Cars can help SA be greener but government needs to come to the party

South Africa’s motor manufacturing industry is at a crossroads and needs government to show a clear way forward

At first glance Toyota South Africa’s assembly plant in Durban looks like any other car manufacturing plant, but a closer look reveals something different. The Prospection plant is one of seven global locations chosen to produce the Corolla Cross petrol/electric hybrid, and this required 575 new on-site jobs and 1 200 new jobs in the plant’s supplier base.

This was what South Africa’s president Cyril Ramaphosa envisioned in his Just Energy Transition Plan (JETP) – growing the South African economy into a green future and creating thousands of jobs.

Ramaphosa called it a “green energy success story” as he witnessed the first model coming off the production line in 2021. He then jetted off to Glasgow to sign a ground-breaking $8.5 billion (about R150 billion) pledge by rich nations at the climate talks (COP26) to help wean South Africa off coal and change the course of the country’s development.

Just transition energy plan for cars

That deal was the foundation of the R1.5 trillion Just Energy Transition investment plan (JET-IP), that has the development of new green vehicles as one of its three pillars, together with a move to green electricity and the development of green hydrogen. Kickstarting a new green energy future for vehicles is key, as South Africa must adapt to world markets to stay relevant.

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This is something that South Africa’s Association of Automobile Manufacturers (Naamsa) CEO Mikel Mabasa is all too aware of.

“The world is moving and is not waiting for South Africa to get its act in order. Many markets around the world have announced their policies around new energy vehicles production and how they intend to stimulate demand for these vehicles for consumers to make the switch seamlessly.”

South Africa’s car manufacturing sector is the largest on the continent, contributing R259.7 billion or 5.7% of SA’s GDP in 2020, and employing more than 500 000 people. The industry paid R32 billion in formal wages in 2021 and supports an ecosystem of secondary industries and indirect jobs in three provinces.

However, the industry is heavily reliant on the production of traditional internal combustion engine (ICE) vehicles, which has no place in the world’s low carbon future. This places the sustainability and competitiveness of local manufacturing at risk.

More than 60% of South Africa’s production is exported to other markets, with 77.1% of exports in 2021 destined for the UK and the EU.

Ramaphosa’s JET-IP indicates a five-year investment need for the South Africa new energy vehicle sector, estimated at R128.1 billion. But the plan also warns that more work is needed to plan this significant transition.

Naamsa estimates that about R342 billion will be needed in capital expenditure by the vehicle and component sector for the transition from combustion engine to new energy vehicles by 2035 and hopes that the JET-IP could help fund this. There have been workshops, the industry said, but the funding plan remains opaque.

Mabaso believes the JET-IP investment plan could be sufficient to support the transition to new energy vehicles, but that it’s dependent on the allocation, which is not finalised. It could go a long way to incentivise the needed transition.

The future, now

In February the European Union (EU) essentially banned all internal combustion vehicles by 2035. This means that South Africa’s largest vehicle export market will soon close its doors to ICE vehicles. If the country can’t offer EVs, more than 50% of its intended vehicle production between 2025 to 2035 could disappear.

In addition, combustion engines face hefty carbon taxes levied by countries on products, including cars, produced by fossil fuels.

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South Africa’s car manufacturers will need to invest in the development of new technologies and manufacturing processes, as well as developing the charging infrastructure to support the new vehicles. The lack of charging infrastructure in South Africa could deter consumers from buying EVs, especially in rural areas where access to electricity is limited.

Mabaso called for government to speed up the transition and end uncertainty. In October, trade, industry & competition minister Ebrahim Patel said a future motor industry regulatory framework would be outlined in this year’s budget.

But Finance Minister Enoch Godongwana included only one mention – that R728.8m had been “allocated to support new energy vehicle initiatives”.

Mabasa explained that a solid incentive framework to manufacture new energy vehicles is needed to spark investment. Only then will the various vehicle manufacturing brands be able to make the investment decisions for the green cars of the future.

“Investment decisions normally take place about three years before the start of production of a vehicle and in view of the delays with the announcement of appropriate new energy vehicles transitional support, the decisions are delayed for next generation model investments,” he said.

Naamsa has developed a New Energy Vehicles Roadmap with a two-fold focus – one to support production and two to stimulate demand for new energy vehicles.

Mabasa said that despite significant growth of 437.1% year on year in new energy vehicles sales in South Africa – with battery electric vehicle sales exceeding the 500 mark for the first time in the country with 502 units – new energy vehicles still only made up 0.88% of total new vehicle sales.

“Sales of new energy vehicles will simply remain at the low levels without stimulation, and this has implications,” he said.

Plans for the future

Toyota South Africa Motors (TSAM) CEO Andrew Kirby is all too aware that the coming transition will have a lasting effect on TSAM’s future business.

“It will have an enormous impact on us, the supply chain, and the economy, if we lose that market.”

Around 44% of Toyota’s total production from its Durban plant exported to Europe. TSAM was gearing up to sell as many NEVs locally as possible, despite the energy crisis and the limited number of charging stations, Kirby said.

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TSAM currently holds a 76% share of South Africa’s NEV market, boosted by sales of the Corolla Cross hybrid.

In Durban the plant remains a model of hope of a successful transition, producing 111 Corolla Cross vehicles a day, or about 30 000 units a year, for export to more than 40 countries. And plans are being drawn up to transition the popular Hilux bakkie.

Planning for the future is key, Mabasa concludes, because South Africa will be hurt deeply if our current status quo remain unchanged.

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