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Thursday / 6 February 2025
HomeFeaturesTesla factory debacle in South Africa

Tesla factory debacle in South Africa

The government wants Tesla to build a factory in South Africa, but the company is unlikely to play ball unless better incentives are introduced.

According to a recent Bloomberg report, South Africa has been trying to court Tesla and SpaceX founder Elon Musk to resolve a dispute over the introduction of Starlink, the groundbreaking satellite-based internet service, in order to attract new investments.

These talks began when Musk met with President Cyril Ramaphosa on the sidelines of the United Nations General Assembly in New York City back in September 2024.

Deal or no deal

Starlink has been available in South Africa in a limited capacity since early 2023 with its roaming data service but has yet to be officially launched in the country owing to regulatory hurdles.

The Electronics Communication Act states that the service must be at least 30% owned by historically disadvantaged groups to acquire an operating licence here.

Alternatively, it would have to partner with a local company with the requisite licence and BEE credentials.

Starlink has thus far refused to meet these criteria, and the Independent Communications Authority of South Africa currently regards Starlink’s existing services in the country as illegal.

However, it’s possible that these regulations could soon change, as the government is willing to amend its telecom ownership rules to facilitate Starlink’s local introduction.

According to people familiar with communication between Musk and Ramaphosa, the government will allow Starlink to establish itself locally in exchange for a significant investment from one of Musk’s other companies – Tesla.

A source with close knowledge of Tesla’s strategy recently spoke to MyBroadband about the company’s perspective on working with South Africa.

They stated that unless another “stupid” incentive was thrown into the mix, Tesla was unlikely to build a vehicle or battery production plant on our soil.

While Starlink is keen to launch in South Africa, the financial payoff would not be significant enough to justify the billions of rands Telsa would have to invest to construct a new factory.

The source went on to say that it would make far more sense to invest the money in a country that already has significant production capacity for electric vehicles (EVs), which South Africa currently lacks.

Tesla has no presence in South Africa, and establishing a battery manufacturing facility would be of little benefit without an accompanying vehicle factory.

In addition to these logistical concerns, the company is well aware of the challenges involved with doing business in South Africa.

“South Africa probably has the best infrastructure on the continent, but I think its taxes and the laws that govern investment into the country are a big hurdle,” said the source.

“It’s not a place that I would take my money and want to build something. The risks are too high, it would probably be too expensive, and there are BEE laws and all sort of things that come into play.”

While South Africa has access to a lot of the valuable minerals needed to make EV batteries, Tesla has already established a supply chain agreement with manufacturers like BYD, CATL, LG, Samsung, and Panasonic.

It also has a battery plant in Nevada in the United States which only produces cells for its own cars, which are not currently available in South Africa.

The source believes that a battery company like CATL, which supplies several automakers, would be a more realistic option to set up shop here.

Full of potential

Rubicon sustainability and e-mobility head Greg Blandford believes that South Africa is an ideal candidate to produce electric car batteries for the world.

The southern African region has all of the materials needed to make high-capacity cells, meaning that no items would be imported from overseas at a high cost.

“We’ve got the minerals, minerals processing facilities, OEMs, line builders, and manufacturing capabilities,” Blandford said.

A factory near Gqeberha (Port Elizabeth) would be a suitable location, as the city boasts an efficient port that is far less congested than the one in Durban.

It is also close to the production plants of three major companies – VW, Mercedes-Benz, and Isuzu – all of which export thousands of models every year.

To be viable, the new facility would need to produce at least 20 gigawatt-hours of battery capacity per year.

For context, South Africa only recently opened its first gigawatt factory near Cape Town, which makes roughly one gigawatt-hour per annum.

While the hypothetical new factory would be a significant step up in this regard, it could start small and expand its capacity over time, given that demand for EVs is still relatively low right now.

It could also supplement its sales with alternate products like stationary backup storage – a valuable commodity in South Africa.

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