More electric cars and batteries for Christmas

In 2021, researchers from the Federal Technological University of Paraná sparked a theoretical debate about whether technology transfers could overcome regulatory barriers before 2030 or whether, instead, they would complement the eventual production of electric cars in Brazil. On December 30, 2023, the federal government established the Green Mobility and Innovation Program, which offers tax incentives. A month later, the Brazilian Ministry of Development launched the ambitious “New Brazilian Industry” (NIB) program, which will invest €25 billion over seven years in financing at 2% annual interest, non-reimbursable incentives, and equity investments in various key sectors of the economy, including the energy transition of the automotive industry . As a result, the establishment of Chinese (BYD and GWM), American (Stellantis and GM), and French (Renault) automakers is projected to create a market of €33 billion annually starting in 2030. Lecar, a Brazilian firm, launched its first 459 model with domestic technology at the end of 2024. Meanwhile, the Chinese automakers invested €2 billion directly, while the American ones invested €5 billion, but curiously, none of these companies are yet listed on the Bovespa stock exchange.

Technology transfers to initiate and boost industry. Traditionally, technology transfers exchange foreign direct investment for royalties and ensure the continuity of their implementation for sustainable development. They aim to transform an economic sector by injecting innovation through delicate international cooperation agreements that often disrupt a nation's industrial policy.

Chinese strategic risks

These national investment programs are game-changers. Both Brazil and the European Union have already accepted the dual role of foreign direct investment, particularly from China, which can transform this industry and generate strategic risks. They have authorized and subsidized the establishment of Chinese factories for electric vehicles and batteries. While Europe has fragmented its regulatory policies on foreign investment, state aid, and subsidies, in Brazil, as a member of BRICS , these issues are only questioned academically. From this situation, one can infer Brazil's pressure within Mercosur to sign the agreement with the EU, in order to move forward with a Mercosur certification of origin for electric vehicles exported from Brazil.

In modern times, these technology transfers contractually incorporate an initial phase heavily reliant on imports of various electronic components essential for EV production, under a legal framework that regulates the transition from construction to operational independence of the plants. This acceleration and advance importing allows companies to circumvent tariffs, prevent production disruptions, and manage cash flow, but it also generates a strong dependency, as evidenced, for example, by battery imports. Chinese companies like Wuxi Lead mandate the initial import of high-cost, high-volume cells precisely at the start of construction and commissioning, which coincides with stricter quality control requirements for the EV factory and assembly plant's start-up.

Imports of high-tech components replace intellectual property rights . This new condition for technology transfers in the sector requires, for implementation, a supply of highly sophisticated components that must be imported from China for a period of almost five years to ensure the quality of production at the new assembly plant in Brazil or the EU. This requirement alters the conventional model for these transfers, circumventing the protection of intellectual property rights and confirming a two-way flow of industry to and from China.

Contractual value of patents

During the initial industrial transfer from Western countries to China, respect for patents and their royalties was negotiated , with the transfer of these rights to Chinese companies negotiated at different levels. In the current transfer of Chinese industries to third countries, patents and trade secrets no longer carry the same contractual weight. Instead, they impose the export of high-tech components, almost impossible to reproduce, for a generous period, generally four years, to guarantee quality control. The regulatory debate surrounding these legal models of dual industrial circulation boils down to determining whether the host country, such as Brazil or the EU, will ever be able to produce these components locally. This will probably never happen: by the time a certain level of technological production is reached, Chinese components will always be more modern and efficient.

This chronological shift in technology transfer agreements has progressively diminished the value of innovation, replacing it with the sale of components. Essentially, production in China restricts foreign intellectual property rights , and establishing a Chinese industry in another country requires committing to importing Chinese components. This change in the legal framework for technology transfer is substantial because it confirms China's current policy of dual industrial circulation: facilitating the export of EV manufacturing plants to ensure the continued export of their components. Added to this are the subsidies received from the host country.

Unregulated subsidies

Battery innovation does not require internationalizing its intellectual property protection. The European organization Transportation Environment denounced the fact that, despite receiving €900 million in subsidies, no environmental regulations were imposed on technology transfer for either the CATL battery factory in Hungary or the LG Energy Solutions plant in Poland. Similarly, two agreements between China and the EU—VW-Gotion in Germany and CATL-Stellantis in Spain —did not include knowledge transfer clauses, focusing instead on the import and sale of batteries. According to their statistics published in Brussels, a quarter of the batteries in the EU are imported from China.

In recent years, the electric vehicle market has been limited by high prices. The rapid pace of Chinese chemical innovation in the production of lithium-phosphate (LFP) batteries has reduced the cost of nickel batteries by 40%, without the need to protect their innovation. Neither the EU nor Brazil can achieve sufficient LFP battery production to supply their markets, and China's control of 99% of the distribution chain currently accounts for 40% of electric vehicle sales. Since neither Europeans nor Brazilians are in a position to enter this market dominated by Chinese LFP batteries, there is no incentive to impose royalties or intellectual property rights on their innovation.

EV manufacturing relies on direct imports, and Western countries have yet to discuss joint ventures to control this international trade. Similarly, there is no legal framework addressing the environmental problems associated with industrial battery waste.

Domestic market and intellectual property. In 2024, the Chinese domestic market for electric vehicles reached 50% of total car sales volume. Projections indicate that 80% of buyers will switch to electric cars.

Legally, it's understandable why Chinese companies have registered the majority of patents in the sector, supported by government subsidies, while Western companies' patents suffer from enforceability issues and piracy. Exporting their EV industries to the West poses a challenge for industries in OECD countries . Chinese innovation is 30% faster and, therefore, more efficient than that of these countries due to differences in their domestic markets. According to data from that same year, sales in Europe represent 21%. In the US, however, they are more fragmented: 50% in California and 20% in other states.

The traditional legal narrative holds that innovation originates in the US, while copies come from China. This, it is argued, justifies intellectual property protection. This is a classic debate, difficult to refute, particularly given the lack of information about innovation in China and its government's reluctance to protect its intellectual property.

Tesla, the leading innovator in the US, is followed by Rivian and Lucid. The US and Canada imposed tariffs of 100% and Europe 38% on electric vehicles, immediately prompting retaliation from China on other products it imports from those countries. This demonstrates the complexity of the EV sector for global trade, particularly due to the relentless influx of components and batteries. Perhaps Canada will be the first to succumb to these imports.

Loss of legal relevance

The legal dimension of the international conflict, completely outside the scope of the WTO, demands a conclusion regarding innovation and investment in research and development in China. According to European Commission data for 2023, Nio and Xpeng rank sixth and seventh, respectively, in attracting investment for innovation, following five US companies (Fisker, Lordstown, Nikola, Lucid, and Rivian). Chinese scientific publications account for less than 20% of those published worldwide. There is also little information available regarding the 1970 Patent Cooperation Treaty, meaning that Chinese innovation does not receive adequate global exposure, in contrast to the significance of electric vehicles and their components in the domestic market.

The danger posed by the unknown justifies tariffs and the global concern for controlling rare minerals. Consequently, intellectual property rights for innovation have significantly lost their legal relevance due to the deterioration of international regulations within the WTO. Globally, intellectual property depends heavily on information provided by states and on the individual's interest in legally structuring a protection strategy. Its limited participation in modern technology transfers has been displaced by competition in the production of inputs—high-tech components whose necessary importation radically eliminates all the historical difficulties of collecting royalties. Since this industrial competition already has a winner, governments seek to control the rare minerals used in its production.