The South African motor industry is bleeding money and jobs because of load-shedding. Nearly a quarter of South Africa’s components manufacturers have stopped hiring staff and a growing number are laying off employees. An estimated 15% have withdrawn from export orders because they can no longer guarantee to deliver on time.
Vehicle manufacturers, while shielded from the worst of lead-shedding by their investments in solar and other forms of alternative energy, are not immune. It needs only one components supplier to deliver late and the whole vehicle manufacturing chain can grind to a halt. That affects not just the vehicle manufacturer but also dozens of other components suppliers that have to adjust or suspend their own production.
As Renai Moothilal, director of the National Association of Automotive Component and Allied Manufacturers (Naacam), puts it: “You can’t build 99% of a vehicle.” A Naacam study into the effects of load-shedding says that if the current situation continues, “losses to volumes of assembled vehicles will become commonplace”.
That’s like throwing petrol on a fire. Nearly two-thirds of South African-made vehicles are exported, most to countries that will ban petrol and diesel internal combustion engine (ICE) vehicles in the next few years, in favour of electric vehicles (EVs). Nearly all South African vehicles are currently ICE. Already frustrated by the government’s tardiness in encouraging the local assembly of EVs, multinational parents don’t need another excuse to reconsider the future of their South African operations.
Naamsa CEO Mikel Mabasa says load-shedding is “making it harder to persuade multinational vehicle and components companies to invest in South Africa”.
Arguably the biggest immediate impact is to small and medium components suppliers. Their sector is divided into “tiers”. Tier 1 companies, many of them foreign owned, deliver completed automotive components to vehicle assembly lines. They buy subcomponents from tier 2 companies, which, in turn, buy their “ingredients” from tiers 3 and 4.
A growing number of companies in the lower tiers are black owned, responding to government efforts to transform what used to be an overwhelmingly white industry. Vehicle manufacturers have sunk billions of rand into an empowerment fund to identify and develop black suppliers. But these are now among those most at risk from the economic consequences of load-shedding.
It needs only one components supplier to deliver late and the whole vehicle manufacturing chain can grind to a halt
Mabasa says it is “the biggest inhibitor to the industry’s localisation ambitions”. The Naacam study says it is “worsening the global competitiveness of the South African automotive industry”. If the current situation continues, cutbacks in vehicle production “will become commonplace”.
It says most vehicle manufacturers, in addition to having alternative energy supplies, have agreements with municipal electricity suppliers to minimise the inconvenience of load-shedding. The overwhelming majority of components companies, scattered around the country, have no such advantage. The study says 30% of Naacam members had to suspend production at various times in the last three months of 2022.
It’s not just South African customers feeling the effects of these shutdowns. Many local components companies have contracts to supply parts to overseas vehicle assembly plants. Some contracts have already been suspended, others are in jeopardy.
Moothilal says: “At the same time as they are expressing sympathy for our companies’ problems, export customers are looking around the world to see where they can find other, more reliable suppliers. Tolerance for delays is not high. They can switch overseas supply locations on and off quickly.”
Exports of assembly-line components hit a record R69.2bn in 2021, the last year for which complete figures are available. Vehicle exports were worth R138.3bn, contributing to a total R207.5bn and an automotive trade surplus of R39.1bn. The study says 76.7% of Naacam respondents say new business opportunities are also at risk, with 60.9% citing “high risk”.
It says prolonged stage 6 load-shedding can cost components companies up to 40% of turnover. It’s important to realise, it adds, that load-shedding downtime does not end when the power is switched back on again. “Restarting equipment, particularly furnaces, can be a lengthy process. Restarting production can take anything from 15 minutes to 18 hours.”
The “median” start-up delay is two hours — which, as Toyota South Africa president Andrew Kirby, observes, is not much use when, during heavy load-shedding, you’re switched off again almost as soon as you’ve restarted. Adding to the chaos, 68% of companies report that the continuous switching on and off of electricity, and accompanying power surges, have damaged manufacturing equipment.
Smaller components companies simply don’t have the resources for industrial-strength generators to keep them going during load-shedding. The study says: “While Naacam members are taking steps to limit the impacts of load-shedding, many of the solutions require investment and place strains on cash and balance sheets that are already strained after Covid and the unique macro issues faced by South Africa over the past two years.”
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