2030 a scary deadline for SA’s auto industry
Automotive Manufacturing SA
“’Dirty Motor Vehicles.’ This is how the European Union refers to Internal Combustion Engine (ICE) vehicles manufactured in South Africa,” writes daily maverick Sasha Plantation.
The EU has made it clear that BMWs, Volkswagens, Toyotas, Fords and Mercedes-Benzes made in South Africa will no longer be accepted as imports. When you consider that 75% of all vehicles produced in South Africa are exported, the prospect of this is frightening for investors, as well as those working in the manufacturing plants – reduced demand equals lower production, which equates to fewer hands needed. . The backlash will be catastrophic.
Aggressive targets for phasing out ICE vehicles and introducing alternatives such as electric vehicles have been set by the EU and the UK, with the UK’s 2035 ban brought forward to 2030 , and countries like Norway banning diesel and gasoline-powered vehicles as early as 2025, notes Plantation.
In stark contrast, such bans are not even on the radar of local legislators and our almost non-existent market for electric vehicles is an indication of how far behind other countries we are. This is partly because electric vehicles are subject to an absurd 25% import duty, 7% higher than traditional vehicles, while other countries offer incentives and discounts to those interested. through the purchase of electric vehicles. Additionally, EVs are still relatively new and therefore price parity with ICE equivalents has yet to be achieved, although at the rate things are changing and the EV market is growing, this should happen by 2024.
The bottom line is that a lot needs to change in the SA auto industry, and quite quickly too. The alternative is that our export markets will turn away from our products and SA’s auto industry will likely die a sad and disorderly death.
The Daily Maverick points out that about a third of the value added within the domestic manufacturing sector comes directly or indirectly from vehicle assembly and automotive component manufacturing activity. As the pinnacle of industry in South Africa, it accounts for 8% of our GDP, in the terrible year 2020, employed 100,000 people and even generated R175 billion in export revenue. Those are big numbers, and it’s something that really needs to be addressed as soon as possible.
In 2019, Minister Ebrahim Patel engaged industry to help develop a roadmap for local production of electric vehicles, which resulted in the publication of a green paper by the Ministry of Trade, Industry and Competition (DTIC). Essentially, the Green Paper presents itself as a workable document for establishing a clear strategic planning policy, with the end goal being to position South Africa at the forefront of advanced component and vehicle manufacturing. . So there is hope, as well as an opportunity for local industry to step up and catch up with the rest of the world. But alas, it’s not that simple…
It would appear that a glacial pace is the applied theme here, with DTIC having promised that 2021 would see the completion of the Green Paper process and the crystallization of government policy direction which would occur shortly thereafter, that is- ie the white paper process. February 2022 is knocking on the door and not a word has been heard from DTIC.
Daily Maverick cites that government and industry are on the same page, with extensive consultation and careful consideration having been taken throughout the above process, judging by the final document. Both parties have interests in advancing SA’s auto industry on the world stage, but it would appear that the problem here is a complete and utter misunderstanding of the urgency of this issue.
Of course, all of this cannot change overnight, with complexities such as investment incentives, export rebates and trade agreements, designed to offset the geographic cost of building cars far from their retail markets, all of which require careful consideration by the DTIC.
But that doesn’t change the fact that time is running out and 2030 is, in political terms, upon us. Not to mention that manufacturers plan the production of vehicles long before the launch of the finished product. With model cycles running around seven years before a replacement is introduced, we essentially have until 2023 to sort out this debacle. China, Korea, Japan and the United States have all put in place attractive incentives designed to encourage local manufacturing of electric vehicles, as well as their market adoption, and South Africa’s lack of this important cocktail is blatant to say the least.
As a last key to be thrown into the works, we must also consider that the considerable contributors to the tax authorities are our good old friends the carbon tax (added to the cost of fuel and the price of new vehicles) and the fuel tax (increase fuel on the way). A sizeable number of local jobs are created by the importation, refining and distribution of fuel and this will most certainly be a disrupted industry with the widespread adoption of electric mobility.
Yes there is a lot to consider when looking at changing the auto manufacturing industry in South Africa and a dramatic opportunity for government and industry to change things but as it stands things, there really is a lot at stake.