SA car sales surge while export slumps

From the newsletter

Just after an eventful month filled with hope for the South African auto industry, a report released by Naamsa, the automotive association, on Friday paints a picture of contrasting trends. The report points out that domestic new vehicle sales increased by 14.5%, while export sales dropped by 42.6% over a year. 

• The passenger car sales increased by 5.5% in October 2024, marking it as the highest passenger car sales month since October 2019.

• For the domestic sales, an estimated 80.4% represented dealer sales, while 14.8% were sales to the vehicle rental industry, 2.6% to corporate fleets, and 2.2% to government.

More details

• The South African auto industry is facing a challenging future, particularly in the export market. 

• In the report vehicle exports declined by 42.6% due to several factors, such as model changes, stricter European emissions standards, and the rise of Chinese EVs.

• The domestic market has shown mixed results. The passenger car segment saw strong growth in October 2024, with sales up 14.5% year-on-year. Car rental companies played a significant role, accounting for nearly 20% of sales. 

• On the other hand, domestic sales of light commercial vehicles (pickups and minibuses) dropped by 12.7%. The medium and heavy truck segments also recorded declines.

• Naamsa CEO Mikel Mabasa highlighted the sluggish growth in the European market, citing the EU's low economic growth rate as the reason for poor exports. 

• He further cited the changing market landscape, including emissions regulations and competition from Chinese EVs, as contributing factors.

• Despite the challenges, Mabasa remains optimistic about the future of the South African car market. He cited easing inflation and potential interest rate cuts as positive factors that could boost domestic sales. 

• He also suggested that an easing of monetary policy in key export markets could help revive vehicle export momentum in the medium term.

• However, there is hope for growth in the EV manufacturing sector, as the government plans to roll out incentives and subsidies for both manufacturers and consumers.

Our take

• Facing a slowdown in key export markets and stringent emissions targets like the CBAM, South Africa's auto industry risks export losses unless it accelerates its transition to EV manufacturing.

• However, strong domestic demand for traditional vehicles necessitates continued ICE production alongside EV manufacturing. This dual focus would demand a double investment strategy which would strain resources.

• Strategic partnerships with established EV manufacturers offer South African companies a cost-effective pathway in ICE and EV production allowing them to mitigate potential financial risks.