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Thursday / 6 February 2025
HomeFeaturesSouth Africa throwing away a R2.7-trillion industry

South Africa throwing away a R2.7-trillion industry

The South African government’s sluggish reaction to produce new-energy vehicle (NEV) incentives for local carmakers could put the R2.7-trillion vehicle export industry at risk.

The country’s original equipment manufacturer (OEMs) have been sounding the alarm for years that South Africa needs to adopt new policies if it wants to remain competitive in the global automotive scene, but these incentives have still not come to pass.

The effects of this indecisiveness are already starting to be felt, as car exports have dropped as much as 42.6% within the last year, putting thousands of jobs at risk.

Throwing away an industry

South Africa is home to seven different legacy OEMs including Toyota, BMW, Mercedes-Benz, Nissan, Ford, Isuzu, and VW – all of which have maintained a presence on our shores for decades.

More recently, brands like BAIC and Mahindra have established local facilities, and Foton and Stellantis are both planning to build new factories here as well.

The vast majority of cars produced here are not meant for our comparatively small market, however, as roughly 80% of models are created for export to regions like Europe and the Middle East.

According to Naamsa The Automotive Business Council, South Africa’s total car exports from 1995 to 2023 had an estimated value of R1.75 trillion, with an additional R959 billion generated from component exports, equaling roughly R2.7 trillion combined.

The industry generates approximately R220 billion to the fiscus per annum, or just under 5% of the nation’s gross domestic product.

Despite this success, the automotive sector is facing a crisis, as exports have sharply declined within the last year.

The reason for the decline primarily has to do with changing market requirements, as many parts of the world are moving away from internal combustion engine (ICE) cars towards NEVs as part of ongoing environmental programmes.

NEVs comprise hybrid, battery-electric, and hydrogen fuel-cell vehicles – none of which are manufactured in South Africa on a scale large enough to compete in a global environment.

This means that South Africa’s selection of ICE models is seeing dramatically less interest from key markets like the European Union, which are phasing out petrol and diesel models entirely.

Vice President for Corporate Services at Toyota South Africa Motors (TSAM), Suben Moodley, recently spoke at the KwaZulu-Natal Investment Conference in Durban, warning that the country must act decisively to secure its place in the evolving automotive landscape.

He highlighted how the global demand for hybrid and electric cars has surged since 2019 – growing 53% in 2021, 54% in 2022, and 35% in 2023 – culminating in 14.2 million units sold worldwide.

The local industry’s master plan is to become a tier-one automobile country by 2035, which requires a minimum output of one million vehicles per year.

As of 2023, South Africa only managed to create 633,000 units, making it the 22nd largest automaker in the world with a contribution of 0.67%.

As a reference, China currently ranks as the top manufacturer with 30.2 million units, accounting for a third of global production.

However, Moodley pointed out that there are ample opportunities for growth, given that car ownership on the African continent is sitting at an average of just 4%, compared to 83% for the United States or 61% for Japan.

This doesn’t mean South Africa’s future is secure, though, as other countries like Morocco, Kenya, Ethiopia, and Egypt are closing the gap in terms of vehicle production.

Morocco in particular assembled 535,000 units in 2023, meaning there’s a possibility it could overtake South Africa in the near future as the continent’s leading car exporter.

BMW and Ford are trying to get ahead of the curve by implementing their own NEV assembly lines for the popular X3 SUV and Ranger bakkie – both of which are being developed with plug-in hybrid powertrains.

However, the lack of government support means both carmakers are struggling to compete against their sister facilities in countries like Thailand and China.

While China’s massive population means it will likely maintain a competitive advantage for years to come, Thailand’s output was once comparable to South Africa’s in the 1990s.

Today, Thailand builds three times as many cars as South Africa thanks to strategic investments and government support programmes like tax incentives and consumer subsidies, making it a key exporter for the ASEAN and Oceanic regions.

In contrast, Toyota, Ford, and VW’s CEOs have all warned that South Africa is losing its edge, relying more on imported models while its own factories are struggling to attract investment.

One way that South Africa could secure market share is to prioritize the creation of targeted NEV components such as e-axles, rather than attempt to localize every part that goes into a new-energy car, according to Toyota CEO Andrew Kirby.

“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.

He went on to say that these opportunities are ripe for the taking, but could be lost if the government continues to drag its feet on the matter.

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