2024-08-23 11:55:59
80% of hybrid cars sold in Ecuador are microhybrids. The government is considering removing tax benefits for these models.
Sales of hybrid cars are going against the current in the ailing vehicle market in Ecuador, a boom that is explained by a boom in demand for so-called micro-hybrid models.
And the fact is that dealerships sold 6,699 cars classified as hybrids in Ecuador during the first half of 2024; that is, 35% more than the same period in 2023, according to Cinae.
The boom in hybrid car sales contrasts with the figures for the total car market, which includes all types of vehicles, which showed a contraction of 19%.
However, microhybrids are not as fuel efficient and do not reduce emissions to the same level as a full hybrid or conventional hybrid.
For this reason, the Government of Daniel Noboa is now considering removing tax benefits from these models, also known as “soft” or “mild hybrids.”
Microhybrids, the best sellers in Ecuador
The executive director of the Ecuadorian Chamber of the Automotive Industry (Cinae), David Molina, explains that in order for a model to be considered hybrid, it must have two types of engines, one electric and one with traditional combustion. This is stated in the homologation regulations of the National Transit Agency (ANT),
According to a Cinae calculation, around 80% of the cars that enter Ecuador under the hybrid category are microhybrids.
In fact, in the first half of 2024, a microhybrid model, the Suzuki Swift, will be in the top 10 of the best-selling cars in Ecuador.
For Esteban Acosta, general manager of Suzuki in Ecuador, it has been key that hybrid sales have increased in 2024, because they have helped cushion the general decline in the car market.
What is a microhybrid model?
MHEV or micro-hybrid cars have small electric motors ranging from 12 volts to 48 volts, which only help start the gasoline engine. This means that the car is not propelled by the electric motor. For this reason, these types of models operate like a gasoline car 99% of the time.
Fuel savings with a microhybrid are 5% to 20%.
«There are Euro 5 or Euro 6 petrol vehicles on the market that can save more fuel and are less polluting than MHEVs (microhybrids). David Molina
In contrast, a full hybrid or conventional hybrid car has an electric motor of between 180 and 400 volts. Thus, its motor is capable of making the car move on its own for certain distances and therefore allows reducing gasoline consumption by up to 35%, according to Cinae.
There are even now fully plug-in hybrid models (PHEV), in which the electric battery has a greater capacity and can be charged with a plug, which implies savings of up to 55% in gasoline consumption.
These PHEV cars can be used with only the electric motor for much longer distances without using the gasoline engine and are therefore less polluting.
Then there are extended-range hybrid vehicles (REEVs). These vehicles have two engines, one electric and one gasoline. In this case, the car is powered only by the electric motor and the gasoline engine is used to charge the battery.
But why are “mild hybrids” generating so much interest among consumers, despite the contraction of the rest of the market?
Molina says this is the result of a distortion. The technology of a full hybrid car is almost eight times more expensive to produce compared to that of microhybrids.
In addition, micro-hybrids have the same tax and tariff benefits as full hybrids, which allows them to be even cheaper.
For this reason, brands have been taking advantage of these incentives to bring in mainly micro-hybrid models, which are cheaper for the Ecuadorian consumer, who is looking to save on gasoline.
According to a study by Cinae, the Government will not collect USD 120 million in 2023 due to tariff exemptions and tax benefits offered by microhybrids.
Government considers reviewing benefits for “mild hybrids”
Molina believes that the tax and tariff incentives that all hybrids currently enjoy should be focused only on full hybrid models.
“Incentives should be put in place to ensure that prices are not so restrictive for consumers who want a car that is truly less polluting and that allows them to save fuel,” says the Cinae spokesperson.
And the Minister of Finance, Juan Carlos Vega, agrees with the union. Vega even announced that the Government is considering making changes to these incentives. According to the Minister, “there are many distortions” in the hybrid car market.
“There are true hybrids and, on the other hand, there are those that run on a fuel engine and have a small electric kit… those don’t have incentives in other countries,” Vega said on July 12, 2024 in an interview on Sucesos radio.
He added that public policy should aim to “encourage the electrification of vehicles, that is, it should focus on cars that are truly electric-powered and reduce fuel consumption.”
What will happen to the prices of “mild hybrids”?
One of the reasons why there is more demand for hybrid cars in Ecuador is that the prices of these cars had less impact after the increase in the Value Added Tax (VAT) that has been in effect since April 2024.
This is because hybrid cars are not subject to Special Consumption Tax (ICE). However, the rest of traditional combustion models are subject to this tax.
ICE is part of the retail price on which VAT is calculated. That is why the prices of cars with ICE have increased more.
Therefore, if the Government decides to impose ICE on microhybrids, they could have an increase in VAT and, therefore, in their final price.
But hybrid vehicles have been growing on the market for several years now also because they have import benefits.
One of them is that hybrid cars with up to 2,000 cubic centimeters (cc) can arrive in the country with 0% tariff. In contrast, for the rest of cars, tariffs can be up to 40%.
If the government decides to increase the tariff on microhybrids, only those vehicles from countries that have trade agreements with Ecuador, such as the European Union and China, would be protected from the increase.
The trade agreement with China, in force since May 2024, establishes that hybrid cars imported from China are subject to 0% tariffs, provided they are 2,000 cubic centimeters or less.
In this scenario, Cinae sent a letter to the Ministries of Finance and Production on July 17, 2024, to review the benefits of these microhybrid models.
“Mild hybrid vehicles are exempt from ICE, a tax that all vehicles assembled in the country must pay. This poor approach to incentives puts the sustainability of the automotive industry at risk and limits the development of new assembly projects,” the letter says.
In addition, the union mentions that “mild hybrid vehicles have greater incentives than those manufactured domestically,” which reduces the competitiveness of the local industry.
By: PRIMICIAS