SA’s automotive industry could lose access to lucrative export markets such as the EU and the UK unless it attracts new investment to retool its factories to manufacture electric vehicles, Rand Merchant Bank (RMB) warned.
The EU and the UK plan to ban imports of vehicles powered by carbon-emitting internal combustion engines (ICEs) by 2030, thereby imperilling access to two of SA’s biggest export markets for locally manufactured vehicles. RMB’s warning comes as global leaders meet in Glasgow, Scotland, for the UN’s 26th climate change conference (COP26) to discuss the global transition to a less carbon-intensive economic system.
“The potential impact of not making these investments may have dire consequences for our export-led car sector which is the envy of many globally,” said Simon Woodward, automotive sector head at RMB.
According to the 2020 Automotive Export Manual, SA produced 631,983 passenger and commercial vehicles in 2019, of which about 61% — or 387,125 vehicles valued at R148bn — were exported to 151 countries. In addition, a further R53.7bn in automotive components were exported in 2019, according to the manual, which is published by the Automotive Export Industry Council (AIEC).
Nevertheless, the impact of Covid-19 has taken its toll on the industry with SA’s vehicle exports declining by 115,804 units, or almost 30%, to 271,288 in 2020.
Though Germany remained the biggest destination for SA automotive exports in rand terms in 2019 and 2020, the UK was the biggest export destination when measured in terms of volume.
Woodward says SA’s automotive supply chain will need to pivot towards the production of electric vehicles and associated parts to meet ambitious carbon reduction commitments by advanced markets.
Nevertheless, he says he is encouraged by the department of trade, industry and competition’s (DTIC’s) draft green paper on the advancement of new-energy vehicles in SA, which was released by minister Ebrahim Patel earlier in 2021. Woodward says the paper recognises the need to modify existing manufacturing plants to produce hybrid and ultimately electric vehicles, but that vehicle manufactures cannot be expected to shoulder the cost of such investment alone.
“They will require support from the SA government, perhaps via higher value export incentives, as well as banks and organised labour,” Woodward said.
Government incentives may also be required to encourage local consumers to embrace electric vehicles to develop the domestic market as well.
“A good starting point would be for the government to consider tax incentives for the purchase of new, domestically produced EV vehicles,” says Woodward. “The current import tax regime for EVs is punitive and adds tens of thousands of rand to the cost of even the most basic electric vehicle.”
Funding assistance
Woodward says banks are ready to help fund the transition of the local automotive sector, which is likely to face new local regulatory incentives to embrace electric vehicle production. Another challenge is the big difference in price between electric vehicles and ICE-powered models of similar size.
“One OEM [original equipment manufacturer] mentioned that its small SUV costs about R500,000 in SA, while the imported cost of the EV derivative would be about R750,000,” says Woodward.
For SA to embrace electric vehicles will also require the expansion of charging stations, something that won’t be easy amid ongoing power generation challenges from the country’s ageing and fragile coal-fired grid. The charging platforms will also need to be compatible across vehicle brands.
Other obstacles to overcome include concern about the range of electric vehicles and consumer scepticism about the ability to charge vehicles amid the ongoing rolling blackouts facing the country.
“It will be interesting to see the role which the fuel energy companies take in terms of making forecourts available for the increased installation of EV power units,” says Woodward.
“A potential solution could involve the coupling of incentives by car manufacturers and the government so that new EV cars are sold with photovoltaic (PV) solar solutions for homes — like solar panels. These would help homes become less reliant on the grid, ensuring a more reliable power supply.”
Update: November 2 2021
This story has been updated with export figures from the 2020 Automotive Export Manual
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