beyond just the market size. When the project was announced, BYD was announced its intention to processing locally mined Lithium, Iron and phosphate as part of its local production plans. Brazil is world’s second largest iron ore producer as well as a a major phosphate producer. It would make sense to make LFP batteries in Brazil to cut down on transportation costs and supply chain disruptions. One could imagine BYD transporting processed Lithium from its Chilean mine to Brazil to make batteries. Owning its own mining/processing operation as well as other part of battery making supply chain allows BYD to maintain lower battery production cost than competition, since it gets preferential rates on the natural resources.
Beyond that, cooperation between BYD and South American countries won’t just stop at passenger vehicles. By 2022, BYD had already won orders for 1550 electric buses in Colombia. The South American bus and light truck market is pretty large. As BYD expand its commercial vehicle offering, it will also find a potentially large customer in South American countries. There is a reason BYD’s Camacari plans also include production of chassis for buses and trucks. BYD sees huge potential there.
Brazil and other South American countries also have bountiful renewable resources. BYD already has a solar panel factory in Campinas to supply local market. Now, imagine BYD having excessive battery production which can then go into Energy Storage Systems used to balance out solar power generation. Beyond that, it is also building out a large charging network in Brazil with local partner Raizen. Charging stations will need solar panel to help supply electricity and ESS to efficiently handle grid energy supply. All of which will probably be supplied by BYD. If BYD becomes an important part of South America’s energy transition, then it will be involved heavily in all these areas.
Beyond that, BYD can bring new technology to Brazil that no one else is really supplying. Last year, Lula was seeking for Chinese investment in Brazil for semiconductor. That makes sense. Nobody is thinking of Brazil when it comes to semiconductor, but there is a large local market. While BYD semiconductor is not cutting edge, it is very important in new energy industries. Would it be crazy to think BYD might build a power chip fab here in the future? I think that’s logical.
While most people do not think of BYD as an AI company, it really is an AI company. It develops AI to intelligently interact and carry out orders from driver/passengers sitting inside a car. It is developing advanced AI for autonomous driving. As it seeks to improve its smart cockpit technology in South America, would it not invest in Portuguese and Spanish large language models? I think it will have to do that to stand out vs competition. Just imagine customers picking between cars. Would they want smart cars that they can talk to or ICE cars that can’t do any of that? So, these are the technologies that BYD will need to develop for South America to really succeed.
Hi TP Huang, I'm writing about BYD's expansion in Brazil, I was wondering if I might be able to talk to you for the piece? My email is jacobmardell@gmail.com