Can EVs save SA's auto industry?

December 04, 2024

From the newsletter

South Africa's automotive sector has experienced a slowdown in fuel vehicle exports, according to the latest data from Naamsa, the automotive business council. In the first 11 months of the year, vehicle exports declined by 23.9% compared to the same period last year. However, EV sales have been increasing.

  • The automotive sector plays a big role in South Africa's economy. In 2023, the export of vehicles and automotive components reached a record amount of $15 million, equating to 14.7% of South Africa's total exports.    

  • South Africa's auto industry could lose 50% of its export markets in the long term if it continued manufacturing fuel vehicles and components exclusively.

More details

  • The automotive industry remains a significant contributor to the South African economy, despite the decline in exports. It accounts for 21.9% of the country's manufacturing output and provides employment for a large workforce. The manufacturing segment alone employs around 116,000 people, and when combined with the industry's multiplier effect, it supports approximately 498,000 jobs in the formal sector.

  • Industry experts have warned that South Africa's decisions in the next few years, particularly regarding government policy and investment in new technologies, will profoundly impact the future of its auto industry. These decisions will shape the industry's trajectory, influencing job creation, skills development, and the types of vehicles sold in the country. Therefore, the government needs to be more proactive.

  • The government is attempting to support EV manufacturing. It has developed a white paper that seeks to allow companies that invest in EV production to claim a 150% tax deduction on qualifying investments. This includes new and unused assets like buildings, machinery, and plants. The country aims to produce 1.4 million vehicles annually by 2035, with 60% local content. Achieving this requires significant upskilling of new market entrants and reskilling of existing workers.

  • The private sector is also taking action. The Automotive Industry Development Centre (AIDC) in South Africa has partnered with Chrisnelsa, an automotive quality control company, to launch an EV training centre. The association wants to train 50,000 individuals in electric vehicle and hybrid electric vehicle (EV/HEV) technologies across South Africa and the rest of Africa by 2030.

  • Consumer interest in EVs is growing. 74% of consumers are considering purchasing a hybrid as their next vehicle, while 57% are open to owning an EV. However, concerns about charging infrastructure and higher upfront costs remain barriers to widespread adoption. Despite this, EV sales are increasing (78% year-on-year), albeit from a smaller base. Growth is expected to continue with the introduction of more affordable models, offering consumers more choices.

  • Emerging trends such as car-sharing, ride-hailing, and mobility-as-a-service are also making the transition to EVs easier. Industry experts have identified these as "low-hanging fruit" that the automotive industry could take better advantage of.

  • To speed up the shift to electric vehicles, government support is key. This means providing incentives, improving infrastructure, and offering tax breaks to encourage EV development in South Africa, including making batteries or battery parts and boosting the use of minerals.

  • In the charging space, Charge, an off-grid charging infrastructure provider, has planned to build 120 off-grid stations to support the growing number of EVs on the road. What the industry needs now is to make more EVs available to consumers. Many are interested in owning one. To fill the financing gap, banks are quickly moving to offer EV loans.

Our take

  • The global automotive industry is rapidly transitioning toward electric vehicles, and South Africa must act quickly to avoid being left behind. This shift presents both challenges and opportunities for the country's automotive sector. It will be challenging to reskill and train the new workforce, but there are also opportunities to tap into the growing EV export market.

  • Incentives to support both manufacturers and consumers are crucial for encouraging the adoption of EVs. This way, EV costs can be lowered for consumers. These could include providing tax breaks, subsidies, and investments in charging infrastructure.  

  • The current EV sales in South Africa aren't enough to fuel the sector's growth, but the potential lies in export markets, particularly Europe, where it exports most of its vehicles.  Targeting this should be the end goal to revive the ailing auto industry.