Fancy cars and bakkies may be the stars of the show but it’s the development of local components that will determine the success or failure of the South African motor industry. As a succession of speakers made clear at a conference last week, it’s the unsexy side of the industry that holds the future in its hands.
Trade, industry & competition minister Ebrahim Patel noted: “The importance of components manufacturing is often underplayed. Emphasis is on the end product. But without an increase in components manufacturing, the argument for [government] incentives is weaker.”
Automotive policy has been one of the government’s few successes in reviving South Africa’s flagging industrial sector. Last year it accounted for 22% of the country’s total manufacturing output. More than two-thirds of vehicles produced here are exported to more than 150 countries and territories around the world.
The value of vehicle exports far outweighs that of components; R152bn against R70bn, according to the Automotive Industry Export Council. But the latter figure is for South African-made components exported as standalone products. It does not include those built into completed vehicles.
The components sector also provides many more jobs than vehicle assembly — at the end of 2022, 83,362 compared to 33,321. And all this despite the fact that local components account, on average, for barely 40% of the value of South African-made vehicles.
Under the 2021-2035 automotive production & development programme (APDP) and the South African automotive masterplan under which it falls, the aim is to increase this average to 60%. Imagine what that will do for job creation, says Irvin Jim, general secretary of the National Union of Metalworkers of South Africa. “Components is where we can create good jobs.”
There are plenty of opportunities — but also risks. Platinum-based catalytic converters, which clean exhaust emissions from liquid-fuel internal combustion engines (ICE), account for almost half the total value of components exports. With the global transition from ICE to electric vehicles (EVs), demand will inevitably decline, particularly since the biggest export markets are phasing out ICE products.
South Africa and many of its export markets, particularly in developing countries, will continue to use ICE for years to come but Jim says one local producer will shed 400 jobs in October and others could follow suit.
However, Anglo American Platinum’s Stephen Bullock says there are plenty of opportunities for platinum group metals in new forms of automotive energy, particularly hydrogen. “Our modelling shows a patchwork of technologies out to 2040,” he says.
The South African motor industry must decide to what extent and at what pace it will follow the EV transition
The challenge lies in determining which of those technologies will eventually win out — if, indeed, there is an overall winner. For now, electric power dominates investment conversations but there’s no guarantee it will do so indefinitely.
Nowhere is this uncertainty better summed up than in the development of EV batteries. Last week, much of the conversation was around African beneficiation of raw materials found in abundance across the continent — minerals like cobalt, lithium and copper.
Instead of exporting them unprocessed to China, which has spent 20 years taking control of much of the world’s supply chain, surely it makes sense to undertake that processing in Africa. South Africa, in particular, has the experience and technology to share with countries like Zambia and the Democratic Republic of Congo. Several speakers last week said South Africa could create a thriving new industry and thousands of jobs. It could even become a major battery producer in its own right.
But what if that particular battery technology becomes out of date in the interim? American EV consultant Loren McDonald says a new sodium-ion battery is under development. As yet unproven, it is 30% cheaper to make and, as its name suggests, is dependent on sodium, which is widely available around the world. If its development succeeds, says McDonald, it could slash demand for current minerals.
The fact that China owns many of the mines producing them, and keeps most of the supplies for itself, can’t be ignored. “Will sodium ion become a clear competitor and displace the old battery?” asks McDonald. “We don’t know. But US distaste for China could make it happen quite quickly.”
All this underlines the fact that planning for the future is a calculated gamble. The South African motor industry must decide to what extent and at what pace it will follow the EV transition. While South Africa itself and many other markets, including most of Africa, will continue to welcome ICE for many years, the fact that many of our biggest markets have said they will shun it in the next few years means the local industry must tread a careful investment line that sets it up for the future but without abandoning the present. “Growth of the motor industry will have to be based on future-proofing,” says Patel.
This is complicated further by the fact that many of the ICE-phobic export markets are reconsidering their own EV transition pace. Development of carbon-neutral synthetic ICE fuels, and fears that deadlines for EV adoption are too soon, are forcing a timetable rethink.
Also, let’s not forget that South African motor industry decisions are not taken here but in Tokyo, Munich, Detroit or wherever else international headquarters are to be found. All seven of South Africa’s major motor companies are wholly owned subsidiaries of multinationals. Those decisions, while taking account of local circumstances, are made for the good of the global group.
Jim says: “Multinationals don’t care about South Africa. If we aren’t relevant, they will move their production to the other side of the world.” That’s overly harsh but you get his point.
The only current certainty for the South African components sector is that it will become less white. A cornerstone of the APDP is for greater black participation in the motor industry. Multinational vehicle manufacturers have refused point-blank to cede a single share in their South African subsidiaries. Instead, they have been allowed to contribute to the multibillion-rand Automotive Industry Transformation Fund (AITF), which identifies and mentors black-owned enterprises hoping to break into the industry. These may be components suppliers, service providers or even dealers. AITF CEO Jabulani Selumane says R250m has already been spent preparing newcomers.
Now, says Patel, multinational components companies unwilling to give up local shares may contribute to a similar fund. So may foreign truck companies. In these cases, however, the money will go exclusively to black components companies.
Andile Africa, CEO of the Automotive Industry Development Centre, which provides an incubation service to black businesses hoping the crack the industry, says that while there has been transformation progress, there is still resistance. Some large established companies view black newcomers as direct competitors, so are loath to encourage them.
Foreign owners of vehicle manufacturers and major components suppliers, with global supply chains in mind, can also be suspicious of unproven companies.
In fact, says Africa, they are not unproven. Five years of incubation, with the assistance of companies like Ford and Nissan, prepares them to hit the ground running when they win contracts. They are ready to compete on price, quality and delivery. All they need is the chance.
“There has to be an element of risk,” says Africa. “How do we justify all this APDP investment [in motor companies] if they don’t give something back in the form or employment and training?”
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