South Africa’s vehicle policy is badly in need of a service

Is South African automotive policy squeezing the life out of the industry it is supposed to be nurturing? Critics, including some who helped design the policy, say urgent amendments are needed if newcomers are to be attracted to the country and the slide in employment, output and localisation is to be stemmed.

One industry expert estimates that the number of vehicle manufacturers needs to more than double if the industry is to meet its growth goals.

Companies are losing patience with the government’s management of the 2021-2035 automotive production & development programme (APDP) and the South African automotive masterplan under which it falls. Besides accusing the government of dragging its feet on an APDP review, critics say it is withholding incentive payments from vehicle and component manufacturers, and allowing South Africa’s Brics partners, chiefly China and India, to ride roughshod over South African needs.

As the Industrial Development Corp (IDC) revealed last week, the rapidly rising market share of imported Chinese cars helped fuel an overall R140bn trade deficit with China in the first nine months of 2025. India, however, is an even bigger contributor to a market imbalance where imports make up two-thirds of South African new car sales.

The industry is not in full-blown crisis — yet. It has a history of last-minute government policy interventions to stave off emergencies. The difference this time is the complexity and sheer scale of the problems.

The department of trade, industry & competition, which administers the APDP, did not respond to questions for this article. However, minister Parks Tau has acknowledged that the programme is not on track. He and various cabinet colleagues, including President Cyril Ramaphosa, have assured the industry that change is coming.

What that change might be, and when, is not clear. “Talk is cheap,” says National Union of Metalworkers of South Africa general secretary Irvin Jim.

Details of the APDP and masterplan were announced in 2018. Core goals for 2035 included the doubling of vehicle production to 1.2-million and of job numbers to 240,000; and a rise in average local content from 40% to 60% in South Africa-made cars and light commercial vehicles.

In fact, since 2018, all these metrics have gone backwards. Industry activity one-third of the way through the APDP time period is nowhere near expectations.

Another policy pillar, the creation of a vibrant black sector within the industry, is also struggling. While there has been progress, it is not enough.

The maths is straightforward. More vehicles manufactured in South Africa means more demand for local components, more jobs in vehicle and components production and more opportunities for black entrepreneurs. Manufacturing fewer vehicles means less of everything.

Exports may be doing well, but domestic demand for local vehicles is foundering. More South Africa-made cars and bakkies are sold in Europe than here. As of now, the 1.2-million production target by 2035 is wishful thinking. In 2025, the number was barely half that.

As a result, manufacturers’ revenues across the industry are under threat. So are APDP incentive payments. A 20% rebate for production-related investments has been an important driver of investment in vehicles and components.

The incentive rules, however, dictate that companies maintain job numbers at a fixed level. That is hard to guarantee when production is shrinking — and particularly now that US President Donald Trump has imposed 25% tariffs on automotive imports into the US.

Mercedes-Benz South Africa took a big knock to its sales, while Renai Moothilal, CEO of the National Association of Automotive Component & Allied Manufacturers, says components producers are experiencing “volume reductions and extended short-time arrangements”.

A report by industry association Naamsa found that productivity at some vehicle assembly plants fell to 33% in the third quarter of 2025. Companies say they have no choice but to retrench. Moothilal says at least 2,700 more jobs may be lost in the components sector in 2026. That’s on top of 4,000 shed in the past two years.

As a result, says a senior industry figure, companies across the industry are being denied incentive payments they were counting on. He says: “They tell us that if we slip by even one job below the minimum, we will get nothing. Payments have gone off the cliff. Investment is the foundation of localisation and if this is not incentivised, it will hollow out the manufacturing base.”

What has gone wrong with the policy? Obviously, the pandemic changed the landscape after the 2018 APDP announcement, but other problems are also involved. When the APDP was devised, planners budgeted for 2.5%-3% annual GDP growth over its lifespan, which carries the assumption that there would be bumper sales for local manufacturers. Not only has that GDP growth failed to materialise, but now that the market is finally rebounding from a sustained period of decline, it is imports that are enjoying the spoils.

Policy failings were identified soon after the inception of the APDP but have been allowed to fester. The government has stuck to its original timetable, which called for a first review in 2026. The industry begged in vain for it to happen last year.

