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SA is not leaving itself time to transition to EVs, and a vitally important industry could die

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Sasha Planting is a seasoned financial journalist and Associate Business Editor at Daily Maverick Business.

“Dirty engine vehicles.” That is how the European Union refers to the internal combustion engine (ICE) vehicles manufactured in South Africa. And it has made it patently clear that in eight years’ time it will not accept the BMWs, Volkswagens, Fords, Mercs, Toyotas and other makes that are assembled in South Africa. This is a large and looming problem.

The EU and UK (to which about 75% of all vehicles produced in SA are exported) have set aggressive targets for the phase-out of ICE vehicles and the introduction of electric vehicles. Norway, for instance, has announced its  intention to ban the sales of new ICE vehicles from as early as 2025, while the UK, our top vehicle export destination, announced plans in late 2020 to bring forward the ban of sales of traditional petrol and diesel cars to 2030, five years earlier than planned.

South Africa, on the other hand, has no EV market to speak of. EVs on our roads number in the hundreds and none of the local original equipment manufacturers (OEMs) produce EVs here, though Toyota, Land Rover and BMW produce hybrids.

The 25% import duty on EVs (compared to 18% on traditional motors) makes importing these vehicles prohibitive, particularly as EVs have not yet achieved price parity with their ICE equivalents. Though, at the speed the market is developing, price parity will happen by 2023 or 2024.

South Africa has to catch up. Unless we adapt, our export markets will shut their doors on us and the industry will shrivel and die. The consequences bear talking about.

About one-third of value addition within the domestic manufacturing sector is derived either directly or indirectly from vehicle assembly and automotive component manufacturing activity. This is the pinnacle of industry in this country and accounts for 8% of GDP, employs over 100,000 people and in 2020 – a torrid year – generated R175-billion in export revenue.

That this is under threat is not news to either the Department of Trade, Industry and Competition (DTIC) or the local OEMs. In May last year, the DTIC released a green paper on the advancement of new energy vehicles in South Africa. This was after minister Ebrahim Patel engaged the industry in 2019 to help develop a roadmap for local production of EVs. The green paper, on the face of it, is a workable document to establish a clear policy for strategic planning to position South Africa at the forefront of advanced vehicle and component manufacturing.

The strategy is complemented by a consumption leg, and a focus on increasing competitiveness in the global race to transition from the ICE to electro-mobility solutions and technologies. This is all good. But time is of the essence. The DTIC promised that the green paper process would be completed in 2021, with the white paper, which will crystallise the government’s policy direction, released shortly thereafter. We are now virtually through January 2022 and there has been nary a peep from DTIC.

Mike Mabasa, chairman of the Automotive Business Council, pulls his hair out over this: “We are moving at a snail’s pace.”

The problem is not that government and industry are not on the same page – they are. Both want to advance the standing of our motor manufacturing industry on the world stage. Consultation ahead of the green paper was extensive and, judging from the completed document, the department paid attention. But the process is taking too long.

Of course, one cannot simply wave a wand and wish it to happen. To be fair to DTIC, making changes to the Automotive Industry Masterplan is no picnic. It’s a hugely complex system of export rebates, investment incentives and trade arrangements (mainly with the EU) that is designed to offset the geographical cost of building cars so far away from their main markets. This means that the categorisation of new components, investments in infrastructure, and other elements required to support investments in EVs, needs to be brought into the plan.

But time waits for no one. On the other side of the coin, the SA-based OEMs are part of global supply chains that are equally complex. The capital investment required to change a line is immense and the lead times to do so in the region of seven years. As Mabasa says drily, the industry cannot move at aircraft speed without policy certainty from the government. SA is now conspicuous by its absence – other vehicle-producing countries like China, Korea, Japan and the US have introduced attractive incentives to encourage local EV manufacture and adoption.

There are also other factors to consider. The fuel tax and carbon tax (charged on fuel and new car sales) are significant contributors to the fiscus. Also, the industry that has grown up around motor manufacturing and fuel refining/import/distribution is a significant employer and there is no doubt it will be significantly disrupted by electric vehicles. But change is coming. If we do not adapt – fast – other places will eat our lunch. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.

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All Comments 4

  • 100% spot on. Our reaction to the coming EV revolution is like a frog in front of a snake. The green paper was a good start. But it was too late, which means it needs even more rapid follow up.

    • Correct, and golf carts would be easy to build. On that note though, EV’s are in the same ‘luxury’ category as golf carts when it comes to import duties.

  • Thanks Sasha. A well written and succinct article. SA is ripe for the introduction of an affordable small to mid-sized SUV style EV in the price bracket of R 600 K to R 900 K. They would be snapped-up like chardonnay sandwiches at a garden party. Many potential buyers probably have solar panels and backup systems at their homes already. Not all EV charging will be done via Eskom supply.

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