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Expert predicts SA’s shift to vehicle imports over local production
'I think what has changed is that there is more of an African view of the automotive industry value chain than ever before.'
Picture: iStock
South Africa will become a new vehicle importing country and will no longer be a new vehicle production hub in the longer term, a doyen of the country’s motor industry has predicted.
Manny de Canha, chair of C2 Technologies Group and a former CEO of Associated Motor Holdings (AMH) and director of Imperial Holdings prior to its unbundling, also believes vehicle dealers and dealership groups need to continue to focus on internal combustion engine (ICE) vehicles because it will possibly take 50 years for electric vehicles (EVs) and new energy vehicles (NEVs) to take over the domestic market.
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De Canha told a National Automobile Dealers’ Association (Nada) conference last week that 80% of new passenger cars sold in South Africa in 2022 were imported.
“So the question you have to ask yourself is [new vehicle] manufacturing relevant in South Africa?
“There are going to be more and more importers of vehicles and I’m not sure that long term we are going to produce cars in South Africa. I know everybody says we export but I say that is with government subsidies.
“Can government afford those subsidies in the long term? I doubt it very much. It’s not in play now but it is probably in five years’ time,” he said.
However, De Canha stressed the domestic new vehicle market is not going to die but will switch from local manufacturing to imports.
“More and more cars will be imported because they are cheaper to manufacture because they [overseas manufacturing plants] have scale. We don’t have the [economies of] scale in South Africa,” he said.
De Canha said this will be a challenge for original equipment manufacturers (OEMs) going forward and anticipates domestic sales of imports “just growing”.
Attempts to obtain comment from automotive business council Naamsa on De Canha’s views were unsuccessful.
Or can we can expect more local manufacturing?
However, Ernst & Young South Africa tax partner Duane Newman disagrees with De Canha. He believes there is likely to be more new vehicle manufacturing in South Africa within the next five years considering the plans of new entrants like Beijing Auto Industrial Corporation (BAIC) and Stellantis.
This is a reference to reports this month that production at the BAIC manufacturing plant in the Coega Industrial Development Zone (IDZ) has commenced following the announcement of the joint venture with the Industrial Development Corporation (IDC) in August 2016.
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In addition, multinational automotive group Stellantis confirmed last year its intention to invest R3 billion in South Africa to establish a state-of-the-art greenfields automotive plant, also in Coega in the Eastern Cape.
Further recent new vehicle production investments in South Africa include:
- Volkswagen Group South Africa announcing in February that it is to make a significant investment in the production of a third model locally that is specifically aimed at the African continent in line with a shift in its export focus from Europe to Africa;
- BMW in June last year announcing it will invest R4.2 billion in South Africa to prepare its Rosslyn plant in Pretoria for the production from the second half of 2024 of the next generation BMW X3 as a plug-in hybrid vehicle; and
- The Ford Motor Company reporting in November last year that it will invest R5.2 billion in its Silverton assembly plant for the production of the first-ever Ranger plug-in hybrid electric vehicle.
Newman added that the structure of the South African market is not new and has not changed for many years and the business case for any local manufacturing operation has been on the assumption that more than half of the production will be exported.
“I think what has changed is that there is more of an African view of the automotive industry value chain than ever before.
“The work of the AAAM [African Association of Automotive Manufacturers] has been instrumental in putting together an African view of the industry rather than just a South African view.
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“I am personally seeing more and more requests from automotive players wanting to understand the opportunities in the African market that can be stimulated by the African Continental Free Trade Agreement [AfCFTA], green drives like the critical raw materials and new energy vehicles value chain,” he said.
SA government is on board
Newman stressed that the South African government has clearly shown there is a long-term commitment to the automotive industry through the South African Automotive Masterplan to 2035 and expects the government to extend its commitment beyond 2035.
He added that the announcement of a 125% additional tax incentive for the electric and hydrogen value chain in the 2024 Budget is also a clear indication that government wants to support the transition from ICE vehicles to NEVs.
Newman said there are other major factors that will impact the industry.
These include the speed of the switch to NEVs in export markets, particularly in light of a view that the enthusiasm for NEVs is slowing down;, the impact of the AfCFTA and African auto strategy on regional value chains; the critical minerals drive across Africa and how the automotive value chain can localise by leveraging off this; and carbon border adjustment developments across the world.
‘Too much’ worrying about EVs
De Canha said the vast majority of vehicle dealers and OEMs are dedicating their time to worrying about the transition to EVs and how they will “take the world by storm and change the South African market”.
“You are really dreaming if you think that is going to happen tomorrow,” he said, adding that if the production of ICE vehicles stopped tomorrow, it would take 14 years for EV sales to dominate the domestic market because of various other challenges.
These challenges included the loss of revenue to the government from things such as fuel levies and oil, the increased demand for power, the displacement of supporting industries, and the infrastructure development needed to support the transition to EVs.
ALSO READ: Naamsa: Increasing popularity of grey imports a worry
“Government is not going to sit back and just say we will allow EVs to take over. That is not going to happen,” said De Canha.
He pointed out that EVs and NEVs are currently unaffordable to the masses, who comprise 95% of the market, and believes only about 5% of consumers will have the disposable income to be able to afford to buy EVs, which means the transition will not happen “tomorrow”.
“In Australia, they banned leaded fuel in 1988 but it took 20 years for it to disappear. So how do we expect EVs to take over [immediately]?
“Yes, maybe in 50 years’ time it could be a different story but right now we [vehicle dealerships] have to focus on the combustion engine vehicle because that is our bread and butter,” he said.
Idealism vs reality
Robert Forrester, CEO of the Vertu Motors Group in the UK, told the conference the transition to EVs is not happening as anticipated in the UK and some major problems are looming, including the shortage of EV charging infrastructure to cover the entire country and the fact that EVs are a lot more expensive.
“There are a lot of reasons why your average consumer might not want EVs, particularly in a time when living standards are under pressure and incomes are under pressure with inflation.
“We are about to hit the idealism-hits-the-reality wall, I’m afraid, on EVs,” he said.
Johan Theart, Toyota South Africa general manager for marketing planning, said the reality is that battery electric vehicles (BEVs) are coming but predicts that sales of BEVs in South Africa will not achieve 10% market share “by 2030, maybe not by 2035”.
“We will still have ICE vehicles,” he said. “We [Toyota SA] have done our 2030 plans and more than 30% of our plans are still on ICE excluding hybrid vehicles, so pure diesel and petrol.”
This article was republished from Moneyweb. Read the original here