To outsiders, it’s hard to reconcile this angst with a market that seems to be booming. In 2025, South African consumers and fleet owners bought 596,618 new vehicles — the highest number in a decade and a 15.7% improvement on 2024.

Naamsa predicts “another celebratory year” in 2026, with market growth of 9%-11%. That would take sales to between 650,314 and 662,246. Brandon Cohen, chair of the National Automobile Dealers Association, says: “Early indicators suggest that the positive momentum in the market is likely to carry into 2026.”

Naamsa credits lower interest rates and more flexible bank financing for the upturn, as well as pent-up demand from consumers who had delayed purchases in the previous four years because of economic hardship but could not wait longer to replace ageing vehicles.

Their patience was rewarded with a flood of budget-friendly Asian imports. These have taken a big slice of the market. Figures for December, showing familiar brand names languishing far down the charts, are a reflection of 2025 as a whole.

As Stanley Anderson, CEO of Hyundai Automotive South Africa, says: “The South African automotive market has never been more competitive.”

Seven global motor companies have full-scale vehicle manufacturing subsidiaries in South Africa: BMW, Ford, Isuzu, Mercedes-Benz, Nissan, Toyota and Volkswagen. They build cars and/or light commercial vehicles from scratch, using thousands of body parts and components. The process is known as CKD, short for completely knocked-down. Companies doing this are known as original equipment manufacturers (OEMs).

Chinese company Beijing Automotive Industry Holding Co (BAIC) says it will join this group soon. Until now, its assembly plant, in the Coega special economic zone near Gqeberha, has built cars from imported kits — a process known as semi-knocked-down manufacture, or SKD. This requires minimal assembly, local components or local jobs. Toyota South Africa president and CEO Andrew Kirby says that for every job in SKD, CKD provides eight.

Johan Cloete, vice-chair of Automotive Investment Holdings (AIH), which helps companies set up SKD plants in Africa and has advised BAIC, expects the company’s plant to begin CKD production early this year as it adds more car models to its portfolio. Foton, which is part of the BAIC group, has announced it will launch its own CKD manufacturing at the BAIC plant, starting with the Tunland bakkie, making it “the first Chinese commercial brand to establish full-scale vehicle manufacturing operations in South Africa”.

The idea of different brands sharing an assembly plant is one that the IDC has been pushing for years. Mark Goliath, acting IDC divisional executive for manufacturing, says this is a solution for brands wanting to test the CKD waters at an affordable cost. If demand justifies it, they can set up their own plants later.

If combined production adds up to 50,000, these plants will enjoy full APDP incentives — and partial benefits from production of 10,000 units.

Moothilal supports the idea, “provided it is structured as a CKD assembly operation with sufficient volumes to achieve economies of scale and is supported by a clear, credible localisation strategy”.

Goliath says: “Prevailing market conditions in South Africa are well suited for such collaborations, given the high proliferation of different brands and models.”

He says several companies have asked about participating, but the IDC still has to “assess and determine the overall viability and bankability of the concept”.

Stellantis, the Europe-based motor group whose brands include Peugeot, Citroën, Opel, Jeep, Fiat and Alfa Romeo, once expressed interest in shared manufacturing but has decided to go it alone. It is investing R3bn in a greenfields CKD plant at Coega.

Original plans were for vehicle production to start this year. That has been delayed to the end of 2027, says Stellantis South Africa MD Mike Whitfield. The intention to start with 50,000 annual production capacity has been scaled back, though Whitfield is confident that number will eventually be attained. The product lineup will also be expanded from just Peugeot’s Landtrek bakkie, which was the initial idea, to include additional models.

“We will decide which ones in the next few months,” Whitfield says. “Whatever they are, we will be fully CKD from day one. SKD has never been part of our plans.”

Indian company Mahindra, meanwhile, is talking of upgrading its KwaZulu-Natal bakkie operation from SKD to CKD. It has commissioned the IDC — which, coincidentally, is a shareholder in the local operations of both BAIC and Stellantis — to conduct a feasibility study. Mahindra increased South African sales by 40% in 2025.

