Thomas Schaefer, head of the VW global passenger car brand, said he is “very worried” about the future of the automaker’s South African operations.
VW has been in the country for nearly 80 years, producing models such as the iconic VW Polo across four generations for export to over 38 overseas markets from its plant in Kariega, Eastern Cape.
However, in an interview with Reuters, the executive noted that the costs associated with mitigating persistent load-shedding and logistical issues brought about by congested roads and an ailing rail system, as well as rising labour costs, have led to South Africa losing its appeal as an automotive manufacturing haven.
“Eventually you have to say, why are we building cars in a less competitive factory somewhere far away from the real market where the consumption is?” said Schaefer.
“I’m very worried about it … We’re not in the business of charity.”
An uphill battle
Schaefer said VW’s local team has done a great job in overcoming what he called an “uphill battle”, but that ultimately the South African government will have to play a part in addressing the problems.
The main headache is the ruling party’s sluggishness in introducing electric vehicle (EV) manufacturing and purchasing incentives.
Currently, EVs and their related components that are imported from Europe are taxed 7% higher than petrol and diesel vehicles and parts, causing high production costs and substantial price tags for the cars themselves, which hampers sales and investment potential.
With the European Union and United Kingdom planning to ban the sale of new internal combustion vehicles from around 2035, VW South Africa also risks losing the bulk of its export markets over the next decade if it doesn’t pivot to EV production sooner rather than later.
However, the absence of EV-friendly policies means that it is not as financially attractive to establish an EV manufacturing base on local soil as it would be elsewhere.
Recently, Martina Biene, MD and chair of VW South Africa, highlighted Egypt and Ethiopia, two countries that recently introduced EV policies, as potential locations for the automaker’s next electric-car factories, and said that South Africa “isn’t high up on the list” for an investment destination.
Schaefer subsequently said there are “no plans to introduce EV manufacturing” to South Africa, since electric cars are currently priced out of the reach of most domestic consumers, and producing them for export would not be sustainable.
“There’s a realistic chance that South Africa, with enough focus, with all the raw materials in the neighbourhood, they could be a champion,” said Schaefer.
In early November, Minister of Finance Enoch Godongwana promised that the South African government is planning to “implement tax and expenditure measures” to support the automotive sector’s transition to new-energy vehicles.
While no specifics were mentioned, he said the broader strategy includes “collaborating with other African countries to develop battery production capacity on the continent, by pooling the critical-mineral resource base that Africa is endowed with.”
Hopefully not too little nor too late, Godongwana said the finer details of the new legislation will be announced in his February 2024 Budget Review.
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