The government has officially committed itself to support the sale and manufacture of electric vehicles (EVs) in SA. A green paper published on Tuesday by the department of trade, industry and competition says the local motor industry must adopt the new technology or risk becoming irrelevant.
The green paper, accompanying the department’s 2021 budget vote, says SA should position itself “at the forefront of advanced vehicle and vehicle component manufacturing”. Failure to do so will damage not only the motor industry but also SA’s broader manufacturing base.
Minister Ebrahim Patel said: “We must step up efforts to build electric vehicles (EVs) in SA, to keep our automotive industry at the cutting edge of new market developments and to maintain our export capacity for key markets.”
Potential actions in the paper include additional incentives for EV production and a reduction in duties on imported vehicles and components.
Motor industry officials said on Wednesday they welcome the paper. They are pleased its proposals are not prescriptive and leave the door open to further industry input.
The paper, “The SA Road to Production of Electric Vehicles”, gives interested parties until May 31 to comment. The department wants to submit firm policy proposals to the cabinet by October.
That means they will miss the July 1 scheduled start date of the government’s new motor industry policy, the SA automotive master plan, which will run to 2035. Automotive Business Council CEO Mikel Mabasa said there is no question of the master plan being delayed. “We can comfortably absorb policy changes after the start date.”
In the 2.5 years since announcing the broad structure of the master plan — which is based on an updated version of the eight-year-old automotive production and development programme (APDP)— the government has been accused of ignoring the global shift towards EVs. However, as reported on Monday in Business Day, EVs and other new forms of automotive propulsion, such as hydrogen, have been considered at every stage of the planning process.
SA consumers have shown little interest in buying them, mainly because EVs are much more expensive than ICE vehicles, but also because of a lack of battery-charging infrastructure and doubts about Eskom’s ability to provide power
Together, cars and commercial vehicles powered by these technologies — which include not only all-electric vehicles but also hybrids driven jointly by electric and petrol engines — are known as new-energy vehicles. The paper says their sales grew by 43% in 2020, from 2.26-million to 3.34-million, while the rest of the market is collapsing because of Covid-19.
The paper says: “The forecast is for new-energy car sales to exceed those of internal combustion engine (ICE) sales by 2038, globally.”
The shift could be even faster in Europe, where EVs are forecast to account for 40% of new-vehicle sales by 2030 and 80% by 2040. Many countries there plan to ban sales of new ICE cars from 2030. The SA motor industry exports nearly two-thirds of the vehicles it produces. Last year, 72.8% of those went to Europe. Of the industry’s total vehicle and components export earnings of R175.7bn, the EU took 60%.
While acknowledging that ICE vehicles must remain part of the industry mix, the green paper says SA needs a two-pronged, incentive approach to encourage both the manufacture and local purchase of EVs.
The government is undecided whether to incentivise the manufacture of all-electric vehicles only, or to include hybrids. Whatever the decision, the paper says the industry must “reposition itself” to make many of the unique parts that go into EVs.
These include the battery, which can account for nearly half the vehicle’s cost. The paper says government and industry should also identify other EV-specific components for local manufacture.
As imports, these components might enjoy reduced or zero duties during the localisation process — though this decision would have to be balanced against potential Sars revenue loss and avoid undermining the broader APDP incentives regime. Renai Moothilal, director of the National Association of Automotive Component and Allied Manufacturers (Naacam), said: “There would need to be comprehensive modelling in each case to understand the advantages and disadvantages.”
Manufacturing incentives need to be accompanied by the encouragement of local EV sales, according to the green paper. SA consumers have shown little interest in buying them, mainly because EVs are much more expensive than ICE vehicles, but also because of a lack of battery-charging infrastructure and doubts about Eskom’s ability to provide power.
SA has yet to offer the tax and cashback incentives offered to EV buyers in many other countries, which the green paper says may have to change to reduce the price gap. It says the motor industry has proposed a “compelling” business case to cut EV prices through fringe benefits and reduced ad valorem taxes. Such a principle might be possible “for a period of, say, five years” to kick-start the market.
It says the private sector, rather than the government, may have to lead expansion of the country’s charging infrastructure. The number of charging stations is sufficient for SA’s current EV population but wholly inadequate for a growing market.
Mabasa said he is “very pleased” with the green paper, which follows a series of meetings between industry executives and Patel.
“It’s very comprehensive,” Mabasa said. “What I particularly like is that it’s not prescriptive but gives us room to put forward our views before a final policy is adopted.”
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