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The challenges facing plane maker Embraer after Boeing crisis

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In recent decades, planemaker Embraer has been synonymous with the best engineering Brazil could produce. Set up by the military on August 19, 1969, Embraer has been supported by every administration ever since—becoming a source of national pride as well as one of the largest commercial plane makers in the world, with clients in over 100 countries. Now, a merger with American giant Boeing has cast doubts about the company’s future and the way it will deal with its Brazilian roots.

Since 2017, Embraer’s future has been hanging on the Boeing merger, principally after European planemaker Airbus took over Canada’s Bombardier, leaving few options for the Brazilian company: it either had to consolidate its business with a larger player, or risk getting left behind.

The Americans paid USD 4.2 billion for 80 percent of Embraer’s crown jewel, its commercial aviation division, evaluating this new business at USD 5.26 billion. Embraer may also sell its 20 percent stake in Boeing Brasil-Commercial (as the new business is called) in the future. With this injection of cash, Embraer will be able to start over with a clean slate, paying its debts, providing USD 1.6 billion in dividends for shareholders, and getting extra cash to innovate.

Now, Embraer’s future lies in three divisions: Defense—developed in the joint venture with Boeing—Services, and Engineering.

On its side, it has a large military cargo plane, KC-390, as well as new disruptive projects bred under the subsidiary EmbraerX. Among them, a new fully-electric plane and an eVTOL—also known as a flying cab to transport passengers—developed alongside Uber. Signature projects, such as the new executive Praetor 600 jet, are expected to boost the executive jets division.

Some believe that providing services, such as airplane maintenance, or even expanding to work with integrated systems for ships would be good, profitable options for Embraer. There are plenty of possibilities, but the fact is that the company will have to reinvent itself, and fast, to remain a relevant player worldwide.

Why isn’t the market celebrating Embraer?

As of Monday, Embraer shares (EMBR3), are 17 percent down for the year, making one wonder: if the future is so bright, why is the market not betting on it?

The answer may be found in Embraer operations history. Historically, the commercial jet section has always been the most profitable, while Defense and Executive Jets have struggled to blossom. By taking on the commercial division, Boeing gives a welcome capital injection to the company, but some believe it has also undervalued the remaining businesses—which made stocks dive deep by the time the deal was closed.

Looking ahead, some analysts see better prospects for the company in spite of that, with the large amount of capital expenditure on building jets starting to pay off. Praetor sales are expected to pick up, as are those of the KC-390 military cargo craft. These positives may not yet have been priced in.

Analyzing the company’s most recent earnings report, brokerage Guide Investimentos said that Embraer shares “are trading at an attractive risk-reward ratio.” They expect “a larger amount of sales for the executive segment, normalization of KC-390 deliveries (after some delays) and better margins.” They also highlight the potential for USD 150 million in synergies after the merger is fulfilled.

Although partnering with Boeing opens even more doors for Embraer in the massive American defense and security market, the merger happens at a cumbersome moment for Boeing. Its flagship plane, the 737 Max, faces a credibility crisis after two lethal accidents in Indonesia and Ethiopia.

This does not change Boeing’s interest in Embraer and shouldn’t affect the merger, but the turbulence is certainly not a boost for the overall scenario. Another concern for Boeing Brasil-Commercial is the Chinese-American trade war, as Bloomberg News highlighted in a report from June. Escalating tensions between the world’s two biggest superpowers may affect business, just like it did for Chinese technology supplier Huawei. The deal between Embraer and Boeing is still awaiting approval from Chinese antitrust regulators. Moreover, two plane models are also waiting for certification from Beijing.

Embraer electric plane
Embraer’s electric plane

A source of pride for Brazilians

Far from the stock market and specialized air industry circles, Embraer is seen in a different light. Over the decades, the company was seen as a model of innovation and success for the Brazilian industry. It all started with the Bandeirante Project, the first plane ever produced by the then state-owned company. It was able to support both civil and military aviation needs—as the Brazilian Air Force required.

Like most Brazilian state-owned companies, Embraer developed a close relationship with the country’s needs. It became one of the most important economic drivers of the city of São José dos Campos, in the Paraíba River Valley, helping to develop this region of the state of São Paulo. Its research and development roots also helped to boost colleges in the area, especially the military-run Technological Institute of Aeronautics (ITA), known as one of the best—and hardest—institutions to gain admission to.

This also helps explain the controversy that involved the Boeing deal, with rumors that the Brazilian government would block it by using the golden share privilege it held on to when the company went public in 1994. The golden share allows the government to veto decisions essential to Embraer’s future, such as changes in controlling interest or headquarters.

Trade unions fought a legal battle trying to block the deal or at least ensure there would be no mass firings. As reported by Exame magazine, Embraer and Boeing will split Embraer’s 18,000-strong workforce and the factory in São José dos Campos will be maintained, which helped reduce tensions.

