Argentinian government aims to lift electric vehicle output

Argentinian government aims to lift electric vehicle output

Event On October 12th the government announced a "sustainable mobility" bill, which creates incentives for the production and sale of electric vehicles (EVs). Although there is broad consensus behind the bill and it is likely to be approved, it will face implementation challenges.

Analysis
Through the sustainable mobility legislation, the government hopes to boost domestic production of EVs by providing tax incentives for their manufacture and for production of related auto parts and charging stations. The bill would also create a trust fund to finance investment in EVs. On the demand side, the legislation would also give consumers tax rebates on purchases of EVs. In order to provide policy predictability for the market, the government will keep the benefits regime in place for 20 years.

The government projects that the sustainable mobility bill will generate US$8.3bn in new investment, create 21,000 direct jobs and reduce carbon dioxide emissions by 10.7m tonnes by 2030. To lead by example, the federal government plans to replace its own fleet of combustion engine vehicles with EVs.

In theory, the proposed framework could be highly lucrative for Argentina: the country enjoys numerous comparative advantages including a well-established automotive assembling industry, a large network of auto parts manufacturers and a skilled labour force. Furthermore, Argentina stands to benefit from an advanced chemical industry and access to one of the world's largest lithium reserves—both of which are integral to EV manufacturing.

In practice, however, implementation will come up against structural challenges. Despite triple‐digit top‐line growth in EV sales since 2019, the domestic market remains small: EVs account for less than 1% of total car sales. Concurrently, the government's ability to tap external demand in the near term will be limited. In Brazil (Argentina's main market for car exports), EVs account for just 2% of total car sales; demand in that country is not expected to pick up until later in the decade. Although there will be opportunities to expand into more developed markets, such as the US, the Argentinian government's protectionist regulations will hamper prospects on that front.

Impact on the forecast
Our forecasts are unchanged. The draft legislation fits into an existing patchwork of supply-side measures rolled out by the government to promote investment in specific sectors (including construction, energy and the knowledge industry). However, the gains from such measures will be limited in the absence of consistent and credible macroeconomic policy.

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