If Mahindra and BAIC do complete the switch, it won’t be a moment too soon for the rest of the industry. The APDP is designed to encourage CKD manufacture. Prof Justin Barnes — an architect of the APDP and an automotive policyadviser across Africa — says that in principle, light-vehicle kits should attract the full 25% duty on built-up imports. In fact, he says, loopholes allow them to come in for as little as 8%. That’s why some other companies are reported to have inquired about going the same route.

Barnes says some have implied that South Africa should be grateful for any kind of investment. The fact that South Africa is home to Africa’s second-biggest motor industry (it has been knocked off top spot by Morocco) and exports world-class products all around the world seems incidental.

“Investors are engaging with South Africa as if we don’t have a motor industry,” he says. “We have a well-established CKD industry. To encourage SKD would be massively retrogressive. If the government incentivises SKD, it is supporting a race to the bottom. It is for very poor countries with high protective barriers.

“We have fully integrated plants of a very high level. We have sophisticated vehicle manufacturers. I am insulted that anyone would even consider SKD. It’s like asking someone to come and teach us the wheel. Why would we want to go backwards?”

If local OEM production continues at the current stagnant rate, Cloete estimates that South Africa will need at least 10 new CKD plants — standalone or multibrand — to reach the APDP’s 1.2-million production target.

He says AIH has undertaken standalone, full-scale manufacturing feasibility studies for a number of Chinese companies and the results are not promising. Faced with a hefty investment bill and a mountain of red tape, including transformation challenges that don’t exist in other countries, setting up alone is “onerous and costly”. He adds: “The current APDP is not investment-friendly.”

Barnes agrees: “Policy is designed primarily to keep existing OEMs, not attract new ones.”

Adding to the investment disincentive is that some companies are deterred, ironically, by South Africa’s lack of protection against imports. “Why would they choose to manufacture when their own experience shows it’s more cost-effective not to?” asks an industry executive.

To reach its 1.2-million target, the industry can’t rely on exports even though, contrary to expectations, it set a new record of 408,224 in 2025.

The answer, says the industry, is more protection for the local market. As things stand, importers must pay 25% duty on built-up cars and light commercial vehicles. That sounds like a lot, but it’s not a strong deterrent for brands that benefit from generous manufacturing subsidies in their home countries and the unit-cost advantages of building vehicles by the million, rather than the tens of thousands in most South African plants.

Isuzu Motors South Africa MD Billy Tom says some Asian producers are dumping — selling vehicles below production cost. It is an accusation denied by those companies. Barnes asks: “Is it dumping or just very aggressive market entry?”

Whatever the answer, Isuzu Motors global COO Shinsuke Minami reckons some Chinese products in South Africa enjoy a cost advantage of up to 30%.

Contributing to this is one of the APDP’s many anomalies. Programme incentives, based on production volumes and localisation, earn duty credits, called production rebate certificates (PRCs), that allow OEMs to reduce import duties on vehicles they don’t make locally.

Some earn so many PRCs that their imports all arrive duty-free, but they still have billions of rand of credits left over. This value is inflated by an assembly incentive that can also be used to rebate import duty.

With nowhere else to spend this excess, OEMs sell their PRCs, usually at about 95% of face value, to other importers to reduce their own duty commitments. In effect, OEMs are subsidising the landed costs and selling price of direct competitors.

OEMs have asked to monetise these surpluses within their own duty structure. Specifically, they want to rebate ad valorem luxury tax on vehicles that they build locally. This, together with a requested vehicle import duty increase from 25% to 30% or even 35%, would narrow the price gap between their models and the imports.

Further, they want the government to revisit ad valorem. Value parameters are unchanged since the luxury tax was first imposed on vehicles in 1995. Then, a R200,000 car was considered luxury. Today, it’s a cheap entry-level item. But it’s still taxed as luxury.

Barnes says: “Many countries have no taxes on entry-level cars. We tax them aggressively. We define almost every car as luxury.”

Some in the industry want the ad valorem starting point to be doubled, to R400,000. They also want working bakkies exempted — as trucks are already exempted. All bakkies, even single-cab versions used in agriculture, industry and delivery, currently attract ad valorem.

