Is BAIC ready to deliver on its promises in SA?

Chinese motor company BAIC has reintroduced itself as a contender to become South Africa’s next full-scale vehicle manufacturer. The question is: after so many previous missed deadlines, is the company finally ready to deliver on its promises?

BAIC South Africa — its initials stand for Beijing Automotive Industrial Co — says it hopes to begin the full manufacture of cars and bakkies late next year, in preparation for commercial production in early 2026. That will put it in direct competition with the multinational Stellantis group, which has announced a similar timetable for the local manufacture of Peugeot Landtrek bakkies. Both companies are based in the Coega special economic zone, near Gqeberha in the Eastern Cape.

It’s not the first time BAIC South Africa has set a production date. In the eight years since announcing a planned R11bn investment in Coega, the company has been a serial nondeliverer. In 2018, it produced its first vehicles, assembled from fully imported kits — a process known as semi-knock-down (SKD). In 2022, it was due to transition to full manufacture, building vehicles from scratch with local components and body parts. This is called complete knock-down (CKD).

The opening CKD annual production capacity should have been 50,000. To date, however, only SKD vehicles have been built. Every year, BAIC South Africa officials — and sometimes their counterparts at the South African government’s Industrial Development Corp (IDC), which is a 35% shareholder in the project — have assured doubters that CKD production is imminent.

Then, last month, the company announced that the 50,000 capacity investment was complete. Actual production, however, is still some way off. Guests at the opening event saw a few shop floor workers continuing with SKD kit assembly. When I visited a few days ago, even that wasn’t happening. Delayed delivery of a batch of kits and spare parts from China meant there was no work.

When South African and Chinese government officials announced the investment in 2016, the Coega site was intended to be South Africa’s first major greenfields vehicle assembly plant in more than 40 years. BAIC South Africa would become the eighth local CKD manufacturer, joining BMW, Ford, Isuzu, Mercedes-Benz, Nissan, Toyota and Volkswagen.

But little went to plan. BAIC says the main causes of Coega’s development delays were Covid and the failure of the local construction contractor to meet its obligations. The project was managed internally instead and a new construction completion deadline of June 2023 was set — and met.

As delay followed delay, and corporate stonewalling intensified, doubts multiplied. This year, even Ebrahim Patel, the then minister of trade, industry & competition, all but wrote off BAIC’s intended crowning when he publicly referred to Stellantis as the eighth manufacturer.

Now, though, BAIC has declared itself back in the race. What is different this time is that the company appears to be expressing a sense of market reality. Rather than the stubbornness that typified previous declarations that everything would be all right, management executive Ben Fouche admits that the next planned stage — for Coega to expand production capacity to 100,000 by 2027 — is “simply not feasible”.

“South Africa is a competitive and saturated market,” he says. Exactly how competitive is shown by the fact that in the first seven months of this year, BAIC sold only 1,141 vehicles in the local market. Even with projected market growth in coming months, the full-year number is likely to fall short of 2023’s 2,693.

The good news, says Fouche, is that the growing sales success of brands including Chery, Haval and Great Wall Motors shows that local market prejudice against Chinese vehicles is dying. BAIC itself has contributed to this changing sentiment through its Beijing X55, which was voted top compact family SUV in the 2024 South African Car of the Year competition.

The real acceptance test, however, is yet to come. Other brands have made a splash before in the South African market, only for customers to lose patience with after-sales service, parts supply and quality issues, then switch back to previous brands. Only when first-time buyers become repeat customers can a brand feel it has been accepted.

It’s very hard for new companies to kick-start successfully in such a tight environment without some support

—  Ben Fouche

The fact is, BAIC South Africa sales fall well short of volumes required to justify CKD manufacture. At a push, 2024 SKD assembly, including sales to neighbouring countries, could reach 1,000. The main contributor is the Beijing X55. To reach CKD levels, the plant will have to find other products to build. One is likely to be a Foton bakkie. Foton is a sister brand within the wider BAIC family.

Fouche says BAIC South Africa is open to the idea of using spare Coega capacity to build vehicles for nongroup companies. Off a single production line, the plant can build right- and left-hand-drive cars, bakkies and SUVs. None of this will happen immediately, however, and it’s not clear how volumes will justify CKD within 18 months.

