*

China's BYD Shenzhen, the world's largest car-carrying

ship,

made its maiden voyage to Brazil

*

Brazil has become a top target for Chinese EV exports,

according

to shipping data

*

Industry groups want Brazil to raise tariffs to protect

its auto

industry

*

Chinese automakers have pledged to build local factories

in

Brazil

By Alessandro Parodi, Victoria Waldersee

June 19 (Reuters) - The world's largest car-carrying

ship - with the equivalent of 20 football fields of vehicles

- completed its maiden journey late last month to dock in

Brazil's Itajai port.

But not everyone is cheering its arrival.

BYD, China's top producer of electric and

plug-in hybrid vehicles, is offering Brazilian car shoppers

relatively low-priced options in a market where the green-car

movement is still in its infancy. Brazilian auto-industry

officials and labor leaders worry that the vast influx of cars

from BYD and other Chinese automakers will set back domestic

auto production and hurt jobs.

BYD has deployed a growing fleet of cargo ships to accelerate

its expansion overseas, with Brazil becoming its top target,

according to Reuters analysis of shipping data and company

statements. The late-May shipment was the fourth of the Chinese

carmaker's ships to dock in Brazil this year, totaling around

22,000 vehicles, according to Reuters calculations.

BYD, the world's top producer of electric and plug-in hybrid

cars, is the largest among several Chinese brands targeting

Brazil for growth. China-built vehicle imports are expected to

grow nearly 40% this year, to about 200,000, according to

Brazil's main auto association. That would account for roughly

8% of total light-vehicle registrations.

Industry and labor groups say China is taking advantage of

Brazil's temporarily low tariff barriers to ramp up its exports

rather than investing to build Brazilian factories and create

jobs. They are lobbying Brazil's government to accelerate by a

year a plan to increase Brazil's tariff on all EV imports to 35%

from 10%, rather than gradually phasing in higher levies.

"Countries around the world started closing their doors to

the Chinese, but Brazil didn't," said Aroaldo da Silva, a

Mercedes-Benz production worker and president of IndustriALL

Brasil, a confederation of unions across six industrial sectors.

"China made use of that."

BYD did not respond to a request for comment on the

industry's concerns.

SURPLUS CARS

Brazil has emerged as a flashpoint in the China auto

industry's torrid global expansion. A growing surplus of new

cars being pumped out of Chinese factories has led to an export

boom over the past five years, helping China pass Japan in 2023

to become the world's top vehicle exporter. Much of this excess

is being shipped overseas, to markets like Europe, Southeast

Asia and Latin America.

Brazil offers an enticing destination due to its large

market - it is the sixth-largest car market by volume - where

established players including Volkswagen, General

Motors ( GM ) and Jeep-maker Stellantis ( STLA ) have been

building cars domestically for decades. The Brazilian government

has set policies aimed at growing sales of electric and plug-in

hybrid cars, BYD's specialty.

Meanwhile, BYD's path for growth elsewhere has narrowed, both

domestically and overseas. At home, the company is mired in a

bruising price war that has seen it slash the price of its

entry-level Seagull to below $10,000, squeezing profit margins.

Abroad, governments have erected stiff trade barriers for

Chinese cars, including a 45.3% duty in Europe and a tariff of

more than 100% in the United States, along with a ban on Chinese

software in cars.

For years, Brazilian officials have taken steps to protect

the market from unfettered access by Chinese car companies. But

it has been slower to react and less aggressive than other

nations.

In 2015, Brazil eliminated tariffs on manufacturers like BYD

to spur electric vehicle adoption, but last year it reintroduced

a 10% tariff on electric cars to encourage investment in the

domestic auto industry. The tariff is scheduled to increase

every six months before hitting 35% in 2026.

Brazil's Ministry of Development, Industry & Foreign Trade

told Reuters that a request by Brazil's auto association,

ANFAVEA, and others to pull forward the higher tariff was under

review.

"The schedule for the gradual resumption of tariffs, with

decreasing quotas, was established to allow companies to

continue with their development plans and respect the maturity

of manufacturing in the country," a ministry spokesperson added.

BYD and other Chinese companies also are taking advantage of

a policy in Brazil that allows them to import toll-free up to

$169 million for plug-in hybrids imported by July 2025 and $226

million for battery-electric cars. That incentivizes front

loading of vehicle shipments to fully benefit from the toll-free

quotas before they expire, analysts said.

'EXCESS OF IMPORTS'

BYD's export strategy hinges on the carmaker being able to

continue growing shipments without triggering resistance from

local authorities. But industry representatives in Brazil have

grown increasingly worried that BYD's plans to begin domestic

vehicle production are being pushed off.

In 2023, government officials cheered BYD's plan to purchase a

former Ford plant in the state of Bahia, viewing it as a way to

create manufacturing jobs and spur the country's green

transition. But an investigation into labor abuses on the

construction site pushed back its timeline for "fully

functional" production to December 2026, local officials said in

May.

Another Chinese automaker, GWM, also delayed by

more than a year its plan to start making cars at a former

Mercedes-Benz plant. The Brazilian government expects

the plant to begin operating this year.

"We support the arrival of new brands in Brazil to produce,

promote the components sector, create jobs and bring new

technologies," Igor Calvet, president of ANFAVEA, told Reuters.

"But from the moment that an excess of imports causes lower

investment in production in Brazil, that worries us."

Da Silva of IndustriALL said his confederation of unions had

not heard of any local supplier relationships being developed or

contracts being signed for the BYD plant, as would normally be

expected 18 months from the start of production.

"Even if the factory is here - what value is it really

adding if the components, development, and technology is all

from abroad?" da Silva said.

BYD did not respond to a request for comment on its supplier

network.

President Lula da Silva's left-wing Workers Party government is

scrambling to protect jobs and the environment as it aims to

both revive Brazil's industrial economy and restore its green

credentials ahead of hosting the COP30 global climate summit

this November.

Still, the country's nascent green-car movement leans on Chinese

imports, which account for more than 80% of Brazil's

electric-car sales, according to Brazil's EV association, ABVE.

The country has abundant mineral resources including lithium

and other key ingredients to make EV batteries. But the

infrastructure to produce all the necessary components for

electric cars does not exist yet, said Ricardo Bastos, director

of government relations at GWM Brazil and president of ABVE.

GWM, which bought a factory in Brazil in 2021 with capacity

for 50,000 cars a year and is due to start producing its Haval

H6 SUV there this July, is in talks with around 100 Brazil-based

suppliers on setting up contracts, Bastos told Reuters.

"This year, imported cars will coexist alongside cars

produced in Brazil," Bastos said.