EV manufacturing key to SA auto industry exports

October 28, 2024

From the newsletter

The writings are on the wall for South Africa's automotive sector. As the global transition to EVS takes shape, South Africa either embraces EV manufacturing or loses out on its export market. Experts and industry leaders speaking at the Manufacturing Indaba last week believe now is the time for South Africa to capitalise on this new opportunity and become a key player in the global EV value chain.

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

  • But in the short term, the demand for ICE vehicles still exists based on 2023 export data where SA exports increased by 13.6%.

More details

  • To maintain its position in the global automotive market, South Africa must proactively transition to electric vehicle (EV) manufacturing. 

  • Currently, South Africa's main automotive market is Europe, which accounts for over 54% of its exports. Germany, in particular, has been the leading destination for South African-built vehicles since 2016, with numbers holding steady while other markets have declined.

  • However, this reliance on the European market poses a significant risk. European countries are leading the transition to EVs, which could lock out South African exports of ICE vehicles. The introduction of the Carbon Border Adjustment Mechanism (CBAM) by the European Union will further increase the cost of South African auto industry products, making them less competitive.

  • The solution, according to experts, is for South Africa to transition to EV manufacturing to cater to these new market demands. 

  • Key manufacturing provinces, like the Eastern Cape, are particularly vulnerable. The Eastern Cape accounts for 50% of South Africa's automotive exports and hosts 70% of the country's automotive component manufacturers. If the sector remains solely focused on ICE vehicles, these provinces, and the South African economy as a whole, will be at risk.

  • Fortunately, South Africa possesses the foundational elements for a successful transition. According to East London Industrial Development Zone (IDZ) senior manager, Ayanda Ramncwana, South Africa does not need a drastic overhaul of its manufacturing capability to increase EV production. 

  • The country is well-positioned to explore more EV production opportunities, with existing infrastructure and a skilled workforce ready to support this shift. The port infrastructure and higher education institutions are well-positioned to support EV manufacturing in terms of exports and skills development. 

  • Stellenbosch University's successful conversion of an ICE bus to electric power demonstrates that the workforce is skilled and ready to handle the task ahead.

  • Beyond Europe, South Africa should also diversify its market reach and target African countries. 

  • This is especially important considering the massive opportunity within the ICE market in Africa, with many countries considering a review of their importation rules. Some are slowly reducing the import years of old vehicles, and others are deferring their emission reduction targets. 

  • Emerging trends such as car-sharing, ride-hailing, and mobility-as-a-service are also making the transition to EVs easier. City of Windhoek urban and transport planning specialist, Prisca Mayumbelo, identified these as "low-hanging fruit" that the automotive industry could take better advantage of. 

  • With African cities experiencing a population boom from remote areas, the need for accessible transportation, including mobility-as-a-service and ride-hailing apps, will arise.

  • To accelerate this transition, continued government support is crucial. EV manufacturing company Everlectric co-founder, Ndia Magadgela, emphasized the importance of government incentives, infrastructure improvements, and tax rebates to encourage more EV developments in the country, including battery or battery component production and increased mineral beneficiation.

Our take

  • The shift to EVs is a global trend, and South Africa cannot afford to be left behind. The country has the potential to become a major player in the EV market, but it needs to act decisively.

  • The transition to EVs will require significant investment and collaboration between the government, industry, and research institutions. However, the long-term benefits for the economy and the environment will be substantial.

  • Africa itself presents a huge market opportunity. This is especially true now that some countries are taking action to promote EVs. For example, Ethiopia is banning the importation of ICE vehicles, and Kenya is considering reducing the age limit for second-hand vehicles.

  • South Africa's mature automotive sector gives it an unrivalled advantage. It can utilise this to ensure a smooth transition to EVs and avoid losing export revenue. By leveraging its existing manufacturing expertise and skilled workforce, South Africa can attract investment from international EV manufacturers and establish itself as a hub for EV production in Africa.