The motor industry’s hopes that finance minister Enoch Godongwana would announce details of the government’s plan to support the production of new-energy vehicles (NEVs) in the medium-term budget policy statement (MTBPS) have been dashed, leaving it to wait for the budget in February.
The industry has been engaging with the government on state support for NEVs (hybrids, electric cars and fuel-cell cars) since May 2021, and several senior executives said recently that they expected Godongwana to offer a blueprint in his medium-term budget.
The industry has been waiting eagerly for the long-delayed plan on how to deal with NEVs as this affects their investment plans to transition from internal combustion engines (ICEs).
More than two-thirds of the vehicles built in SA are exported, most to markets that have announced plans to ban the sale of new ICE vehicles. While many other markets, notably in Africa, will continue to use ICE vehicles for years to come, motor companies fear increased sales to these markets will not compensate for losses elsewhere.
To make the necessary strategic decisions, companies and their multinational parents say they need to know the government’s support plans.
Godongwana said on Wednesday that the government plans to implement tax and expenditure measures to support the automotive sector during its transition to NEVs, adding that details will be provided in the Budget Review in February.
“In automotives, a major export and source of employment, the transition to NEVs poses an existential threat to SA vehicle production. This transition will require balancing domestic market demand, establishing renewable energy-based charging infrastructure and supporting production.
“The goal is to make sure the sector remains a major contributor to the industrial development of the domestic economy.
“Part of the broader strategy includes collaborating with other African countries to develop battery production capacity on the continent by pooling the critical mineral resource base that Africa is endowed with.”
Earlier, during a media briefing, Godongwana said in reply to a question that it is likely that tax support will start to flow only in 2026. A framework for support for NEVs has been designed by the Treasury in collaboration with the department of trade, industry & competition.
The minister said if an incentive were provided for consumers to buy NEVs, “we must kiss production in SA goodbye”. The government is a bit reluctant to look into this because it will encourage imports when the aim of any incentive is to encourage local production.
“Our first approach at the moment is the export market, because the majority of cars are for the export market.”
There is general industry disbelief that the government has failed to meet yet another policy deadline. In October 2021 the industry was told to expect clarity in Godongwana’s February 2023 budget speech. In October, executives at a motor industry conference said they had been assured all would be revealed on November 1.
Loss of investment
Shortly before Godongwana spoke, industry association Naamsa said failure to provide clarity “could result in SA automobile makers facing the threat of losing significant investment for local production”.
While welcoming Godongwana’s assurance of the government’s intention to eventually support an NEV transition, Renai Moothilal, director of the National Association of Automotive Component and Allied Manufacturers, said generalities are no longer sufficient.
“Lack of detail on how [the transition] will work is not helpful at this stage,” he said. “We have been engaged with the government over recent months in the expectation of an in-depth policy announcement aligned to the MTPBS and every month [that] it is further delayed could end up costly in terms of new production allocations for vehicle assembly and related component manufacture in SA.”
Mark Raine, joint CEO of Mercedes-Benz SA, said: “As a major industry player and contributor to the GDP, we require that a firm and decisive directive be made on NEVs in the fiscal plans and forecasts of the state.
“Clearer policy on NEVs will not only give confidence to investors but also ensure that they are able to contribute to value addition, creating a viable ecosystem for electric vehicles and enabling enterprise and socioeconomic development.
“The automotive industry’s global competitiveness is predicated on it continuing to be a part of the global supply chain and [it] needs a favourable policy to enable this.”
Mike Whitfield, MD of Stellantis SA, which recently announced a R3bn investment to build Peugeots in the Eastern Cape, described the speech as “a missed opportunity”.
Update: November 1 2023
This story has been updated with more industry comment.
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