The plant is also exploring offline contract assembly of other brands’ heavy trucks, but these numbers are tiny.

BAIC and the IDC have so far spent just over R4.1bn of the planned R11bn. Fouche says it requires only the flick of a switch to set in motion the 50,000-capacity paint shop, body shop and assembly line. The company has already approached the government about signing up to the motor industry investment incentive plan, the automotive production & development programme (APDP).

To get the full range of benefits, which include a 30% investment rebate, companies must build at least 50,000 CKD vehicles annually. For reduced incentives, the minimum is 10,000. At first glance, even that seems a long way off, but BAIC thinks it’s feasible by 2026 — with a little help from outside. In case volumes fall short, it has asked the government to bend the 10,000 line so the company can access some incentives.

“It’s very hard for new companies to kick-start successfully in such a tight environment without some support,” says Fouche. The company says: “Should BAIC South Africa start to benefit from these incentives, it will become more viable to start and increase CKD production.”

APDP incentives apply only to CKD. Other companies won’t be happy if BAIC is offered special treatment but Mikel Mabasa, CEO of manufacturers and importers association Naamsa, says they won’t interfere. “It’s between BAIC and minister Parks Tau,” he says, referring to the new minister of trade, industry & competition. “Of course some of our members have a view but we won’t get involved.”    

Longer term, Fouche says there is no doubt that BAIC will exceed 50,000 and beyond — maybe even 100,000. Indeed, it’s hard to believe that the Chinese parent company, which is owned by the Beijing local government and plans to sell 2.5-million cars worldwide next year, would invest in something that did not promise eventual returns. “We are playing the long game,” says Fouche.

South Africa, and Africa more generally, are now no more than pinpricks on the Chinese whole, which employs 100,000 people and includes Mercedes-Benz and Hyundai among its brands in the Chinese market. Total Coega employment is 123, of whom 26 are Chinese expats and 53 hourly-paid shop floor workers. The company also runs a sales and marketing office in Gauteng.

BAIC South Africa says its local production growth will be a three-stage process. First, it wants to increase demand in the domestic market. The brand has 49 local dealers and three in neighbouring countries, plus a number of vehicle service centres. As current sales volumes show, demand growth will be very slow, particularly in a generally struggling market.

Step two is to expand into Africa. Here, challenges abound. The African Association of Automotive Manufacturers (AAAM), which is leading efforts to develop a pan-African motor industry, says BAIC has yet to make contact and that Chinese companies have so far adopted a go-it-alone attitude. Fouche says these are still early days for BAIC but that it is likely to consider the AAAM process.

The overwhelming majority of African new-vehicle markets are undeveloped, relying primarily on cheap used imports from other parts of the world. AAAM hopes the continent’s current annual market of just more than 1-million new vehicles can grow to 5-million by 2035, then kick on later.

Unlike other manufacturers, which plan regional manufacturing centres elsewhere in Africa, Fouche says Coega is BAIC’s only planned African plant for now.

The third development step is to pursue export markets outside Africa. Those are likely to include the US and EU, both of which are resisting China’s aggressive vehicle export programmes. However, under free-trade agreements with South Africa, Chinese vehicles built here could be exported duty-free to both regions. These would eventually include electric vehicles (EVs), which are the source of considerable trade tension between China and its rivals.

BAIC South Africa also hopes to supply EVs to the South African market.

All this, of course, is in the future. For now, BAIC South Africa’s immediate priority is to transform Coega into an active CKD operation. That will require not only a much bigger workforce but also a significant volume of locally made components.

Fouche says the company has started preliminary training of potential shop floor and technical workers, and will increase the pace as necessary. Component localisation won’t be solved so easily. Across the industry, local components average about 40% of the value of cars and bakkies made in South Africa. This is intended to rise to 60% by 2035.

Renai Moothilal, director of the National Association of Automotive Component and Allied Manufacturers, says he’s unaware of requests from BAIC South Africa for local companies to supply Coega with parts. It can’t afford to wait much longer. A year is a very short time in the planning life of vehicle manufacture.