The automotive industry is at a crossroads, with policy uncertainties threatening the future of local manufacturers. Companies are delaying investment decisions, and this year is being described as “make or break” for Volkswagen’s future in South Africa.
In recent weeks, the industry has been exerting pressure on the government for protection against intensifying competition from Chinese brands, which are undercutting established marques that have local manufacturing facilities.
Volkswagen Group Africa (VWGA) — which launched its South African plant in 1951 with the Beetle — is among the legacy manufacturers facing growing competition from Chinese as well as Indian imports.
Speaking this week at the annual VWGA indaba in Kariega, Eastern Cape, MD Martina Biene identified a lack of scale in the local market, the high cost of doing business, and policy uncertainty as the main speed bumps.
She said VW’s leadership was watching closely for reform in South Africa’s automotive sector policy ahead of coming investment decisions, noting that other countries, such as Morocco, offered stronger business cases for manufacturing plants.
“For us as VWGA, this year is crucial for getting an investment decision from VW head office for the next project that’s on the way ... [It’s] make or break. If policy changes — and I’m not talking about tariffs — there are instruments we can use to boost the value of investment in South Africa,” Biene said.
Calls have been made for a 50% tariff on imported vehicles from China and India, a move BMW has warned will harm consumers.
Speaking in her capacity as president of the African Association of Automotive Manufacturers (Aaam), Biene said she opposed higher duties on Chinese imports, which were mooted at a recent meeting of parliament’s trade, industry & competition portfolio committee.
A better scenario, she argued, would be a boost in local manufacturing and increased vehicle trade within the continent under the African Continental Free Trade Area agreement.
BMW Group South Africa CEO and Automotive Business Council (Naamsa) president, Peter van Binsbergen, recently cautioned that a “hammer” approach to imposing duties would shock the market and could lead to unintended consequences.
He called instead for fine-tuning the levers of the automotive production and development programme (APDP). “The main objective is to ensure real production in South Africa — as in the case of the BMW X3 at the Rosslyn plant — welding the body, painting it, and assembling the vehicle; not screwdriver assembly, as semi-knocked down (SKD) plants are doing,” he said.
“With job creation comes economic growth and a virtuous circle, which is why we asked [the committee] to close the SKD loophole. SKD manufacturers come in close to duty-free, without creating investment and hardly creating jobs.”
Biene echoed Van Binsbergen’s criticism of SKD operations, describing them as exploitative of policy loopholes and focused more on “ribbon-cutting ceremonies and nice pictures” than on meaningful contributions to the sector. Chinese brand BAIC has an SKD plant in Kariega, while India’s Mahindra has one in Durban.
For every job created by an SKD facility, a completely knocked-down (CKD) plant such as VW’s in Kariega created eight, said Biene. “Invest in transformation, suppliers, and localisation — then it’s a fair game.”
She said local manufacturing could be stimulated by “rebalancing” the APDP in favour of CKD production, as well as by adjusting ad valorem tax to improve consumer affordability.
Invest in transformation, suppliers, and localisation — then it’s a fair game.
— Martina Biene, Volkswagen Group Africa MD
One of Biene’s tasks in 2026 is securing the sustainability of the Kariega plant’s main export, the sixth-generation VW Polo. While there are currently no consumer incentives for South Africans to buy new energy vehicles (NEV), a mild hybrid version of the Polo, planned for 2027, would keep the model competitive for export. VWGA aims to continue supplying Europe until 2035.
This hybrid model could also allow technology transfer to the Tengo crossover, the third model set to join the Kariega production line alongside the Polo and Polo Vivo. It is on track to be released next year.
Finalising and legislating NEV investment support was critical to VW’s future vision, Biene said, as was a policy framework that favoured locally built electric and hybrid vehicles. NEV battery production also presented opportunities, including mineral beneficiation.
Despite challenging conditions, Biene said VW — a major employer — remained committed to South Africa. “I’m not willing to give up now. The APDP and the automotive master plan have been crafted well,” she said, adding that implementation needed to be accelerated.
VW has recently lost its second-place market position to Suzuki, which imports most of its range from India. Suzuki widened the sales gap in January, recording 6,410 units, compared to VWGA’s 4,774 vehicles. Toyota, which produces vehicles in KwaZulu-Natal and imports rebadged Suzuki products from India, remains market leader, with 11,786 cars sold last month.
Labour costs
Biene said VW could not compete with Suzuki on price “because of the lack of scale and the cost of doing business in South Africa”. Even before recent wage negotiations, she noted, labour costs in India were already about 50% lower than in South Africa.
However, she said local consumers would still find value in buying a VW because of the strength of its dealership network, after-sales support, and proven reliability.
VWGA ended 2025 with its third-highest production volume to date, producing 156,837 vehicles, of which 119,771 were exported. A cut of as many as 20,000 units is forecasted for this year.
Isuzu Motors South Africa president Billy Tom echoed calls for the government to proritise NEV policy, anti-dumping measures, and partnerships with countries willing to invest locally in order to boost reindustrialisation.
He said Isuzu’s Struandale plant in Gqeberha remained viable. “Our strategy has always been to operate as a gateway into African markets for Isuzu, and our presence in other African markets has helped us stay resilient, despite growing challenges in the domestic automotive industry,” he said.
The company had expanded its footprint in markets such as Lesotho and Angola, while continuing to invest in Gqeberha’s supply chain. Recently, VSL Manufacturing established a R750-million facility adjacent to Isuzu’s plant to supply components for the D-Max bakkie.
Business Times
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