SA’s car manufacturing
“‘Dirty engine vehicles.’ That is how the European Union refers to the internal combustion engine (ICE) vehicles manufactured in South Africa,” writes Daily Maverick’s Sasha Planting.
The EU has made it explicitly clear that BMWs, Volkswagens, Toyotas, Fords and Mercedes-Benzes that are manufactured South Africa will no longer be accepted as imports. When one considers that 75% of all vehicles produced in South Africa are exported, the prospect of this is frightening for both investors, as well as those who work in the manufacturing plants – decreased demand equals lower production, which equates to fewer hands being needed. The knock-on will be catastrophic.
Aggressive targets for the phasing out of ICE vehicles and the introduction of alternatives such as EV’s have been set by the EU and the UK, with the 2035 ban in the UK having been brought forward to 2030, and nations such as Norway banning diesel- and petrol-powered vehicles as soon as 2025, notes Planting.
By stark contrast, bans like that are not even on the radar of local lawmakers and our very nearly non-existent EV market is an indication of just how far we are behind other nations. Part of the reason for this is that EV’s carry an absurd 25% import duty, 7% higher than that of traditional vehicles, whereas other nations offer incentives and rebates to those interested in purchasing EV’s. Additionally, EV’s are still relatively new and as a result, price parity with ICE equivalents has not yet been achieved, although at the rate that things are changing and the EV market developing, this is likely to happen by 2024.
The bottom line is that a lot has to change in SA’s car manufacturing industry, and rather rapidly, too. The alternative is that our export markets will turn away our products and SA’s car manufacturing industry will likely die a sad and messy death.
Daily Maverick points out that roughly one-third of value addition within the domestic manufacturing sector is derived either directly or indirectly from vehicle assembly and automotive component manufacturing activity. As the pinnacle of industry in South Africa, it accounts for 8% of our GDP, in the terrible year that was 2020 employed 100 000 people and even generated R175-billion in export revenue alone. Those are big numbers, and this something that really needs to be addressed sooner rather than later.
In 2019, minister Ebrahim Patel engaged the industry to help develop a roadmap for the local production of EV’s which resulted in a green paper being released by the Department of Trade, Industry and Competition (DTIC). Essentially, the green paper presents as a workable document for the establishment of a clear policy for strategic planning with the end goal being the positioning of South Africa at the forefront of both component and advanced vehicle manufacturing. So there is hope, as well as an opportunity for local industry to lift its skirt and catch up to the rest of the world. But alas, its not that simple…
It would seem that a glacial pace is the theme applied here with the DTIC having promised that 2021 would see the completion of the green paper process and the crystallisation of government’s policy direction to then happen shortly thereafter, aka the white paper process. February 2022 knocks on the door and not a word has been heard from the DTIC.
Daily Maverick cites that the government and industry on the same page, with extensive consultation and careful consideration having been taken throughout the above process, as judged by the finished document. Both parties have interests in the advancement of SA’s car manufacturing industry on the global stage, but it would appear that issue here is a complete and utter misunderstanding of just how urgent this matter is.
Of course, this cannot all change overnight, with complexities such as investment incentives, export rebates, and trade arrangements, designed to offset the geographical cost of building cars far away from their retail markets, all requiring careful consideration by the DTIC.
But this doesn’t change the fact that the clock is ticking, and 2030 is, in policy terms, around the corner. Not to mention that manufacturers plan vehicle production long before the finished product is launched. With model cycles running approximately seven years before a replacement is introduced, we essentially have until 2023 to have this debacle sorted. China, Korea, Japan and the US have all introduced attractive incentives designed to encourage the local manufacturing of EVs, as well as market adoption, and South Africa’s absence from this important cocktail party is conspicuous to say the least.
As a final spanner destined to be thrown into the works, one must also consider that considerable contributors to the fiscus are our good old friends carbon tax (added to the cost of fuel and new vehicle prices) and fuel tax (fuel increase on the way). A not inconsiderable number of local jobs are created by the import, refinement and distribution of fuel and this will most certainly be an industry disrupted by widespread adoption of electric mobility.
Yes, there’s a lot to consider when looking at changing SA’s car manufacturing industry, as well as a spectacular opportunity for government and industry to turn things around, but as it stands, there’s really quite a lot at stake.