👋 No invisible hand

Good morning! Today, a swap at Petrobras leadership. Stability in Brazil’s antitrust agency. And how Brazil and the U.S. approach Chinese EVs differently.

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• Kudos to us! We are thrilled to inform you that The Brazilian Report has won the Digiday Media Award for Best Story of 2023 with our investigative piece “The plan to hack Brazil’s chief justice.”

• We showed how members of the far-right wanted to break into the cellphone of Brazil’s top electoral justice to find dirt on him and discredit the Brazilian elections. Our reporting pulled a thread that has so far led to the arrest of a hacker and the indictment of a congresswoman.

Lula wants a tighter grip on Petrobras

Petrobras, Brazil’s state-controlled oil giant, abruptly announced on Tuesday evening that CEO Jean Paul Prates would be stepping down from his post. 

Context. Mr. Prates got the pink slip after losing a power struggle with Mines and Energy Minister Alexandre Silveira and Chief of Staff Rui Costa. They didn’t see eye to eye on Petrobras’s role in the Brazilian economy.

The great dilemma. Petrobras is a state-controlled and not state-owned company. It has equity split between the federal government (its controlling shareholder) and private investors. This diverse stakeholder profile often creates a rift between the government and minority shareholders. 

• One side emphasizes Petrobras’s role in government policies and its institutional symbolism, while the other is more focused on the company’s financial performance.

• Mr. Prates attempted to navigate between these differing interests. However, a faction led by Mr. Silveira advocated using Petrobras to implement the government’s energy policies.

War of attrition. The disagreements between the Petrobras CEO and the mines and energy minister started as soon as both men took office. Mr. Silveira put pressure on Mr. Prates to end the company’s pricing policy that pegged Brazilian fuel prices to international benchmarks. A change came in May last year, but the government constantly complained that fuels at the pump were not cheap enough. 

• Both men also squabbled over the practice of gas reinjection. This increases reservoir pressure and stimulates the recovery of additional crude oil, but Mr. Silveira called for the use of gas to cater to consumers’ demands.

• They also couldn’t agree on whether to invest in refining or energy transition, on green fuel policies, or the amount to be paid in dividends to shareholders.

 Why it matters. Mr. Prates’s ousting suggests that the government wants more direct control over Petrobras. The choice of his replacement, Magda Chambriard, reinforced that perception — and the Petrobras American Depositary Receipts are crashing in pre-market trading.

Why so scared? Ms. Chambriard served as head of the National Oil Agency between 2012 and 2016 — during the Dilma Rousseff administration, a time markets refer to as the dark ages of Brazilian economic policy.

Developmentalist. Like the outgoing CEO, the future CEO has defended prospection in potentially massive oil reserves in the so-called Equatorial Margin, which sits along the northern and northeastern coasts of Brazil. The issue opposes oil hawks and environmentalists, who flag that exploration would pose massive risks to the environment.

• In a June 2023 op-ed, Ms. Chambriard suggested that a decision by Brazil’s environmental protection agency to deny Petrobras a permit to drill a well in an oil block located next to the Amazon River mouth could “condemn Brazil to stagnation.”

• She also believes Brazil should expand its oil refining capacity. Under Mr. Prates, Petrobras was already distancing itself from previous divestment decisions, and that pivot is now likely to be swifter.

• Petrobras recently moved to “rehabilitate” refineries once tainted by corruption. One should expect such investments to get a boost.

Brazil and U.S. don’t see Chinese EVs the same way

U.S. President Joe Biden on Tuesday announced a substantial tariff hike on Chinese imports, including a 100 percent tax on electric vehicles. That move — the biggest increase announced — was a curious one, as virtually no EV made in China was imported due to a 27.5 percent levy brought in during the Donald Trump years.

State of play. The U.S. government wants to protect domestic automakers and autoworkers from possible unfair competition. While a BYD Seagull costs just USD 10,000 in China, the cheapest electrical model for sale in the U.S., a Chevy Bolt, costs more than twice as much.

Backdrop. Chinese EVs are cheaper because that country’s government subsidizes their manufacturers; the U.S. is now pursuing a similar strategy.

• More specifically, the U.S. government is pouring USD 860 billion into EVs, clean energy, and semiconductors projects through recent instruments such as the Inflation Reduction Act, the CHIPS Act, and the bipartisan infrastructure law.

• Levies will also rise from 7.5 to 25 percent on lithium batteries, from zero to 25 percent on critical minerals, 25 to 50 percent on solar cells, and 25 to 50 percent on semiconductors.

• Mr. Trump — known for his stance against China’s commercial practices — has also proposed a 100 percent tariff on cars manufactured in Mexico by Chinese companies.

