Electric vehicles: SA motoring industry fights for relevance
The world is motoring towards electric vehicle (EV) rollout but South Africa is walking into a crisis as our biggest market, the EU, has outgrown our love of fossil fuels.
South Africa’s automotive sector is at risk of being consigned to oblivion if it is unable to compete on an international scale.
And competition is hotting up.
On 14 February, the European Parliament finally gave formal approval to ban all internal combustion vehicles by 2035. Key vehicle manufacturers such as Mercedes-Benz, Volkswagen and BMW are on track to phase out internal combustion engine (ICE) vehicles, to stem car emissions.
By 2030, the US expects to have an electric vehicle (EV) charging network of half a million stations across the country, through an ambitious $7.5-billion, federally funded programme.
China, the world’s largest car market, not only increased sales of vehicles by 61% last year, but its companies are innovating faster, which is potentially accelerating the transition off fossil-fuel powered transport and putting it on track to displace Japan as the biggest exporter. The country’s Association of Automobile Manufacturers expects sales of EVs and plug-in hybrids to surge by 35% in 2023 to nine million vehicles, which is almost a third of China’s total new vehicle sales.
SA’s local automotive sector has now released a thought leadership discussion document on new-energy vehicles (NEVs), to remain globally competitive.
Naamsa CEO Mikel Mabasa says the industry understands and appreciates that the introduction of NEVs is not just about replacing the traditional ICE with new technologies, but also about the role the industry plays in decarbonising road transport in achieving carbon neutrality by 2050.
“The global transition towards NEVs is a critical step to secure the future of the automotive industry in South Africa. Our rapid adoption to newer technologies is critical for the domestic automotive industry’s long-term success and growth.
“The only way to have a successful automotive manufacturing base is to keep up with technological developments.”
He said that “the South African automotive industry cannot be running on one development technology track whilst the rest of the world is way ahead on the same track”.
“If we want to remain globally competitive, we have no option but to play with the big global players who are leading the NEV charge.”
Government ‘painfully slow’
However, on the government front, SA has been “painfully slow” in finalising its governance and policy transformation priorities.
“We need to urgently enhance existing auto policies to facilitate a high-yielding business environment, including developing an attractive fiscal and regulatory framework that makes South Africa a highly competitive and compelling location for NEV production.”
The South African National Greenhouse Gas Inventory has identified the transport sector as the fastest-growing source of greenhouse gas emissions, accounting for around 10.8% of national emissions. Aviation emissions account for 5%; maritime 2.2%; rail 1.6% and direct emissions from the road sector account for 91.2%, mainly from the combustion of petrol and diesel.
The automotive industry is planning to invest $515-billion globally by 2030 to help facilitate the transition to an NEV future (which includes battery, plug-in hybrid and fuel cell electric vehicles) while continuing to innovate on the broad array of powertrain technologies to meet global market needs.
SA needs the flexibility to adopt multiple technologies and policies best suited to its unique socioeconomic realities, Naamsa says, including current pressures on the national fiscus; our geographical location; persistent socioeconomic problems; slow economic growth trajectory and geopolitical considerations within the region and across Africa.
To support the transition of the SA automotive industry to an NEV-dominated market, the automotive industry has called on the government to:
- Commit to reducing CO2 emissions across the entire auto value chain as soon as it is practically possible. Although NEVs do not emit CO2 while in use, CO2 is emitted during the manufacture, distribution, recycling and disposal process.
- Ensure that the manufacturing base in SA is protected, strengthened and retained, given that the country is at risk of losing more than 50% of its production volume from July 2025 [on instruction of Euro 7 emission regulations in Europe] to 2035 [when ICE drivetrains in almost all the European countries will be banned];
- Introduce NEV purchasing subsidies;
- Align NEV import tariffs from the EU and the UK from 25% to 18%;
- Provide a 50% rebate on the import of specified NEV components for a limited period;
- Increase in the Automotive Investment Scheme (AIS) for NEV investment from 30% for OEMs and 35% for component suppliers to 50% and expand the AIS offering for NEV investment to lower tier suppliers, including suppliers that conduct raw material beneficiation, and
- Encourage NEV investment into SA and support export competitiveness while the economies of scale are low.
On 18 May 2021, the Department of Trade, Industry and Competition (DTIC) published a Green Paper on the Advancement of New Energy Vehicles, after extensive industry consultations and with an undertaking to issue a White Paper by the end of the year.
The paper explores support and infrastructure investment needed to encourage NEV uptake within the context of wider economic recovery efforts through market stimulus and supply chain support measures.
It also looks at an investment and tax system to build a resilient raw material supply chain to support the country’s efforts to be a global player in NEV manufacturing, as well as how to retain preferential access to major trading partners to allow the country to maintain global competitiveness and foster innovation.
The White Paper, which the DTIC promised to deliver by year-end, has still not been issued.
The automotive industry believes its thought leadership on EVs will help support and strengthen SA’s long-term strategy towards NEVs.
Citing the president’s State of the Nation Address earlier this month, Mabaso says they were eagerly waiting for the National Budget Speech announcement to inform the NEV Roadmap, saying once there was a clear policy directive and commitment from the government, OEMs would be able to act quickly and the DTIC could finalise an NEV White Paper without further delays.
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NEVs were performing well under the circumstances: sales showed a 431.7% year-on-year increase from 896 units in 2021 to 4,764 units in 2022, but still remain negligible as a percentage of total new vehicle sales.
The Naamsa document suggests that consumers are becoming more educated about the technology and want newer technology vehicles – but at a “modest price”.
The cheapest EV on the market is the Mini Cooper SE (at R750,000). Haval’s Ora, which is expected to sell for about R600,000, arrives on our shores in Q4 of 2023. In the eyes of the average South African consumer, that’s still not exactly a “budget” offering.
Mabaso says despite lower running costs, the high upfront purchasing cost of NEVs has been the main deterrent to increased NEV uptake in South Africa, exacerbated by high taxes, including VAT; the ad valorem excise duty (which is based on a sliding scale up to 30%), and the import tariff.
Add to this the limited product availability, range anxiety, security of electricity supply and a limited understanding of the technology, and the average SA car buyer is unlikely to be able to afford an EV.
Compared to their ICE equivalents, the international pricing gap for NEV models is 12% for hybrids, 43% for plug-in hybrids and 52% for battery-electric vehicles. BM/DM