The transportation industry is a leading contributor to global warming, placing immense pressure on it to transition from unsustainable operations in line with the Paris Agreement’s emission reduction targets for 2050.
This urgency for change is felt everywhere, including South Africa, which manufactures around 600 000 vehicles annually – 60% for export and 300 000 imported, according to figures from the Automotive Business Council (also known as Naamsa).
Transforming this industry is not only vital for environmental reasons but also to protect over 140 000 jobs in manufacturing and maintain global competitiveness. The Presidential Climate Commission’s 2022 report underlines this need, acknowledging risks and opportunities in the transition toward net-zero emissions.
In November 2023, the department of trade, industry & competition released the Electric Vehicles White Paper, which outlines a policy framework supporting the local EV market. This was complemented by an announcement from the finance minister regarding a 150% tax rebate for automotive manufacturers who repurpose or establish new plants for EV production, ensuring South Africa’s relevance on the global automotive stage.
These incentives aim to drive change and safeguard South Africa’s ability to export vehicles. A looming threat is the EU’s Carbon Border Adjustment Mechanism (CBAM), requiring EU importers to report carbon emissions from imported goods, including vehicles. If South African-made vehicles do not meet the EU’s emission standards, we risk losing an essential export market.
Energy challenges
However, South Africa faces significant energy challenges. Despite having abundant renewable energy resources, the national electricity transmission network struggles to harness this clean energy consistently. The current infrastructure does not effectively transport clean energy from renewable-rich areas to the automotive hubs in Gauteng and the Eastern Cape. Reliance on coal power is also not a viable long-term solution, undermining the carbon neutrality of potential EV production.
Consequently, the responsibility falls on the automotive giants to develop renewable energy plants adjacent to their factories while retrofitting existing operations for EV manufacturing.
The local component manufacturing industry, currently adept at supplying internal combustion engine components, faces a seismic shift in an EV landscape, where up to 60% of costs are attributed to the production of batteries and motors (source: Naamsa). Unfortunately, South Africa is ill-prepared for EV battery manufacturing; while we have significant reserves of critical minerals like manganese, the processing and beneficiation typically occur in countries like China, creating a logistical carbon footprint that compromises our competitiveness in EV production.
For Africa to establish significance in the EV manufacturing market, regional coordination is necessary to build a critical mineral mining and battery manufacturing supply chain. This transition will see South Africa’s component industry balancing its support for both internal combustion engine producers and the emerging EV parts market, including electric motors and battery components.
Instead of competing directly with China in EV production, South Africa should seek collaboration through joint ventures. We currently lack the skills needed for large-scale battery manufacturing and refining. We must invite established battery manufacturers, such as BYD and CATL, to invest in establishing new factories on the continent, allowing local workforces to gain essential skills in high-tech assembly and engineering.
The Automotive Production and Development Programme (APDP2) has the potential to support local EV manufacturing by providing rebates and customs duty refunds. Ensuring that the APDP2 incentivises manufacturers to initially export more locally produced EVs than sold domestically is crucial for growth. Additionally, South Africa’s free trade agreements, like Agoa with the US, must be protected to maximise this potential.
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Furthermore, the South African Customs Union is rich in minerals crucial for EV production. With the tariffs recently imposed on Chinese EV imports by the US and EU, there is an opportunity for South Africa to position itself as a viable market for surplus Chinese vehicles, facilitating mutually beneficial agreements.
Establishing an EV task force comprising government officials, automotive manufacturers, automotive associations like Naamsa and AAAM, and energy experts can ensure balanced demand stimulation and supply incentives, fostering a vibrant EV market in South Africa.
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A necessary reform is updating the ad valorem luxury tax, which has remained unchanged for nearly three decades. Currently, even entry-level vehicles priced at R250 000 are subjected to this tax. A recalibration would make EVs more financially accessible to the volume market, stimulating local demand. Additionally, temporarily lifting import duties on EVs could catalyse consumption and encourage manufacturers to invest in local production.
At present, most EVs are priced above R500 000, constraining the market. To drive local demand and lay the groundwork for a robust EV industry, we need to target a price point of around R400 000 or less. If we can achieve a goal of more than 5% of new car sales being electric by 2026 – approximately 30 000 annual units – we will reach a tipping point that will spur the necessary infrastructure, including widespread EV charging stations powered by renewable energy.
A promising future
It is not too late for South Africa to embrace the EV revolution. With the right policies and decisions, the nation can leverage its numerous advantages to create a thriving automotive industry, ensuring sustainability and competitiveness. By encouraging domestic demand over the next five to seven years, we can attract investment and ensure a vibrant automotive sector extending into the 2030s. Let’s aim for more than 500 000 EVs on South African roads by 2030, solidifying a sustainable future for our automotive industry.
- The author, Greg Cress, is Africa principal director of automotive and e-mobility at Accenture