During 2019, sales of electric vehicles (EV) in Latin America continued to increase. In Colombia, there was a growth of above 200%. In Mexico only until August, there was a growth of 34%, and in Peru, the overall increase was above 80%. Although the region represents 1% of global EV sales, it is a growing market. Given the current sustainable development initiatives targeting greater control of pollution and cost efficiency, the growth of electric vehicle sales is set to increase further, supported by government incentives.
Latin American governments seek to boost EV adoption in the region through a regulatory framework that includes tax incentives, such as tariff exemptions, value-added tax exemptions, and other preferences for businesses. Besides, some countries already have a fleet of electric buses on roads, while others are finalizing modernized plans to implement these vehicles.
Amid EV adoption business opportunities in the region increase. From investment in charging infrastructure, electric car wash, electrical auto parts shops, and import and export activities. In this article, we touch upon the regulatory EV incentives that favor business in Argentina, Brazil, Colombia, Mexico, and Peru.
Electric Vehicle Business Activity in Argentina
In 2017, through decree 331/2017, Argentina offered reduced taxes and specific tax benefits to vehicles powered by renewable energy. Tariffs for EVs were classified that decreased the duty from 35% to 5%, 2%, and 0% depending on the category.
Some of the incentives include a 2% tariff for EVs that arrive at the country assembled and ready to sell (classified in category 3) and a 0% tariff for vehicles that visit the country semi-assembled or wholly unassembled and to be assembled within the national territory (category 4).
This decree only applied to terminals of car manufacturers in Argentina, and it didn’t include imports by companies who didn’t have terminals in the country or by other distributors. However, in 2019, the Argentinian government extended these benefits to foreign companies and external distributors through Decree 260/2019, granting the same exemptions of 5%, 2%, and 0% for EV imports, which means that importers and manufacturers’ terminals now have the same benefits.
Factors such as having an electric matrix that is not renewable in Argentina, costs, and charger availability impact the adoption of EV vehicles in the country. In this sense, there is room for the development of renewable energies in the country.
According to Frost & Sullivan, by 2025, the Argentine vehicle market will reach sales of 1 to 1.1 million vehicles, from which approximately 6700 will be hybrid or electric cars.
Automotive Giant Brazil’s Electric Vehicle Scene
Brazil is the biggest automotive market in Latin America, and this industry is essential to the government, which has policies to encourage local production and demand. Currently, the domestic manufacturing of EVs isn’t significant, so EV cars in the country are mainly imported.
According to Frost & Sullivan, by 2025, electric and hybrid vehicles are expected to reach a penetration of around 61,700 units in Brazil. Also, from EV charger locator “Plugshare” data, there are 26 public charging stations in Brazil, which means that there are opportunities to invest in charging stations in the vast Brazilian territory. Government initiatives have the potential to influence the demand for EVs in Brazil.
In June 2019, the government announced exemptions for hybrid and electric vehicles from tax on industrialized products (IPI). Pollution, decreasing costs of EV cars favored by tariff or fiscal preferences along with the decreasing cost in batteries are set to play a significant role in EV adoption.
Government Incentives for Electric Vehicles in Mexico
In 2018, Mexico had reported 900 EV chargers in different cities, which gave the country the lead in EV charging stations in the region. Also, according to the Mexican Association of the Automotive Industry (AMIA) reports that until the end of the second quarter of this 2019, 14,235 electric and hybrid cars were sold, which represent a 34.6% increase as compared to the same period in 2018. EV demand is growing in Mexico and the Latin American region.
Due to Mexico’s array of trade agreements, EV cars are mostly tariff-free when importing from its main partners. In addition to this, the government has laid out incentives for EV adoption. For instance, exemption from tenure tax, which is a tax to be paid for car ownership and the ISAN (New car tax) tax exemption, which is a federal tax that varies according to the price of the car.
Frost & Sullivan estimate that by 2025, Mexico will commercialize 57,200 hybrid and plug-in hybrid electric vehicles (PHEV), and 4,200 electric cars. This is a total of 61,400 vehicles. Mexico is one of the countries in Latin America with the greatest demand and lowest price for EV.
Regulation for Electric Vehicles in Colombia
2019 was a positive year for EV sales in Colombia. Sales of hybrid and electric vehicles reached 3,134 units, which is an increase of 236%, compared to 932 units registered in 2018.
In 2019, the government launched the National Strategy for Electric and Sustainable Mobility. This plan establishes that electric vehicle tax rates may not exceed 1% of the commercial value of the vehicle. Besides, the owners of these vehicles will have a discount on the technical-mechanical reviews since these cars have different technological equipment and do not emit polluting gases, and insurers must guarantee a 10% discount on the premiums of SOAT (Mandatory Traffic Accident Insurance) for electric vehicles.
Through Decree 2051 of 2019, Colombia established the reduction of tariffs for electric vehicles to 0%. This also included zero VAT for public EV transport and 5% for private EV.
Given the government initiatives and the outstanding growth in demand for Electric Vehicles in Colombia, this market is one of the most attractive in the region.
Electric Vehicle Industry in Peru
According to the Automotive Association of Peru (AAP), electric and hybrid vehicle imports grew to 330 units in the period of January to October 2019, representing an 88% increase compared to 175 vehicles registered in the same period of 2018.
From these 330 vehicles, 303 are hybrids, and 20 are electrical units. The association also estimated that by the end of 2019, the imports of these cars would have reached 400 units.
The Peruvian government is enlisting a regulatory package in which it intents to adapt the National Vehicle Regulations. Also, this package will be promoting electric charging stations. The government also invests in the “junk bonds,” which seeks to remove very old vehicles from circulation and introduce more efficient cars, preferably vehicles utilizing renewable energy.
EV adoption creates business opportunities for EV importers, distributors, and investors. Business opportunities in the construction of charger stations exist due to the low quantity of these in the region. Additionally, as the market grows, demand in electric auto parts will increase, creating opportunities for EV auto part shops.
Demand for EV in Latin America is set to increase as costs for these vehicles decreases due to the nature of batteries and incentives in tariff exemption and tax benefits.