In a context of exponential growth in the global energy industry, tariff tensions between China and the United States, and a growing need for efficient and low-cost energy storage alternatives, manufacturing lithium batteries in Latin America for consumption in the markets of the United States, Canada, Latin America, and the Caribbean could be a competitive advantage that defines the leaders in these markets. We are talking about a combined market of nearly 1.1 billion people, with 338 million in the United States alone.
It is very difficult to compete with China in terms of production capacity to meet the demands of such large markets. However, if we consider the combined capacity of the countries that make up the MERCOSUR treaty region, it is possible to consider Latin America as a viable and interesting alternative with numerous advantages:
Lower tariffs than China, depending on the product and the value added in Paraguay under the Maquila regime, tariffs to US, Canadá and Latin America & the Caribe countries can be 0%.
Geographical proximity, which reduces transportation costs, enables faster delivery times, and reduces the need for excessive stocking practices.
Installed capacity, high-quality low-cost human talent and an excellent entrepreneurial ecosystem.
To fully understand this opportunity it is important to understand the Mercosur region Agreement, the Paraguayan Maquila regime, the global energy market potential, and the tariff war between China and US.
The MERCOSUR (Southern Common Market) free trade agreement is a regional economic integration initiative among South American countries, including Argentina, Brazil, Paraguay, and Uruguay, with associate members such as Bolivia and Chile. It eliminates tariffs and trade barriers, facilitates market access, and establishes common rules and regulations to foster a more integrated and competitive regional market. It also encourages cooperation in areas such as agriculture, energy, industry, and technology.
The MERCOSUR region has the largest amount of lithium in the world, considering that Argentina, Bolivia, and Chile are three of the countries with the highest reserves of this material worldwide.
Paraguay’s Maquila Regime Through this regime, investors can introduce goods, products, or services to the country in order to be assembled, repaired, improved, worked, or processed for subsequent export, once the added value is made.
Tax aspects and benefits Maquila Unique Tribute consists of a Single Tax regime of 1% on the value-added in the national territory. With the exception of the Single Maquila Tax and the tax treatment established by the Law for sales in the domestic market, the Maquila Contract and the activities carried out in its execution are exempt from any other tax, such as Value Added Tax (VAT), suspension on import duties, and exemption from paying any tax on dividend remittances abroad.
The global energy context represents an opportunity for lithium battery manufacturers. The world committed to achieving net-zero carbon emissions by 2050 through the Paris Agreement. This means a potential exponential growth for the renewable energy industry and technologies that utilize this type of energy.
Efficient and cost-effective energy storage alternatives, such as lithium batteries, are one of the cornerstones in the development of the renewable energy industry, with a projection of exponential growth for the coming decades.
In US, solar energy represents the fastest-growing power source, accounting for more than 40% of all new electricity generating capacity, expecting to quadruple over the next 10 years, and energy storage is a key point in every wind or solar energy project.
But energy generation is not the only expanding market for Lithium Batteries, the increasing demand for environmentally friendly transportation options and government support for long-range, zero-emission vehicles through subsidies and tax rebates have driven manufacturers to offer electric vehicles (EV) on a global scale.
One in every seven cars sold during Q1 2023 was an EV, and The US surpassed Germany to become the world’s second-largest EV market in Q1 2023 while China remained the leader. EV global market is expect to escale at a compound annual growth rate (CAGR) of 21.7% during the forecast period of 2022–2030. And we are not even considering the fast growing urban electric transportation vehicles, such as scooters, bikes, and so on.
Ok, but why Paraguay over China for the US, Canada, and Latin America markets?
The tariff war between the United States and China has been a significant economic and geopolitical issue in recent years. It began in 2018 when the United States imposed tariffs on various Chinese imports, citing concerns over intellectual property theft and trade imbalances. In response, China retaliated with its own tariffs on American goods, escalating tensions between the two largest economies in the world, causing disruptions in global supply chains.
Also in recent years The United States encouraged nearshoring practices, which involves the relocation of business operations, manufacturing, or services from distant offshore locations to nearby countries, with the aim of serving the US market.
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