It seems that, in spite of the new partnerships and many changes ahead, it seems Embraer is not willing to give up on its roots. Local newspaper O Vale reports the company will expand its plant in São José dos Campos, increasing the capacity to 4,000 employees, almost three times the current size, as part of a revamp announced in order to celebrate the company’s anniversary.

“By announcing the expansion of our facility in São José dos Campos, we reinforce our commitment to our people and the local community, that is part of our strategic vision of continued and sustainable growth,” said CEO Francisco Gomes Neto.



Startups rekindle dream of a Brazilian-made electric car

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The idea of a carbon-free automobile fleet is not new in Brazil. Since the government’s Proálcool program and the Gurgel prototype—the country’s first electric car, produced in the 1980s—Brazil has tried to be on the forefront of cleaner and more efficient transportation alternatives. Now, supported by new technologies, Brazilian startups have decided to turn the dream into reality. However, some of the old obstacles—such as taxes and lack of structure—still pose a challenge.

Mobilis is one of these companies. The startup founded in Santa Catarina in 2013 needed just BRL 600,000 to produce Li, its electric vehicle propelled by a Lithium battery. The car’s minimum viable product (MVP) is reminiscent of a hi-tech golf cart: it has no doors, an aluminum chassis, and lots of integrated tech systems.

The two-seater vehicle can hold up to 450 kilos and, depending on the battery’s power, it can travel 100 kilometers on one full charge.  

According to Mahatma Marostica, a mechanical engineer and Mobilis co-founder, it was only possible to produce a line of vehicles at such a low cost due to new and cheaper technologies.

“You don’t need to invest in a huge factory to produce motors like carmakers used to. The car is assembled almost like a Lego model nowadays. Before you needed about 5,000 pieces to build a power train, now you only need 600; with 3D printing, you don’t have to buy an expensive injection mold to produce a plastic piece. We saw this conjunction of factors as an opportunity,” he told The Brazilian Report.  

Mobilis’ next frontier is bringing Li to urban areas—it currently operates only in closed spaces, such as industries and luxury condominiums. The new model is under a confirmation process, and it will have more features such as doors, airbags, and an anti-lock braking system. The company expects to sell it for urban use by 2020. A funding round—in which Mobilis hopes to raise up to BRL 15 million in investments—is set to help on financing it and expanding installations. 

Hitech Electric, a startup founded in 2016 by experienced Formula 3 engineer Rodrigo Contin, has also followed a similar path, though their models are actually assembled in China and polished in Brazil with technology and optional features, such as solar panels. According to the company’s PR representative Mateus Renosto, Hitech Electric started selling its electric vehicles for closed-space use only, and they are now they are allowed to drive on public roads with a maximum speed of 70 km per hour. So far, 2019 sales have increased 150 percent in comparison to the first half of 2018, according to the company. 

“Companies are buying our products for two reasons: they want to use the cars as a marketing strategy, positioning themselves as eco-friendly and innovative, and saving money with maintenance and fuel,” he told The Brazilian Report, adding that their e.coTech2 model can travel 100 km with a cost of BRL 4.50 (considering fees in Paraná state). 

Hitech currently sells two models: eco.Tech2 and eco.Tech4, as well as two mini trucks, e.coTruck, and e.coCargo. Mr. Renosto explains that importing from China came as a cost-efficient decision, but the company is studying the possibilities of producing vehicles in Brazil. It also works in partnership with Positivo Tecnologia, one of its investors, in R&D for an autonomous car targeting the B2B market.

The market which awaits them is expanding. According to Anfavea, Brazil’s carmakers’ association, the sales of electric and hybrid vehicles have grown 5 percent in 2019 up to May, after an expressive 20.4 percent growth in 2018.

However, electric and hybrid vehicles represent only 0.2 percent of the cars on Brazil’s roads, while they already reach 2.2 percent worldwide, according to numbers by The Electric Vehicle World Sales Database, provided by EV Consulting.

The market is currently expanding faster in countries where electric cars became subject to state policy—such as China, where the government has determined that 20 percent of the country’s total fleet should be electric or use alternative fuels by 2025. In Norway, the first country in the world to sell more electric vehicles than traditional ones, the government gives offers incentives to drivers of electric cars, such as lower import taxes, less bureaucracy or toll exemptions. The parliament also approved a law to make every new Norwegian car electric by 2025.

Roadblocks for a Brazilian electric car

Some of the problems for the global adoption of electric vehicles remain the same faced by the first models ever produced about a century ago, such as battery life and the maximum speed the vehicles can achieve. Also, the time needed to fully charge the battery—hours, in most cases—is still seen as unappealing for the average consumer. To improve that, capital consuming R&D investments are required. And that’s why electric cars are still more expensive than traditional vehicles.

But in Brazil, they are definitely luxury items. The main passenger electric/hybrid models available in the country cost at least BRL 150,000—and they are all made by international carmakers established in the country.  

In addition to the overall challenges, the Brazilian market poses its own hardships. One of the industry’s most hard-fought battles is about taxes. Even though the automobile sector is known for earning large incentives, Mahatma Marostica warns that they do not benefit all companies equally. 

