Andrew Kirby, CEO of Toyota South Africa Motors (TSAM), has warned that South Africa must enact legislation that incentivises the manufacturing of new-energy vehicles (NEVs) and their related components or risk losing one of its most important industries.
This comes after President Cyril Ramaphosa announced that government is considering introducing incentives to encourage local manufacturing of NEVs and offering tax rebates or subsidies to promote their usage.
NEVs is a blanket term that broadly refers to hybrid, battery-electric, and hydrogen-powered cars.
With the European Union set to ban the sale of petrol and diesel autos as soon as 2035, fostering an NEV-focused manufacturing sector in the country is a matter of survival rather than preparation.
The automotive and component manufacturing industries contribute over R220 billion to the fiscus per annum, accounting for 4.9% of the nation’s GDP in 2023. South Africa is therefore playing with fire by dragging its feet on implementing NEV-friendly legislation.
Business unusual in South Africa
Kirby said the second phase of the Automotive Production Development Programme (APDP 2) and its complementary document, the South African Automotive Masterplan, involved “good, thorough thinking,” but emphasises that the market has significantly transformed since these policies were developed.
“We all need to acknowledge that this is not business as usual,” said TSAM’s Kirby at the annual South African Auto Week, attended by Engineering News.
Introduced in 2021, the objective of the APDP 2 is to drive transformation and localisation in the South African automotive and component manufacturing sector through rebates and refunds of the relevant customs duties as legislated in the Customs Act.
“I do think the foundation of APDP 2 should remain as it is, but we need to add on specific initiatives to make it fit for purpose,” said Kirby.
For example, he suggested that South Africa pursue the manufacturing of targeted components like e-axles instead of attempting to localise each and every part of an NEV.
“APDP 2 is a really well thought-through policy instrument, but we also need to have some selective policies that target where we want to be,” he said.
“There is no reason why we can’t say let’s support particular components and vehicles in very targeted ways that will lead to the localisation [of parts].”
He said these opportunities are ripe for the taking, but will become fewer and farther in between the longer South Africa takes to make a decision.
Toyota bZ4X electric SUV
Additionally, the head of South Africa’s best-selling automaker recommended the country do away with exorbitant Ad Valorem Taxes (AVT ) as doing so would stimulate demand for NEVs and new vehicles in general.
The current AVT rate was developed 30 years ago when a car going for R250,000 was considered highly luxurious. Today, vehicles with prices in this region are among the cheapest on the market.
AVT is calculated on a per-vehicle basis and capped at 30% meaning it artificially inflates the prices of imported autos by a considerable amount, which becomes even more pronounced in NEVs as they are generally on the more expensive end of the price spectrum to begin with.
“If we were to tweak it – frankly, we should have zero Ad Valorem Tax on NEVs – it should help us transition the South African market to NEVs,” said Kirby.
“We can’t just think we can transition our [vehicle] exports and forget about what is happening in South Africa. We need a strong South African [sales] base, and be able to export.”
Hydrogen-powered Toyota Mirai
The accelerated adoption of NEVs will also assist in stabilising the liquid fuels market in South Africa which is on shaky ground at the moment.
State-owned port and rail authority Transnet this October warned of possible fuel shortages hitting the country in the future owing to its growing dependence on imported propellants.
Just days after Transnet sounded the alarm, Cape Town suffered supply constraints of Unleaded Petrol 95 as a result of an unplanned refinery outage in Milnerton, coupled with inclement weather that complicated the delivery of fuels to the city’s port.
Industry expert Rod Crompton, visiting adjunct professor at the Wits School of Business’ African Energy Leadership Centre, advised that government should fast-track private sector participation in its activities as well as incentivise NEV uptake if it hopes to avoid future fuel supply disruptions.
“If the government stopped its negative reaction towards electric vehicles, then we would have an uptick in electric vehicles that would reduce the demand for liquid fuels,” said Crompton.
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