South Africa’s automotive industry is approaching an inflection point. Rising vehicle imports from China and India, weak domestic demand, policy uncertainty and an incomplete transition to new energy vehicles have placed the sector under acute pressure.
The threat posed by imports is severe, and it is already manifesting in risks to manufacturing plants and job losses. Yet the policy response emerging from the government remains hesitant, fragmented and increasingly reliant on blunt instruments rather than the required structural reforms.
This policy paralysis was underscored recently by developments at the Volkswagen Kariega plant. In an engagement between parliament’s portfolio committee on trade, industry & competition and senior executives from the automotive sector, it was made explicitly clear that the absence of a coherent industrial policy framework is threatening the Kariega plant.
The message from industry was unambiguous: prolonged uncertainty about how or whether the APDP will evolve is eroding confidence and undermining investment decisions across the sector.
Central to this concern is the inadequacy of the Automotive Production and Development Plan (APDP), the government’s primary policy instrument for the sector, which is increasingly seen as not fit for purpose in a rapidly changing global automotive landscape.
The APDP was designed for an era defined by internal combustion engines, stable global trade flows and predictable investment cycles. Today the industry faces electrification, shifting supply chains and intensified competition from emerging manufacturing hubs. Yet policy has lagged behind structural change. The message from industry was unambiguous: prolonged uncertainty about how or whether the APDP will evolve is eroding confidence and undermining investment decisions across the sector.
The government’s slow response is particularly concerning given the economic importance of the automotive sector. The manufacturing segment alone employs roughly 110,000 workers, while multiplier effects mean the sector is responsible for about 457,000 jobs across the formal economy. Automotive production accounts for a substantial share of manufacturing output and contributes over 5% of GDP.
Tangible threat
Nowhere are these stakes more tangible than in the Eastern Cape. The Volkswagen facility in Kariega sustains about 3,500 direct jobs and an estimated 50,000 livelihoods. Wages from assembly lines feed households, sustain small local businesses and anchor municipal revenue bases. Plant closures or production scaling down therefore do not merely result in job losses; they disrupt entire local economies.
It is against this backdrop that proposals to raise tariffs on imported vehicles must be assessed. There is no dispute that rapidly increasing imports from China and India are exerting competitive pressure on domestic manufacturers. However, escalating tariffs towards World Trade Organisation-bound rates represents a misalignment between diagnosis and cure. Tariffs are a blunt instrument that raise prices for consumers without resolving the structural barriers that constrain local competitiveness.
From an economic perspective, tariff increases function as a tax on households, particularly those in the entry-level vehicle segment who can least afford it. Entry-level vehicle prices have already risen sharply over the past two decades due to a weaker rand, inflation, the burden of over-regulation and rising production costs. Failure to adjust ad valorem duties for inflation have also pulled more and more entry-level vehicles into higher tariff brackets. Further increasing tariffs will suppress demand in a market that already lacks scale, reducing volumes and undermining the viability of domestic production instead of strengthening it.
Binding constraints
More importantly, tariffs do not address the binding constraints facing the sector. Manufacturers consistently identify unreliable electricity supply, logistics inefficiencies and an unclear framework for the transition to new energy vehicles as the principal obstacles to attracting investment and boosting competitiveness. Using tariffs to compensate for these weaknesses risks entrenching inefficiency while postponing necessary structural reform.
The uncertainty surrounding industrial incentives only worsens the problem. As seen in the film and television production sector, mismanaged incentive programmes can do lasting damage to investor confidence. When businesses cannot rely on predictable policy frameworks they take their money elsewhere or simply don’t spend it at all.
There is also a geopolitical dimension that cannot be ignored. China and India are not merely sources of imports. They are economic partners and potential investors. An adversarial tariff strategy risks undermining economic diplomacy at a time when South Africa should be expanding its trade ties and attracting investment. Investors need certainty, efficiency and credible reform, not protectionist signals that suggest policy volatility.
A more effective approach requires government to make tough choices and implement structural reforms that fix the competitiveness problem at its roots. In energy, this means accelerating the transition towards a genuinely competitive electricity market: fully unbundling the transmission grid; expanding independent transmission capacity; enabling private generation at scale; and ensuring predictable grid access for industrial users.
It also requires procurement processes that prioritise reliability and price stability, alongside regulatory certainty that allows manufacturers to plan long-term investment in electrification and new energy vehicle production. Industrial competitiveness cannot be sustained in an environment where firms must waste billions of rand simply to keep the lights on during load-shedding episodes.
Transport and logistics reform
Transport and logistics reform is equally fundamental. Rail and port infrastructure must be opened to greater competition, infrastructure management must be fully separated from operations, and private-sector participation in freight corridors must be the rule, not the exception.
Restoring network reliability, improving port turnaround times and investing in the modernisation of logistics infrastructure are central to reducing export costs and integrating domestic producers into global value chains.
For an export-orientated sector such as automotive manufacturing, inefficient logistics directly translate into lost contracts and declining production volumes. Persistent congestion and equipment failures at major vehicle export terminals have resulted in shipment delays measured in days rather than hours, undermining South Africa’s reliability as a just-in-time supplier to international markets.
Crucially, industrial policy must be disciplined and forward-looking. Support mechanisms should be targeted, transparent and conditional on performance, rather than open-ended or protectionist. The objective should not be to insulate firms from competition, but to enable them to compete under global market conditions. This requires the political will to prioritise long-term growth over short-term risk aversion.
South Africa’s automotive sector does not need rhetorical commitments or delayed reviews. It needs clarity, decisiveness and reform. The warning signs from committee engagements, industry leaders and plant-level developments are already visible. The question is no longer whether government should act, but whether it is willing to do so before irreversible damage is done.
• Mdluli, an MP for the DA, serves on the parliamentary portfolio committee on trade, industry & competition.
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