Why VW’s cheapest car in South Africa is pricier than it has to be

The locally made VW Polo and Polo Vivo could have been more affordable if the country’s infrastructure was up to scratch.

An unstable electricity grid, dilapidated railway system, and inefficient ports add to the already significant cost of doing business in South Africa, which the German manufacturer must recoup in one way or another.

Speaking at the recent #NADAConnect conference, Martina Biene, head of VW Group Africa (VWGA), said that over the last two years, the company had to procure generators to avoid production delays as a result of load-shedding.

The two generators cost a substantial R130 million to rent for a period of two years, and they run up a tab of around R1.6 million per day for every day they operate.

“That is a cost which is added to my business, for us doing business now in Nelson Mandela Bay Municipality,” said Biene.

“Of course, no one is giving me back that money so it ends up in a way in the pricing of cars because somewhere the money must come from.”

VW produces the Polo and Polo Vivo hatchbacks at its Kariega, Eastern Cape plant, the former of which is exported to global markets and the latter exclusively for South Africa.

The bloated cost of doing business within our borders has rendered these cars somewhat uncompetitive from a pricing perspective against cheaper imports from China and India, which Biene understandably isn’t happy about.

Through direct job creation, skills development, and its 1,100-plus suppliers and contractors, VW contributes significantly to the South African economy.

It also invests heavily in local communities. For instance, it is in the process of building a school within the Nelson Mandela Bay area amongst a host of other social initiatives.

Yet, despite their noteworthy contributions, Biene believes that local automakers and legacy importers with long-standing histories in South Africa are undervalued.

“There is a lot of benefit [from] local manufacturers and also long-standing importer relationships… and sometimes I feel that’s not valued. It’s always about can some Chinese come and invest newly,” said Biene.

“Plus, there’s extra costs imposed on local manufacturers and legacy importers which, I think, that’s a political discussion.”

Biene wants the powers that be to incentivise domestic auto manufacturing as much as possible, rather than institute protectionist policies or force them to carry unnecessary expenses.

“I don’t want to say ‘protect,’ because I’m not really a protectionist advocate in this sense, but how do we incentivise local business, local manufacturing, local trading. I think that’s more where I want to get to,” she said.

Another thing that adds to the cost of the Vivo is the low volumes VWGA produces.

Only around 27,000 Vivos roll off the production line in a given year as the hatchback is exclusively sold in South Africa, in comparison to the 300,000 to 400,000 units produced annually by Chinese and Indian conglomerates.

“The economies of scale in another country [compared to] the small domestic market we can’t beat,” she said.

Add extra electricity and logistics costs into the mix, and we can see why the Vivo is so easily undercut by its overseas competitors.

“It’s not that I want to make more profit, I just want to be competitive,” said Biene.

Third model on the way

VW will be adding a third model to its South African assembly line come 2027 in the form of a budget-focused crossover.

The recently unveiled Tera – which will go by a different name in South Africa – is based on the same platform as the Polo and will be the smallest and most affordable SUV in the VW catalogue.

It was jointly developed by VWGA and its Brazilian and Indian counterparts for emerging markets where electrification has yet to take off, and it’s set to enter production in about two years following a massive R4-billion investment into the Kariega factory.

With the global shift towards SUVs there’s an expectation that the Tera could impact sales of both the Vivo and its larger brother, the Polo, which has led some to believe that that there is an expiration date for both these vehicles.

The Polo is largely exported to Europe but new emissions regulations (EU7) set to be rolled out in a phased approach from late 2026 onwards could see a significant drop in demand for the petrol-powered city car and ultimately lead to its demise.

Head of VW global Thomas Schäfer previously remarked that there would be “no point carrying on” with small petrol cars in Europe once EU7 is fully in effect as it would just be too expensive to refine the internal combustion engines, and there would be too little demand from other countries to sustain them.

This suggests that the writing is on the wall for the evergreen Polo.

Meanwhile, Biene herself last year said that the Vivo “will stick around for as long as there is demand for it.”

However, this was quickly followed up with a remark that the hatch should remain on sale until 2030 at the very least, but that its future beyond this is murky.

With both the Polo and the Polo Vivo potentially ending production over the coming years, VWGA is reportedly already looking into what it could replace these hatchbacks with at the Kariega facility if and when the time comes.

Rumours have swirled that a compact bakkie might be on the cards, or perhaps even another wallet-friendly SUV.