Delays in designing a new-energy vehicle (NEV) strategy for SA might not be a bad thing if it allows the country to avoid pitfalls being encountered elsewhere, says Toyota SA president Andrew Kirby.
The department of trade, industry & competition had hoped to publish a white paper late in 2021, outlining its strategy for encouraging the local sale and manufacture of electric vehicles (EV) and other alternative sources of automotive power, such as hydrogen.
However Kirby, who has played a central role in NEV policy discussions with the government, said in an interview on Thursday that the white paper is probably six months from completion. “We expect it later this year.”
Besides the question of whether Eskom and other potential providers can guarantee the energy required for a wholesale shift to EVs, there is also the small matter of cost. The new vehicles are much more expensive to manufacture than those using the traditional internal combustion engine (ICE). Almost without exception, EV sales have thrived in countries where governments have offered big cash and tax incentives to buyers.
Those incentives may diminish as higher manufacturing volumes reduce EV unit costs but parity is still many years away. In the UK, EV buyers pay neither fuel duty nor vehicle excise duty, a situation which the House of Commons transport committee warned in February would eventually create a £3bn hole — that is R723bn to you and me — in tax revenues.
Previous reports have expressed doubt about whether the UK national power grid will be able to cope with energy demand after the UK goes all-electric. In 2030, in common with many other countries, it will ban the sale of new petrol and diesel ICE vehicles. Hybrid vehicles, using dual petrol and electric motors, will be outlawed five years later. In theory, by 2040 ICE vehicles will be a thing of the past in those markets.
Lessons learnt
The UK is by no means the only country wondering how to plug revenue holes caused by green policies. One proposal being considered by several countries is to tax EVs for every kilometre they travel.
Kirby says, “There are lessons to be learnt from the experiences of the UK and others. If these are the struggles of first-world countries, imagine what it will be like for a country like ours.”
While he is sympathetic to the SA government’s plight — “it’s not easy finding a solution that won’t cost the fiscus too much, particularly after the Covid-19 complications of the last two years” — he does not want the government to procrastinate too long on NEV policy.
Toyota is losing money on every hybrid sale of the Corolla Cross sports utility vehicle it launched late in 2021. The vehicle is available with either hybrid or all-petrol engines. Hybrids, with their expensive electric-battery motors, cost considerably more to manufacture than traditional cars and this is usually reflected in pricing.
Toyota narrowed this gap on the Corolla Cross by building in subsidies it believed would be available to hybrids this year under the government’s NEV strategy. The longer that strategy is delayed, the harder it will be for Toyota to maintain current hybrid pricing.
“For now, we are prepared to subsidise the loss we are making on our hybrids. Eventually, however, if there is no subsidy, the price will increase,” says Kirby.
As it happens, those losses are limited by the fact that Toyota cannot sell as many hybrids as it would like. About 40% of Corolla Cross demand is for hybrids but a shortage of imported electric batteries means “only 20%-25%” of current production is hybrid. Kirby adds: “That will improve over the next two or three years. By 2025, we expect to sell more hybrids than internal combustion engine models.”
Toyota is the only local motor company making mass-market hybrid cars for SA customers. Mercedes-Benz SA makes some C-Class hybrids but they are primarily for export. The government and industry alike hope that SA will eventually become a producer of rechargeable, all-electric cars.
Actually, it does not have much choice. Nearly two-thirds of SA-built cars and light commercial vehicles are exported, most to markets where petrol, diesel and hybrid vehicles will be banned in coming years. While many developing markets, such as SA, without the infrastructure to support millions of EVs, will continue to use ICE vehicles for years, Kirby says there can be no question of SA becoming an old-technology supplier.
“For the long-term sustainability of the industry, we can’t let technology pass us by.” To do so, would jeopardise more than just the motor industry. In ordinary, non-Covid-19 years, the industry is responsible for about 30% of SA manufacturing output and up to 7% of GDP.
Manufacturing’s share dipped below 20% in 2020 because of lockdowns and the collapse of domestic and export demand for vehicles. If Kirby’s crystal ball is working, the motor industry could return to previous heights this year.
More bullish
He believes the SA new-vehicle market could grow 16.3% in 2022, to 540,000 cars and commercial vehicles. Last year, the number was 464,122. Kirby’s forecast would take the market above pre-Covid levels a year earlier than most analysts have predicted. In 2019, the market was 536,6120. “I then expect to see continuous, steady growth until 2025,” he says.
For the second consecutive year, Kirby is more bullish than other analysts. In 2021, his 21% growth forecast was only just short of the actual 22%. Others had bet 12%-15%.
Last week, Standard Bank’s Cyril Zhungu offered 10%-12% for 2022 and the National Automobile Dealers Association’s Alex Boavida 10%-15%. Previously Mikel Mabasa, CEO of Naamsa/the Automotive Business Council, suggested 8%.
Kirby’s confidence (he actually thinks his forecast is conservative) will be music to the ears of government planners. Their SA Automotive Masterplan, launched last July, aims to more than double motor industry employment and production by 2035, and increase local content in SA-made vehicles by at least 50%.
These targets were set before Covid-19 and its impact has set back their achievement by several years. Kirby says the government and industry acknowledge it will take “a further five to 10 years” to meet targets. Frankly, even that may prove an optimistic forecast.
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