THE Automotive Business Council, naamsa, is beating the warning drum that South Africa’s automotive industry stands to lose out if the government doesn’t act swiftly to update policies to support the transition to New Energy Vehicles (NEVs) which are powered by ‘green’ energy sources like electricity, hydrogen, or a hybrid combination of sources.
Naamsa published a proactive thought leadership discussion document, South Africa’s New Energy Vehicle Roadmap, in February. In it, the council provides recommendations for a policy which is two-dimensional, encompassing both demand and supply side considerations.
The document suggests that the future of the South African automotive industry can be secured with an optimal balancing of demand and supply side considerations. To maintain and further grow its automotive manufacturing ambitions, the South African automotive industry will have to adapt to the current rapid technological transition to NEVs, it says.
The Council acknowledges that the government’s supportive policies, in place since 1995, have done a lot to create a thriving industry. It says that one of the attractions of South Africa’s automotive policy regimes over the past three decades has been its long-term vision and consistency. The stability in automotive support since 1995 has significantly enhanced investor confidence, and since the introduction of the Motor Industry Development Programme (MIDP), Automotive Production Development Programme (APDP) and APDP2, exports and capital investments in the industry have surged.
Department of Trade, Industry and Competition (dtic) policy analyst and automotive specialist, Mzwakhe Mbatha told the Powering Alternative Mobility Solutions Indaba, on April 20, 2023, in an online address that South Africa is ready for the industry’s transition to NEVs. “It is a myth that there is policy uncertainty,” he said.
Referring to the existing support programmes, the APDP and the Automotive Incentive Scheme (AIS), he said: “We have systems and support elements which we simply adjust. Any investment company can come to South Africa, we can deploy these incentives because they accommodate these NEVs or the so-called hybrids because AIS has a technology element.”
Mbatha said that the Green Paper issued in 2021, had been fast-tracked to convert to a White Paper and that the dtic would eventually release the policy framework detailing the support programme.
“We are still waiting for the Fiscus to approve the budget because there are cost implications above the level of what we are providing at APDP. All seven OEMs are continuously updated and on par with the policy direction with dtic,” he said.
Three to five year horizon
Current vehicle production in the South African market is almost exclusively Internal Combustion Engine, ICE-based. While this is not in itself a problem in the short term given the way the APDP2 incentivises domestic production, it will become a major challenge within three to five years, naamsa says. As domestic and export demand for NEVs increases over time, ICE demand will decline, and the business case for ICE-dominated domestic production will be challenged. Essentially, OEMs will be required to replace their existing South African ICE platforms with NEV replacements or risk the chance of having their operations made redundant, naamsa warns.
Given that there will be a maximum of only two model replacements between now and 2035, OEMs will either introduce a NEV replacement at their next model change, to 2029, or, at the latest, the next, from 2030.
Slow domestic demand
Naamsa argues that the high purchase price of NEVs and the availability of charging infrastructure remain major barriers to the uptake of NEVs. It recommends that a mix of strong and enabling policy measures and incentives addressing the cost, charging infrastructure, and information gap could help to increase the share of NEVs, as leading markets show.
The document states that investing in the assembly of Hybrid Energy Vehicles (HEVs) will not necessarily result in major additional investment costs for South African OEMs, as the assembly of batteries can be easily assimilated into existing plant assembly operations. The hybrid Toyota Cross, for example, is assembled on the same platform as the Toyota Quest.
However, this does not apply to Plug-in Hybrid Electric Vehicle (PHEV) assembly, which requires more significant assembly changes. Assembling Battery Electric Vehicles (BEVs)would require major additional investment – potentially similar to a greenfield operation. Beyond assembly changes, the shift to NEV technologies will also fundamentally challenge existing manufacturing operations within the domestic component value chain, naamsa says.
The anchor of the national industrial base
According to the discussion document, the broader automotive industry contributed 4,3% to the country’s gross domestic product (GDP) in 2021 and accounts for 9% of manufacturing jobs in eThekwini.
The automotive industry’s contribution to the economy goes far beyond the seven OEMs, Toyota, VW, BMW, Ford, Nissan, Isuzu and Mercedes-Benz, manufacturing in three provinces – KwaZulu-Natal, Eastern Cape and Gauteng. A network of upstream, downstream and logistics companies supports the broader industry. Naamsa estimates that, on average, almost three component manufacturing jobs are created for every vehicle assembly job in South Africa, and at least one of these three jobs is likely to be threatened by the transition to NEVs.
The document notes that the automotive industry is classified as the anchor of the national industrial base and the largest manufacturing sector in the country’s economy, a substantial 17,3% of value addition within the domestic manufacturing output was derived from vehicle and automotive component manufacturing.
Paying tribute to workers in general and workers in the automotive industry in particular on Worker’s Day, naamsa CEO, Mikel Mabasa said: “We celebrated Workers Day on May 1 and we want to take this time to pause and say thank you to all those workers who continue to make our industry proud every day.” More than 33,000 workers are employed within the vehicle manufacturing hubs, more than 83,000 workers within the auto component sector, plus more than a million other workers across the entire auto value chain in South Africa.
For every job on the OEM’s factory floor, there is a multiplier effect of 14 jobs for both the upstream and downstream of the automotive value chain, totalling over 460,000 highly skilled and direct jobs across the auto sector.
According to naamsa, the export value of vehicles and automotive components rebounded strongly by R31,8 billion, or 18,1%, from R175,7 billion in 2020 to a record R207,5 billion in 2021, comprising 12,5% of total South African exports. Vehicle exports increased by 26 733 units to 298 020 units in 2021, from the 271 287 vehicles exported in 2020, while the export value increased by R17,1 billion from R121,2 billion in 2020 to R138,3 billion in 2021.
Automotive component exports reflected an increase of R14,7 billion to a record R69,2 billion in 2021, from R54,5 billion in 2020. The domestic automotive industry’s export destinations increased to 152 countries in 2021 from 147 destinations in 2020, with the export value doubling from 2020 to 2021 in the case of 32 of these countries.
Alternative green energy strategies
The demand for ICE vehicles in export markets with carbon emission quotas and deadlines is likely to decline. But, naamsa notes, that, in the near-to-medium-term, full-scale NEV adoption may not offer a realistic or practical path for South Africa.
It quotes Brazil’s strategy as an example. Brazil is the world’s largest producer of sugarcane ethanol and the second-largest soybean producer. Brazil has pioneered the use of energy crops as biofuel for the transport sector since the 1970s. Biofuels have been proven to emit significantly lower greenhouse gas emissions than petroleum-based fuels. In 2021, 84% of new light vehicles sold in Brazil contained flex fuel engines. In contrast, NEVs accounted for only 0.14 percent of vehicles sold and remain limited due to concerns around affordability, infrastructure and other local factors.
Even in economically advantaged nations, during a transition phase, more fuel-efficient ICE vehicles, HEvs and PHEVs may offer a good alternative.