Before Rota 2030, Brazil’s most recent incentive program for the automobile sector, electric vehicles were not included in the legislation, and, therefore, paid the highest bracket of manufactured goods tax: 25 percent. In spite of activists and industry members pushing for full exemptions, electric cars only earned a tax reduction. Now, they willpay something between 7 to 20 percent—depending on their size and energy efficiency—while other vehicles pay up to 25%. Meanwhile, since 2015, there has been no import tax on electric vehicles, which, according to Mr. Marostica, is damaging to the national industry. 

“We just corrected an anomaly, which was an electric car paying more taxes than a combustion car. Which means that Brazil does not provide incentives yet,” he says, about Rota 2030. “It would be easier for me to assemble the car abroad, for example, in Paraguay, because the government made imports easier. The government looks only toward big carmakers, it does not see the local initiatives yet.”

But Hitech shows that even importing is not that easy. The company is suffering from the long time needed for imports—at least 90 days—and high foreign exchange rates. “It is easier to pass a tax exemption to the consumers than a reduction. We are still working with foreign exchange rates from two years ago and now the American dollar costs almost BRL 4, so we are covering this difference,” Mr. Renosto explains. 

The operating part is another challenge. To produce a car, it is necessary to have an entire supply chain. Although Brazil does have a well-established auto parts industry, the high costs to try new technologies prevent companies from investing heavily in the necessary tools to produce equipment specific for electric cars, forcing companies to look for more expensive resources abroad, explains Mr. Marostica.

“Currently, 95 percent of our components are made in Brazil. But the five percent we buy abroad are related to battery cells and correspond to 35 percent of costs,” he said, adding that his main foreign suppliers are from China, Australia, and the U.S. 

New trends

Although Mobilis and Hightec Electric models cost approximately half their foreign competitors’ price, both companies see new trends, such as Mobility-as-a-Service, as their biggest opportunity—instead of simply selling directly to consumers. Hitech Electric, for example, currently has renting programs for their vehicles. 

“An electric car is more expensive, but it consumes seven times less. The more you use, the bigger the savings. If you sell to final consumers, they will use them less, but if you have a car sharing model, the payback is much faster,” says Mr. Marostica.



Portal aRede – Aconteceu! Tá na aRede! – arede

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Portal aRede – Aconteceu! Tá na aRede! arede

O novo Volkswagen Golf GTE faz 62 km com 1 litro de gasolina será lançado no Brasil em 2019. O Volkswagen Golf GTE é uma velha promessa da marca, …

Primeiras fotos do novo Jeep Wrangler híbrido Plug-in

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Se é fã do icónico Jeep Wrangler então vai ficar certamente satisfeito em ver as primeiras imagens do novo Jeep Wrangler híbrido Plug-in.

A marca já tinha confirmado que iria existir um modelo elétrico, e já há imagens que o confirmam.

Primeiras fotos do novo Jeep Wrangler híbrido Plug-in

O mercado dos veículos híbridos e totalmente elétricos continua a crescer e as ofertas são cada vez interessantes. No segmento dos jeeps não têm havido assim muitas novidades, mas estão a chegar novidades.


A primeira unidade de testes do novo Jeep Wrangler híbrido Plug-in já tem umas imagens publicadas na internet. Como se pode ver pela imagem seguinte, a zona onde certamente terá uma tomada encontra-se tapada.


Os fotógrafos que conseguiram tais fotos referem que conseguiram seguir o Jeep durante alguns quilómetros e, dado o silêncio, confirmam que este tem modo elétrico.


Primeiras fotos do novo Jeep Wrangler híbrido Plug-in


Até ao momento não foi revelada qualquer especificação desta nova versão híbrida, mas é esperado que tenha características similares ao híbrido do Chrysler Pacifica Hybrid, como, por exemplo, o motor V6 de combustão de 3,6 litros.


Primeiras fotos do novo Jeep Wrangler híbrido Plug-in


Este modelo deverá ser apresentado no final deste ano ou no início do próximo.


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Quanto é que custa o novo Toyota Corolla?

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O novo Toyota Corolla marca o regresso do histórico nome ao nosso mercado — bem, na realidade nunca partiu verdadeiramente, já que a carroçaria Sedan manteve-se sempre fiel ao nome. Mas com a chegada da 12ª geração, o lugar que até agora era ocupado pelo Auris nas carroçarias hatchback (dois volumes e cinco portas) e carrinha, volta a pertencer ao Corolla.

Nesta nova geração do Toyota Corolla encontramos uma nova plataforma, a GA-C (derivação da TNGA), novas motorizações e um desenho bem mais marcante e expressivo.

Já tivemos oportunidade de conduzir o Corolla nas suas duas variantes híbridas (carrega na ligação abaixo), e nas próximas linhas de texto ficaremos a conhecer melhor a gama nacional.


RELACIONADO: Ao volante dos dois híbridos do Toyota Corolla. Fórmula vencedora?