Lack of parts, increased spending on electricity, negative impacts on sales due to the pandemic. These are some of the problems that the automotive sector is currently facing in Brazil, factors that collaborate to counteract the sector’s growth expectations, shown in 2020. With an eye on opportunities to solve them and, at the same time, encourage the development of applied technology to the industry in Latin America in general, executives Barry Engle (experienced SPAC manager and former president of GM North America), Carlos Zarlenga placeholder image (ex-president of GM South America) and Francisco Valim (ex-Oi, Net, Serasa and Via Varejo) launch the Qell Latam Partners (QLP). The investment platform is a subsidized holding company of Qell, a “blank check” company that raises money from private investors to acquire a privately held company and then make it public. This type of company is called the Special Purpose Acquisition Company (or SPAC in market parlance).
As the name implies, the QLP will have its activities focused on Latin America and, like the matrix, it should initially have its eyes focused on companies that use technology to improve industrial processes within the automotive sector. In the region, the holding company aims to invest in companies with a market value of BRL 2.5 billion to BRL 15 billion and, to finance these contributions, it will turn to private investors in Brazil and abroad. According to Francisco Valim, the plan is to put all this into practice in a maximum of two years, and QLP has its eye on contributions to more than one company. Asked about a local IPO, the executive limited himself to saying that “the discussion of where and how to raise funds is not yet fully defined”, to EXAME IN.
While this discussion is still on paper, The fact is that the good prospects of Qell “mother” give some clues about the path that the holding company can take here. In the US, SPAC raised US$ 380 million through an IPO held on NASDAQ in September of last year and, shortly thereafter, with a private investment (PIPE, or private investment in public equity, its acronym in English) of more US $450 million, the company merged with German aviation startup Lilium batteries. With the merger, carried out in 2021, the combined market value of the two was US$ 3 billion. On the side of the German company, the greatest expectation is to have a commercial operation in the United States in 2024. In Brazil, the company recently signed a partnership of US$ 1 billion with Azul and should deliver 220 “flying cars” (eVTOL aircraft, in the jargon) that should start operating in 2025.
In fact, the initial objective in Latin America is in find other successful companies whose technology can be developed at scale and, if possible, exported. All this, of course, without losing sight of sustainability and without forgetting that the sector chosen to start operations in Brazil will be the automotive. Translated into practical terms, executives have their eye on a point that manages to bring all these priorities together at the same time: the ethanol.
“In the United States, where there is no clear alternative like ethanol, investing in electric cars, with the construction of stations to charge them from outlets, seems to make more sense. Brazil is not behind in this dispute, but ahead. We don’t have this urgency because we can migrate to cleaner fleets from something that already exists and is widely adopted”, says Francisco. This will be SPAC’s first step in Brazil: looking at the automotive industry and seeing which companies are developing technologies to promote the sector’s development.
It is worth remembering that, at the end of last year, Brazil reached the highest ethanol production in history, with 35.6 billion liters in the 19/20 harvest, an increase of 7.5% compared to 2018/19, according to data of the National Supply Company (Conab). Despite the estimated drop of 13.1% in production recorded for the 2021/22 harvest, according to data from the state-owned company, the fact is that there is a market to be explored in Brazil considering this fuel, both for sustainability and for the capacity already installed in the country — something automakers have already realized.
Pablo Di Si, from Volkswagen, announced this year that ethanol is the main biofuel to bet on in Brazil. In practice, the company’s strategy is based on developing a technology that converts liquid ethanol into fuel cells capable of fueling electric cars, which would eliminate the need for electrical outlets. It’s a hugely advantageous game, considering that Brazil is the largest ethanol producer in the world.
The opportunity has already been noticed by competitors too, of course. In June of this year, Nissan renewed its partnership with the IPEN (Institute for Energy and Nuclear Research) linked to USP, with the objective of obtaining, from ethanol, the hydrogen that is needed to activate the fuel-powered cell.
Still, the rapid spread of electric vehicles powered by ethanol is far from a consensus. In an interview with EXAME in July of this year, Paulo Puterman, PhD in biotechnology from the University of São Paulo and founder of CorNatural, a recycling technology company, stated that ethanol should be eliminated as a fuel for cars from 2026 onwards. for the sugar-alcohol industry to remain active would be in the generation of energy for Brazilian homes — since, currently, around 10% of the light consumed comes from sugarcane.
Anyway, on the QLP side, executives continue to target the potential of ethanol for mobility in Brazil, especially considering the infrastructure investments that would have to be made to embrace the idea of electric cars once and for all. Especially at a current time, when the imminence of an energy crisis seems a little frightening — added to the lack of public incentives for the development of electric fleets.
Despite focusing on mobility first, QLP does not intend to stop there, but rather to develop a gradually bigger look at other industries in all Latin American countries. But, one step at a time.
“With the exception of Mexico, which produces a lot just for the United States, we do not rule out identifying investment opportunities in other sectors. Our focus is to look at segments in Latin America where technology is not moving at the same speed as global advances. Look at the processes within the industry that, for historical reasons and for reasons of investment dynamics, ended up losing priority and in which we believe there is scale for export. Automotive seems to be the ideal starting point for this investment”, says Francisco.
There are plenty of reasons to believe that this “aim” is correct. In August of this year, industrial production fell by 0.7% compared to the same month of the previous year. Second André Perfect, chief economist at Necton Investimentos, in addition to the macroeconomic aspects related to the weaker perspective of the economy, on the micro side, the disarticulation of production chains due to the pandemic has been a strong limiting factor for industrial activity.
Thinking about investing in this can have positive effects for different sectors, especially for the automotive — with an eye on a resumption with the normalization of parts supply and more innovation for the sector in the long term, such as fostering the development of intelligent factories and industry 4.0, for example. It’s not hard to remember the shortage that the sector suffers in Brazil: in the last 15 years, the Brazilian industry went from the 9th position among the largest in the world to the 14th, according to the Institute of Studies for Industrial Development (Iedi).
It is a problem that drags on with the 2015 crises and that has recently been aggravated by the pandemic. According to data from the institution published by Estadão, the value that the industry brings to the economy shrank 1.5% a year between 2005 and 2020, in which it is impossible not to notice the closing of factories such as Ford, Mercedes-Benz and Sony.
In this sense, the effort led by the QLP seems to come at a good time. The movement befits the good moment that the SPACs (acronym for Special Purpose Acquisition Company), or “blank check” companies have faced in the last year. This model raised $80 billion in the United States in 2020, an amount greater than the combined volume for every year since the emergence of SPACs in 2003.
The platform arrives based in Brazil. Now, seeing is believing the impact it will be able to exert in the country. Leaving the pandemic and parts shortage problems behind is just the initial step that Qell LATAM Partners will have to overcome over the next few years. But, so much effort can be worth it.
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