Does the government want a lot of electric vehicles (EVs) on South Africa’s roads? Not yet, if a statement by trade, industry & competition minister Ebrahim Patel is anything to go by.
In parliament last week, he said Eskom’s faltering power grid could not cope with the mass adoption of EVs requiring regular charging. It was one of several reasons he gave for the unwillingness of the government — which has consistently said it supports the EV transition — to commit itself to a policy encouraging the local manufacture and sale of EVs. He says it could take nearly another year to do so.
Those of you with grey hair and long memories will remember when the South African motor industry was a hotbed of plotting and intrigue. In the early days of post-apartheid policy planning, the seven major manufacturers would agree a common position on an issue, and present a unanimous recommendation to government through Naamsa. Then, when the document ink was barely dry, each company would slip away to present its own proposals, many of them undermining those in the joint document.
That dog-eat-dog attitude still exists today, though on a more “civilised” footing. While there is more commonality among manufacturers and importers on what is best for the industry, everyone is looking for a market advantage. It’s hardly surprising. Relative to its size, South Africa is arguably the most competitive new vehicle market in the world. Dozens of brands offer hundreds of car and bakkie variants. The truck market is no less intense.
It takes something special to get the CEOs of many of these competitors into one room, in pursuit of a common cause. That’s what happened last week, when they packed into a Pretoria conference venue to plead their case on EVs. Local manufacturers want to build them, importers want to import them. But they all say they can’t do so without government support.
Patel was due to speak at the Naamsa-organised conference but pulled out when President Cyril Ramaphosa called an urgent cabinet meeting to discuss the electricity crisis. Two days later, in parliament, Patel delivered the bad news about a further delay in publication of a white paper outlining proposed policy on new-energy vehicles — primarily EVs but also opening the door to hydrogen and other forms of “clean” automotive power.
The government was originally due to release a white paper in October 2021. Then it was February this year. Now Patel says he hopes to have policy in the current financial year, which runs to March 2024. Industry executives say they are “appalled” by this latest delay, which they say is completely unexpected.
I’m not going to bore you (again) with policy detail; suffice to say that more than half the vehicles built in South Africa are exported to the UK and the EU. These markets are preparing to outlaw the sale of vehicles using petrol and diesel internal combustion engines (ICEs), which is virtually all the South African motor industry makes.
Toyota South Africa builds some EVs for the local market and Mercedes-Benz South Africa (MBSA) some for export. Both make hybrid versions, using a mixture of ICE and EV technology. These, too, are due for eventual extinction in the UK and the EU. Clearly, if South Africa wants to retain these markets, it must build what they want.
We can’t move so fast that we introduce electric vehicles on scale in the South African economy while we have a shortage of electricity on our grid
— Ebrahim Patel
But it’s not enough just to satisfy export customers. South Africa must also build a local demand base. MBSA and BMW South Africa may export over 90% of production but multinational parents of other companies expect strong domestic sales for what they build here.
The International Energy Agency this week predicted that 20% of cars sold around the world this year would be EVs. In South Africa, the market share is less than 1%. The biggest obstacle is price. On average, EVs cost 52% more than their ICE equivalents.
That’s why local manufacturers and importers alike are begging the government to help narrow the price gap. They could start, says Kia South Africa MD Gary Scott, by reducing the 25% duty on imported EVs to the 18% imposed on ICE vehicles. Ad valorem and income tax “tweaks” can also encourage buyers.
EV advocates say South African consumers are keen to buy EVs, if only the price is right. Toyota South Africa is struggling to meet demand for its Corolla Cross hybrid. But that’s the trouble, says Patel. “We can’t move so fast that we introduce electric vehicles on scale in the South African economy while we have a shortage of electricity on our grid.”
The argument doesn’t entirely hold water. In the short to medium term, most EVs sold in South Africa are likely to be hybrids, which draw very little from the grid. In the Corolla Cross, the ICE motor continuously regenerates the electric batteries, requiring no external charging. Even in plug-in hybrids, electric batteries provide a small proportion of the overall power.
Only battery electric vehicles, which sell here in tiny numbers, are wholly reliant on external charging.
Patel gives more reasons for the policy delay. They include the need to study a recent EU decision to allow the continued use of ICEs using synthetic petrol and diesel substitutes. These carbon-neutral alternatives are known as e-fuels. Patel says Sasol has been asked if it can produce them.
The biggest obstacle to mass EV adoption, however, is cost. While the government is sympathetic to the idea of incentives to manufacturers, it is loath to offer them to consumers. Though companies have offered to match government price incentives rand for rand, Patel says the overall cost of industry-proposed incentives is “significantly beyond our financial capability as a government”.
He also rejects an industry proposal that the local EV transition should start with imports, allowing companies to replace them with EVs in forthcoming vehicle generations.
Amid this uncertainty, some are looking for alternatives. Volkswagen South Africa (VWSA) MD Martina Biene, whose company sends most of its vehicles to the UK and EU, will stick with ICE vehicles for the foreseeable future and shift its attention to African markets, where the EV revolution is still some way off.
“Africa is a big part of my strategy in future,” she says. VWSA is at the heart of efforts to develop a pan-African motor industry and it makes sense to devote more attention there.
The decision is about much more than EV policy. Spiralling international freight costs are making it less economic to export vehicles to the northern hemisphere. Cost advantages of current manufacturing incentives have been whittled away. Biene is also anxious to find more local components suppliers to lessen the increasingly expensive dependence on European imports.
Freight costs aren’t her only worry. Load-shedding has caused occasional plant closures. Like other industry heads, she is also worried by the inability of South Africa’s ports and railways to offer a decent service. Naamsa CEO Mikel Mabasa says Durban harbour, the main gateway for automotive imports and exports, “is a major risk for us”.
Ford Motor Co last year completed a R16bn investment in its South African subsidiary to introduce the new Ford Ranger bakkie. Ford Africa president Neale Hill, who is also Naamsa president, says: “When you have 200,000 production capacity and you are exporting 60%-70%, you have wasted your investment if you can’t move it out of the country. You are trapped.” Ford says Transnet has failed to meet its commitments to provide a dedicated rail link between the coast and Ford’s Tshwane vehicle assembly plant.
This state of industry limbo can’t last much longer, successive CEOs said last week. Multinational parent companies have no shortage of alternative manufacturing sites if South Africa doesn’t shape up. Some, notably in Asia, offer compelling arguments.
Mike Whitfield, chair of the African Association of Automotive Manufacturers and a Nissan global strategic adviser, says: “The world won’t wait for South Africa.”
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