While some people are stridently opposed to anything that smacks of protectionism, Tom says Asian companies bombarding the South African market benefit from high protective walls in their home countries, where import duties can exceed 100%.

He says: “We must compete on equal terms with vehicles that are heavily subsidised and dumped. We are in favour of more duties, or we will become a country of customers and not manufacturers.”

South Africa is not in a position to unilaterally raise duties. As Barnes points out, the country’s international trade deals, particularly with the EU and UK, where South Africa exports vehicles duty-free, mean it must consult them first.

He says: “We can’t just push a button without considering the consequences.”

The relationship with Brics partners must also be borne in mind, even though, as Tom observes, that relationship — supposedly of equals — condemns South Africa to subservience.

In 2024, the latest year for which full trade figures are available, South Africa imported R49.1bn of automotive goods from China, of which cars and bakkies were worth R12.4bn. In the opposite direction, South Africa sent exports to the value of R574m, including R322m of vehicles. From India, South Africa accepted R30.1bn (vehicles R23bn) in exchange for R177m (R36m).

This inequality must end, Jim told a conference. He said: “Everything India and China do is for their own people. We need a government that is strong on behalf of South Africa. Our government must not hesitate to promote local manufacturing and drive meaningful localisation. It is time to take stock of trade benefits.”

Moothilal insists it’s not too late to pull back from the brink. He says: “The auto sector is the largest manufacturing sector in South Africa, contributes over 5% to GDP and sustains over 110,000 direct jobs. It is vital for industrialisation that the competitiveness of the sector is supported.

“There are several policy adjustments that could be implemented quickly, including measures to strengthen the domestic market, prioritise localisation, deal with the excess duty-credit situation, close tariff loopholes and designate locally manufactured vehicles and replacement parts, all of which would help stabilise and grow the sector.”

Barnes, however, says “quick implementation” is not in the government’s nature. South African policymakers are loath to change direction until they absolutely have to. He says: “The problem is that if things go against what was intended, there is no mechanism to fix it. You wait for the big review later. Until then, you get what you get.”

Tau admits that imports have too strong a grip on the local market and says the government is committed to updating the APDP in favour of the local industry. He says it is already making progress on plans to encourage the local manufacture of electric vehicles (EVs).

In answer to a parliamentary question, the minister said an accelerated 150% depreciation tax for EV manufacturing investment would start this year and that his department was leading an African regional value chain programme to beneficiate local minerals for an EV battery manufacturing industry. Here, too, there is a potential Brics challenge; China dominates the mining and beneficiation of many of these minerals in Africa.

It’s not clear who will benefit from the 150% depreciation, which is reserved for fully electric plug-in vehicles, known as battery-electric vehicles (BEVs). Hybrid vehicles, using a combination of EV and traditional petrol/diesel internal combustion engines (ICE), are excluded. Several OEMs make hybrids, but none has announced plans for BEVs.

The industry says that while it welcomes anything that encourages EV investment, it needs the government to act faster or risk the loss of EV-centric export markets. Recent events, however, may delay that action. The EU, having pledged to ban ICE and hybrid vehicle sales from 2035, now says it will allow a limited number after that date.

Vehicle manufacturers face heavy fines if their EU sales don’t include a steadily increasing percentage of plug-in EVs. But can they be blamed if consumers simply refuse to buy them in sufficient numbers? Rule No 1 of marketing: give consumers what they want, not what you think they should have.

It remains to be seen whether the UK, one of South Africa’s main vehicle export markets, will follow suit and water down its own 2035 EV deadline. There are no such doubts in the US, where Trump’s open hostility to EVs has further weakened demand.

In theory, EU wavering gives South Africa breathing space to decide its own EV future. Two-thirds of vehicles built here are exported and while some are hybrid EVs, the industry is under pressure to transition faster. Naamsa says policy planners must not use the EU situation as an excuse for more procrastination.

Moothilal adds: “Extending the ICE and hybrid window supports continued vehicle and component production platforms, while providing valuable time for a more sustainable and realistic transition into new vehicle and component technologies.”