Apocalypse looms for South Africa’s motor industry

Are you in the market for an American car or bakkie? In South Africa, you have two brands to choose from. Korean and Indian? The same. France offers a little more, and Germany and Japan a reasonable selection.

If you really want to be spoilt for choice, go Chinese. Brands already in South Africa, or which have announced plans to launch in the coming months, include BAIC, BYD, Changan, Chery, Dayun, Deepal, Denza, Dongfeng, Foton, GAC Motor, Geely, Great Wall Motors, iCaur, Haval, JAC, JMC, Jaecoo, Jetour, LDV, Leapmotor, Lepas, Maxus, MG, Omoda and Riddara.

That’s 25 names. It’s an extraordinary inundation. And nearly all Chinese vehicles arrive in South Africa fully built. A few come in kit form, requiring minimal local assembly and components.

What they all have in common is that their pricing is proving irresistible to a growing number of local buyers. So is their quality, after an inauspicious start when a number of Chinese companies had to quit the market because consumers rejected their tatty products.

Now most of them are back and their share of the market is growing. Last year, it was about 9%. This year, says GAC Motor South Africa MD Leslie Ramsoomar, it’s 13%. He reckons it could soon reach 20%.

You can’t blame the Chinese for arriving in such numbers. South Africa accounts for more than 50% of new vehicle sales in Africa. On a continent described as the world’s “final frontier” for large-scale sales growth (companies hope to increase annual new vehicle sales from 1.1-million to 5-million by 2035), South Africa is a logical place to put down roots.

But can South Africa afford this popularity? Trade, industry & competition minister Parks Tau says 64% of light vehicles sold here are imported. The main source is India, but many vehicles from there are brought in by South African vehicle manufacturers, to supplement the small number of ranges they make here.

While domestic new vehicle sales are finally back to pre-Covid levels this year, it’s of no help to local production because increased demand is being soaked up by imports. Figures released last week show that sales of new cars and commercial vehicles in the first eight months of 2025 totalled 382,259. That’s 14.5% more than the 333,765 at the same stage last year.

Factory capacity utilisation, however, is down. Local companies are producing fewer vehicles.

That’s why the industry wants the government to increase duty protection against imports of cars and light commercial vehicles from 25% to 30%. It also wants a change in policy rules which, it says, force South African motor companies to subsidise the retail prices of independent importers.

In 2013, when the government introduced the first version of its automotive production & development programme (APDP), planners thought it might increase imports’ share of the new vehicle market to 30%. At a push, they said it could hit 40%.

Analysts say the current 64% could soon pass 70%. If this goes unchecked, industry insiders fear the South African industry could go the way of Australia’s, which died in 2017 after politicians failed to stem a flood of Asian imports. While the Canberra government tried to present the industry’s demise as a deliberate policy decision, some senior officials admitted later that they underestimated the import threat until it was too late.

Now the clock is ticking on the South African motor industry. In recent weeks, several industry leaders have warned that if government policymakers don’t wake up, the industry could follow Australia into oblivion. BMW South Africa CEO Peter van Binsbergen told a recent conference: “If we don’t address our problems, we will wake up in 10 years and find ourselves in the same position as Australia.” The motor industry, he said, faces an “existential threat”.

The government has a history of last-minute automotive decision-making. Policy deadlines are routinely ignored. Volkswagen Group Africa (VWGA) MD Martina Biene says: “In South Africa, we are very good at talking about what we should do, not so good at putting it into practice.”

This was particularly the case during the five-year reign of Tau’s predecessor, Ebrahim Patel, when motor companies became thoroughly agitated at the lack of decision-making. However, a recent flurry of policy activity suggests the government finally recognises the urgency of the situation.

That’s why local manufacturers want the 30% tariff. More than that, they want to stop helping importers undercut our vehicle makers’ prices. Under the second version of APDP, known as APDP2, manufacturers earn duty credits according to the scale and local content of their production. These credits, traded as production rebate certificates (PRCs), are used to reduce duties on imported vehicles. For example, VWGA uses credits from the local manufacture of Polo and Vivo cars to cut import duties on Golfs, Tourans, Touaregs and other models manufactured overseas — some of them in India.