 Why it matters. U.S. protectionism sharply contrasts with the approach Brazil and most Latin American countries are taking regarding Chinese EVs — not only incentivizing imports but also actively trying to lure manufacturers.

By the numbers. In Brazil, EVs now have a 3 percent market share, thanks to cheaper models from Chinese brands such as BYD and Great Wall Motors (GWM), which account for about 35 percent of all imported EVs in the country. 

Yes, but … Incentives for imports are being phased out. While EV sales broke records during Q4 last year, that was mainly because consumers rushed to buy new EVs before a new federal import tax on electrical items went into force at the turn of the year.

• Since 2015, the import of electric and hybrid cars has benefited from full or partial tax exemptions in Brazil — but levies will rise gradually to 35 percent by July 2026 in order to help manufacturers producing hybrid or full-electric cars in Brazil. 

Be smart. The two largest Chinese EV manufacturers, BYD and GWM, chose Brazil as a production hub for Latin America. That could be a game-changer.

• GWM set up its factory in Iracemápolis, in São Paulo, and is expected to begin manufacturing its Haval midsize SUV in the second half of this year. 

• BYD purchased a former Ford plant in Bahia state and is expected to begin production between the end of this year and the start of 2025.

• Both companies are seeking to develop their supply chains in the country — including battery production, moves that the government also welcomes.

Price matters. The International Energy Agency found that the absence of small and cheaper EV models is a significant hindrance to wider market uptake in emerging markets.

• Both GWM and BYD promised that their prices would fall significantly once local production starts. This will likely lead legacy automakers producing hybrid and EVs in the country to reduce their prices, too.

Exhibit A. When it announced the purchase of the former Ford factory, BYD said it would sell cars under BRL 100,000. It ended up announcing its entry-level model, the Dolphin Mini, in February, for BRL 115,800. In the same month, Renault lowered the price of its Kwid E-Tech, the cheapest electric car in Brazil until then, from just over BRL 142,000 to 99,990. 

Nominations move forward in antitrust authority

In a 21-1 vote, the Senate Economic Affairs Committee on Tuesday approved the nomination of Alexandre Barreto for a new two-year term as general superintendent of Cade, Brazil’s antitrust authority. The nomination will now proceed to a floor vote.

 Why it matters. Mr. Barreto’s first term expired on April 12. Since then, his deputy, Fernanda Garcia Machado, has been the acting superintendent.

Another vote. In a 20-2 vote, senators also approved the nomination of André Luis Macagnan Freire to be Cade’s new lead prosecutor, replacing Juliana Oliveira Domingues, whose term also expired last month.

By the numbers. Cade has ruled on 234 trials so far this year, issuing fines amounting to a combined BRL 22.8 million (USD 4.44 million).

• Additionally, 51 cases filed since 2005 are still on the authority’s docket. In the oldest unfinished case, the Brazilian Bar Association is the defendant, and is accused of setting minimum prices for lawyers’ fees.

Docket. Other cases under Cade’s umbrella include one in which brewing giant Ambev promised to limit its policy of exclusivity contracts with bars and restaurants. 

• In another, Itaú (Brazil’s largest private bank) and card acquirer Redecard are defendants for allegedly imposing anti-competitive terms on vendors.

• One Cade case that should have important repercussions regards Petrobras. In 2019, the oil giant signed an agreement to sell eight of its 13 refineries to avoid an investigation into alleged anti-competitive actions in the oil refining business. Under the Lula administration, Petrobras has tried to renegotiate the deal entirely.

Quick catch-up

The U.S. will announce a supply chain integration involving critical minerals from Brazil, the country’s ambassador, Elizabeth Bagley, told the press. Critical minerals such as cobalt, copper, lithium, nickel, and rare earths play a crucial role in manufacturing high-tech products.

The New Development Bank, a.k.a. the BRICS Bank, will grant funding worth USD 1.1 billion to help rebuild Rio Grande do Sul state, ravaged by floods. The announcement was made by the bank’s chair, Dilma Rousseff, a former Brazilian president. 

President Lula appointed his press secretary, Paulo Pimenta, as emergency minister for the reconstruction of Rio Grande do Sul. Mr. Pimenta will monitor and coordinate federal initiatives in the state. 

• Mr. Pimenta’s time in the cabinet has been criticized for his inability to create positive news cycles for the government — he will be replaced by Laércio Portela, who has worked in previous Workers’ Party administrations.

The Federal Comptroller’s Office has launched a bot to spot irregularities in public bidding processes. States and municipalities are free to use the system to curb fraud.

A deal between telecom firm Oi and Anatel, the country’s telecommunications regulator, regarding the terms of the company’s concession to operate, is advancing in the Federal Accounts Court. Without that deal, Oi’s recovery plan would be made impossible.

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