The government's policy for electric vehicles (EVs) will be finalised this year, said minister of trade, industry & competition Ebrahim Patel this week — a critical step for an industry that accounts for about 4% of GDP.
Patel, speaking this week ahead of his budget vote on Wednesday, said an electric vehicle policy would be out this year.
“To retain and grow our share in that market, we need a clear road map. The original road map when fully costed and all comments taken into account had expensive architecture. We are now reworking it with the industry so when we press the button we can keep to our word,” Patel said.
A policy to support the local production of EVs could facilitate fresh investment in local plants. This is crucial since Europe is the main export destination of vehicles assembled in SA and will soon introduce limits or bans on internal combustion engines.
We are not leaving, but it’s hard. We need a decision by October this year to make that investment happen
— Martina Biene, MD Volkswagen South Africa
Mikel Mabasa, CEO of the National Association of Automobile Manufacturers of South Africa (Naamsa), said “NEV [new energy vehicle] transition support at present is urgently required for positive plant decisions to be taken, because OEMs [original equipment manufacturers] require a lead time to motivate to their parent companies before any potential production could start and to align with existing production cycles”.
Industry is closely engaging with the government on an urgent pronouncement of intention on the NEV support side to not just retain but successfully grow the domestic automotive industry, otherwise investments and employment might be negatively affected, Mabasa said.
As the largest manufacturing sector in South Africa, 21,7% of value addition within domestic manufacturing output was derived from vehicle and automotive component manufacturing in 2022, while the broader automotive industry’s contribution to GDP comprised 4.9% (2.9% manufacturing and 2% retail).
The export value of vehicles and automotive components increased by R19.8bn, or 9.5%, to a record R227.3bn in 2022, comprising 12.4% of total South African exports, Mabasa said.
Volkswagen South Africa MD Martina Biene said “manufacturers and importers with Naamsa put together a white paper on EVs and how to prepare the country to ramp up for electric vehicles”.
This had been shared with Patel and the minister of finance.
“We assumed it would be copy and paste, but there is no policy in place.
“Even with a paper on EV, you have to wait for uptake. It is a missed opportunity for the future,” she said.
“My head office and we in South Africa are passionate about South Africa and Africa as an investment destination. But there are also other African countries. They are moving faster in policy and providing a good investment place. A strategy in South Africa is a bit of a struggle in terms of where we put investment.”
Biene said VWSA was struggling to secure a third product in 2026 to begin production. She said the group was competing with many other plants worldwide and that the company was keen to focus its investment on EVs, “but even combustion engines aren’t providing the best circumstances”.
“We are not leaving, but it’s hard,” she added.
“We need a decision by October this year to make that investment happen. As far as head office goes, we are getting phonecalls asking about load-shedding and if it can be fixed,” Biene said.
Patel acknowledged that South Africa has put itself in a less than ideal position to grow its automotive sector in line with his department’s master plan that envisions that by 2035 South Africa will account for 1% of global car production, increase the localisation of assembled vehicles to 60% of parts from 40%, and double employment to 224,000.
Biene said “load-shedding is our biggest threat, our biggest risk and our biggest roadblock”.
During stage 5 power cuts a plant had to shut for one day, while under stage 6 VWSA had to close for two out of eight days, she added.
Minister in the Presidency for electricity Kgosientsho Ramokgopa said at the Enlit Africa Conference in mid-May that two days of lost production for auto companies at stage 6 load-shedding resulted in workers losing 20% of their wages.
Patel said the effect of load-shedding on the auto industry was huge.
“This is an important industry for the South African economy. It’s not only a huge contributor to GDP with around 4% of GDP ... it is a significant earner of foreign exchange for the country.
We have now elevated the challenges that the sector faces to joint discussions between a number of ministers
— Ebrahim Patel, minister of trade, industry & competition
“We have now elevated the challenges that the sector faces to joint discussions between a number of ministers,” Patel said.
This week he announced the introduction of block exemptions to enable collaboration between energy users to respond to the electricity supply constraints subject to a process of notification to the Competition Commission and the DTIC.
Patel said working at three-quarters of full capacity causes a plant to lose economy of scale, making South African vehicles less competitive.
Even so, car exports were recovering well from the pandemic and flooding with more than 500,000 units produced in 2022, he added.
Vehicle exports face additional hurdles, though. The rail line linking Gauteng to the Durban port has been operating at between 25% and 36%of capacity over the past two weeks because of power-cable theft, affecting many companies including BMW and Ford, Bloomberg reported.
And a diplomatic row between South Africa and the US over Russia could affect trade relations, while the Africa Growth and Opportunity Act (Agoa) is scheduled to expire in 2025.
Patel said the department was working to keep South African exports flowing to the crucial US market through Agoa.
Patel told Business Times that while the US typically announces an extension to Agoa near its expiry time, his department has been campaigning to have an extension announced as soon as possible.
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