Some local manufacturers are able to import all their overseas-sourced products duty-free. But what happens when you have more PRCs than you need for this purpose? One of the few solutions is to sell them, at a discount, to independent importers to reduce their own duty liabilities. In effect, South African motor companies say they are helping competitors become more competitive.

They want APDP2 adjusted so they can absorb the value of excess PRCs, worth billions of rand, into their business operations. For example, they could be used to cancel out vehicle ad valorem taxes and cut prices. This and the increased import duty, say companies, would enable them to compete on more equal pricing terms with imports, some of which enjoy significant manufacturing incentives in their own countries.

Ramsoomar, who says PRCs are an important part of GAC’s pricing strategy, says he understands why local companies want to use them for their own benefit. However, he does not support the idea of increasing import duties.

South Africa needs to protect its manufacturing environment but not at the expense of consumers

—  Leslie Ramsoomar

“South Africa needs to protect its manufacturing environment but not at the expense of consumers,” he says. “There have to be better ways than duties. Economic circumstances have forced consumers to look for more affordable solutions and we should not take that away from them.”

There’s another part of APDP2 that the industry wants fixed. Manufacturing incentives were supposed to benefit actual manufacture — not the import and partial assembly of kits in a process known as semi-knocked-down (SKD) assembly.

Toyota South Africa Motors president Andrew Kirby says the government needs to close a loophole allowing duty benefits for SKD. He says there is an argument for using SKD as a temporary introduction to South Africa but that companies should be required to upgrade to full manufacture within a fixed period, or leave the country.

Some Chinese companies have suggested they may consider local manufacture. Beijing-based BAIC has opened an Eastern Cape assembly plant but has not yet progressed to full-scale manufacturing. Others, such as Chery, have spoken to established companies about using spare capacity in their plants.

American industry analyst Michael Dunne doubts if there will be much Chinese investment in new plants. There is enough spare capacity back in China to build 19-million vehicles annually. With state subsidies of up to 30%, he says it makes more sense to build there. That’s why, this year, China aims to export more than 6-million vehicles.   

The South African industry’s crisis has been a long time coming. Government inaction, policy mismanagement, global geopolitical fallout, local economic decline and infrastructure collapse have all played a part. More recently, we’ve had the impact of the US’s 25% tariff on automotive imports.

After apartheid’s demise, the 1995 motor industry development programme (MIDP) started the long process of transforming the heavily protected, inefficient industry. The international goodwill that South Africa enjoyed in the early years of democracy allowed the industry to make policy and trade mistakes without serious consequences. This status is long gone, but some politicians still cling to the belief that South Africa holds a special place in the hearts of foreign governments and investors, who will do anything to remain here.

The 2017 disinvestment of General Motors should have disabused them of that idea. Now there is talk of Nissan considering its presence here. The Japanese company is in deep trouble globally and has said some plants may have to close. Among the options is its Navara bakkie plant in Rosslyn, Tshwane, which has operated for many years at a fraction of planned capacity.

After the MIDP, the next stage in the South African motor industry’s transition from global pariah to player was the 2013 APDP. It sought not only to turn South Africa into an important vehicle exporter but also to encourage the development of a strong components manufacturing industry. It mostly succeeded with the first goal but failed with the second.

Then, in 2018, when the terms of the 2021-2035 APDP2 were announced, Rob Davies, then minister of trade & industry, declared that, to assure long-term sustainability, the motor industry needed to double annual vehicle production from 600,000 to 1.2-million by 2035. Not only would this boost South Africa’s share of global production from 0.62% to at least 1%, it would also create the scale needed to grow the components sector — the lifeblood of the overall industry.

In 2018, the average value of local content in the ex-factory price of a South Africa-made vehicle was 41%. Davies wanted this to increase to 60% by 2035. Besides more localisation, a bigger industry would create space for black-owned businesses, mainly in components production.

At first, the government expected the seven multinational motor companies with South African subsidiaries — BMW, Ford, Isuzu, Mercedes-Benz, Nissan, Toyota and Volkswagen — to give away shares to black partners to reach empowerment targets.

All seven refused, but agreed to underwrite a multibillion-rand fund to train, mentor and prepare black businesses to enter the industry. Foreign-owned truck makers and components companies have since applied to contribute to the fund.

