Brazil sustainability rules should not make cars more expensive, Volkswagen says

By Alberto Alerigi Jr.

SAO PAULO (Reuters) - Brazil's new incentive program to promote investment in sustainability by the country's auto sector needs to avoid making vehicles more expensive, Volkswagen's head of Brazil Ciro Possobom said.

Late last year, the Brazilian government introduced general guidelines for its Mover automotive program, which is set to give tax breaks to automakers that invest in sustainability and establish new obligations to reduce the industry's environmental impact.

The program's rules, which would impact an estimated 100 billion reais ($20.10 billion) in investments in the country by 2029, are yet to be defined and must be voted on in Congress.

"The direction that has been given is good, it's positive," said Possobom in an interview with Reuters.

"Now we need to define these regulations well, carefully," the executive said, to avoid "super-specific regulations that make the price of the product higher."

Earlier this month, Volkswagen announced an additional $1.8 billion to be invested in the country between 2026 and 2028, with a large part of it going towards new vehicles, including hybrids and electric models.

These investments reflect the expected benefits from the new program but also favorable market conditions, including declining interest rates and the return of an import tax on electric vehicles, Possobom said.

Volkswagen is set to launch four new models in Brazil this year, Possobom said, and plans to start production of a hybrid engine for a future model.

"This shows the appetite that Volkswagen as a group has" for Brazil, he added.

The country's car industry has been facing challenges, including plants working below capacity and new competition from Chinese companies such as BYD and GWM, which are focusing on hybrids and electric vehicles.

But Possobom said the return of Brazil's import tax on EVs "will really help to normalize this competition a little."

"They're going to start local production and they're going to start playing the game here on an equal footing," he said, referring to the Chinese carmakers.

On Wednesday, GWM announced that it was postponing the opening of its factory in Sao Paulo state to the second half of this year, from a previous May opening.

($1 = 4.9750 reais)

(Reporting by Alberto Alerigi Jr.; Writing by Peter Frontini. Editing by Jane Merriman)