Brazil grants BYD exemption from EV tariff hike, but not for as long as sought

Brazil announced a compromise in a dispute between Chinese EV maker BYD and traditional carmakers on Thursday, granting the company a short-term tariff break while moving forward with hikes that will hit it more aggressively in the long run.

The decision was reached in a closed-door session of the Chamber of Foreign Trade (Camex) on Wednesday but not released publicly until Thursday. It follows weeks of heavy lobbying on both sides, with carmakers warning of mass lay-offs and BYD accusing rivals of trying to shut out competition.

Under the measure, BYD will be allowed to import up to US$463 million worth of semi-assembled electric and hybrid vehicles over a six-month period without paying import taxes. This tariff-free window will apply during the first half of 2026, offering short-term relief as BYD ramps up local production.

Separately, the government decided to bring forward a previously scheduled levy increase. The import tariff for electric and hybrid vehicle kits will now rise to 35 per cent in January 2027, a year and a half earlier than the original July 2028 timeline. Fully assembled vehicles will reach the same 35 per cent rate by July 2026, as previously planned.

BYD had requested a reduced tariff through mid-2026 to ease the ramp-up of its new manufacturing plant in Camaçari, Bahia State. The company, investing R$5.5 billion (US$978 million) in the facility, argued that temporary relief was necessary as it builds up its local production capacity.

But the proposal triggered an immediate backlash. In a joint letter to President Luiz Inácio Lula da Silva, the National Association of Automotive Vehicle Manufacturers, or Anfavea, warned that the exemption could put R$180 billion in planned investment at risk and eliminate as many as 50,000 jobs.