Jabulani Selumane, CEO of the Automotive Industry Transformation Fund, has said that while there have been many successes, slower than expected growth in developing black participants may require a “recalibration” of transformation targets.

That apart, how has the industry fared so far in meeting its APDP2 targets? Pretty miserably, if truth be told.

From 610,058 production units and 0.62% global share in 2018, industry association Naamsa reports that, in 2024, the industry built 599,755 vehicles for a 0.65% share. While it’s true that the pandemic stopped everything in its tracks in 2020, it did so all over the world. The fact remains that South Africa’s global share has barely moved.

In 2025, says Naamsa, production is expected to slow to 591,000. That’s well short of 2019’s pre-Covid 631,918. Five years into the 15-year APDP2 race, the industry still hasn’t crossed the starting line.

The same applies to other APDP2 goals. Lack of manufacturing scale has had consequences across the industry. Davies said a successful APDP2 would double direct employment in vehicle and components manufacturing, from 120,000 to 240,000. To date, it’s actually shrunk, to about 115,000. Local content is down to 38%.

Renai Moothilal, CEO of the National Association of Automotive Component & Allied Manufacturers (Naacam), has pointed out that in the past two years, 12 components companies have closed down, with the loss of 4,000 jobs.

At particular risk in the near future are manufacturers of catalytic converters, which clean poisonous exhaust gases from petrol and diesel engines. In the past, these platinum-rich devices dominated South African components exports but, as most major markets migrate to electric vehicles (EVs) and away from the internal combustion engine (ICE), demand has diminished.

Converters were once responsible for more than 50% of the value of components exports. They now account for barely 30%. Between 2021 and 2024, their annual export value plunged from R34.9bn to R19.3bn.

Meanwhile, there are revived fears about the possible disinvestment of steelmaker ArcelorMittal South Africa. Early this year, Moothilal warned this could cost 16,000 jobs at components companies.

The hits keep on coming. Two weeks ago, Ford Southern Africa admitted that more than 470 jobs are under threat at its vehicle and engine manufacturing plants. Tyre maker Goodyear, meanwhile, has halted production at its Eastern Cape manufacturing plant, at a cost of 900 jobs. In both cases, quoted job loss figures are for direct employees. They don’t include inevitable retrenchments that will be caused at suppliers and service providers.

The 115,000 jobs at vehicle and components companies support another 500,000-plus in other industries that supply goods and services. For example, more than 50% of South African carpet production ends up on vehicle floors.

Ford blames its decision on “evolving market demand”. This is the same reason, in different words, used last year by Mercedes-Benz South Africa to justify the loss of 700 jobs in East London and a cutback in C-Class car production from three daily shifts to two.

It’s not all bad news. Automotive glassmaker Shatterprufe recently announced a R400m investment in a new production line at its Gqeberha factory. And the multinational Stellantis motor company, whose brands include Peugeot, Citroën, Fiat and Jeep, has begun preparatory work on a R3bn vehicle assembly plant near Gqeberha.   

Nevertheless, Irvin Jim, general secretary of the National Union of Metalworkers of South Africa, warns that the general downward trend will accelerate the country’s deindustrialisation. The motor industry is routinely cited by the government as an example of its “successful” industrial policy. It accounts for 22.6% of manufacturing output, 14.7% of exports and 5.2% of GDP (the last figure includes vehicle retail and spare parts).

But it’s a giant in a shrinking overall industrial base in South Africa. The irony is not lost on local executives that, while they are encouraging the industrialisation of other African countries, through championing a pan-African motor industry, their own government is making the opposite happen at home.

APDP2 is part of a broader policy package called the South African automotive master plan. The government’s supposed contribution is to provide, among other things, the infrastructure and services required to facilitate vehicle and components manufacture.

We all know how that has turned out. Despite countless promises to fix them, the railways and ports are a mess and will be for a long time. For an industry that exports almost two-thirds of the vehicles it manufactures (it was more than two-thirds before US President Donald Trump turned the screws), a functioning, efficient transport system should be a given.

It’s not. In addition to APDP incentives, international trade deals — granting South Africa-made goods preferential entry into major global markets — have allowed the local industry to be a competitive provider of vehicles and components to faraway destinations. Broken promises, and the runaway cost of moving goods in and out of South Africa, wipe out those advantages.

Load-shedding did untold damage to the local industry’s ability to meet orders. Naacam president Ugo Frigerio said recently: “Our industry can be competitive with the rest of the world, but logistics costs knock us out.”

Jim says the government must actively support manufacturing. There is an urgent need to “reverse deindustrialisation that has taken place for the past three decades of our democracy, and to stimulate economic growth”.

It’s a view shared by academic and motor industry policy adviser Justin Barnes, who told a recent automotive conference: “Social and economic decay accompany deindustrialisation.”

Toyota’s Kirby says global experience has shown that, by providing mass employment, industrialisation “is the way to long-term prosperity”. He adds that South Africa “risks being left behind”.

Then there’s the government’s attitude to EVs. As already mentioned, almost two-thirds of South Africa-made vehicles are exported. Most go to the UK and EU, both of which will ban sales of new ICE vehicles in the next few years. So will some other markets.

It’s not clear yet if the ban will include hybrid vehicles, which combine EV and ICE technology. Originally, only fully electric vehicles, known as battery-electric vehicles (BEVs), were to be allowed after 2035. However, consumer resistance may persuade policymakers to allow a few years’ grace for plug-in hybrids (PHEVs). Their electric batteries have enough power for several days of local commuting between charges but ICE engines are available for longer journeys.

In South Africa, despite a growing number of options from importers, particularly Chinese, BEV sales are the preserve of a wealthy minority. PHEV sales are also limited. Traditional hybrids, which are independent of plug-in power by using ICE engines and friction to keep electric batteries permanently charged, are proving popular.

In 2024, says Naamsa, 15,611 EVs were sold in South Africa — 1,257 BEVs, 738 PHEVs and 13,616 traditional hybrids. That was more than double the 2023 total of 7,782 but still a tiny fraction of the EV take-up rate in many other countries. Worryingly, EV sales in the first half of this year were down on the same period of 2024.

The South African motor industry remains wedded to traditional internal combustion engines. Local subsidiaries of Mercedes-Benz, BMW, Ford and Toyota produce some hybrids (BMW South Africa’s plant in Rosslyn, Tshwane, is the only one in the world to produce PHEV versions of the X3 car), but the overwhelming majority of vehicles are ICE.

Demand for this technology will remain for many years, particularly from developing markets, such as those in Africa, but the South African motor industry can’t afford to sacrifice existing markets. It blames a lack of government support for its slow pace of change.

It’s more than 12 years since Davies declared in May 2013 that the government would pursue an EV future, promising “demand stimulation, public education, investment support and an accommodative regulatory framework”.

Only now is it finally happening — and only up to a point. In most countries where EV sales have blossomed, governments have fast-tracked demand by offering consumers tax breaks and cash incentives. The South African motor industry says that’s what’s needed here; if not, sales won’t grow and parents of local motor companies will be disinclined to invest.

The government, however, says it can’t afford consumer incentives and that any EV support will be directed at vehicle production. Last October, President Cyril Ramaphosa declared that consumer incentives would indeed be considered, but when Tau recently announced the government’s latest EV incentive plan, they were missing.

Tau says APDP2 has been amended to include EVs and their components, which will benefit from investment incentives. A 150% capital allowance for investments in EV and hydrogen vehicle production will also apply to buildings, plant and equipment brought into use between 2026 and 2036.

There are also plans to develop a strategy for the EV battery value chain, including minerals beneficiation. Across Africa, plentiful battery minerals including copper, cobalt and lithium are almost all exported raw for processing overseas — particularly in China. Some of those deposits are found in South Africa and its neighbours and the government is keen for beneficiation to happen on home turf. It hopes this will lead, in turn, to the creation of a local EV battery manufacturing industry.

Moothilal, understandably, is in favour at a time when the components industry is taking strain. Besides the low level of local content in South Africa-made vehicles, and reduced production of those vehicles, components exports have contracted in the past two years.

A full-scale battery industry — and the jobs, investment and skills it would bring — would be not just a coup for the local industry but also a potential lifeline.