Motor industry at wits ’ end with state’s EV stance

Two days after motor industry leaders collectively complained that the government was threatening the future of the SA motor industry by dragging its feet on policy for electric vehicles (EVs), trade, industry & competition minister Ebrahim Patel said they may have to wait another year for a decision.

He told parliament on Friday that his department would finalise its EV strategy by the end of this financial year, which runs to March 2024.

On Wednesday, at a conference called to highlight the danger of continued delays, industry executives warned that future investments are already being put at risk, and not just from EV indecision. Load-shedding and the chaotic state of SA’s ports and railways are talking points in the boardrooms of multinational parent companies.

Patel had been due to address the conference, organised by Naamsa, but withdrew after President Cyril Ramaphosa convened an urgent cabinet meeting to discuss the electricity crisis. Patel implied on Friday that this crisis was among reasons for EV policy delay. “We can’t move so fast that we introduce electric vehicles on scale in the SA economy while we have a shortage of electricity on our grid.”

Even if the grid could cope, its reliance on coal meant that an EV-led surge in energy demand could undermine SA’s climate change commitments — an issue the government is grappling with as it debates whether to refurbish some “retired ” coalbased power stations to reduce load-shedding.

Patel said the government was also studying the implications of a recent EU decision to grant a stay of execution on the sale of vehicles with internal combustion engines (ICE). These vehicles were to be banned after 2035, but the EU now says they can continue if they use carbonneutral synthetic fuels (e-fuels).

Patel said Sasol had been asked whether the local production of e-fuels was feasible.

He confirmed what many people had suspected — that the biggest obstacle to EV policy is cost. After publication of a green paper discussion document in May 2021, industry proposals had proved to be “significantly beyond our financial capability as a government”.

Motor companies, he said, want incentives for both manufacturers and consumers, with the emphasis on the latter. Historically, multinationals like to invest in countries where there is a solid demand for vehicles made there. In SA, EV sales account for less than 1% of the total market. With EVs costing, on average, 52% more than their ICE equivalents, other countries have offered consumer incentives to narrow the price gap.

Patel said SA cannot afford to follow suit. Companies want to start by importing EVs, then replace them with local models as they phase out ICE production. “That doesn’t work for SA. It needs a different approach,” he said. A cautious policy approach “will yield better results than simply putting up an unaffordable one”.

The government was due to follow its EV green paper with a white paper — outlining intended policy — by the end of 2021.

When that did not happen, the industry spent most of 2022 pressing for clarity. They were told to expect it with this year’s national budget in February but were disappointed again.

In response to a question from DA trade & industry spokesperson Dean Macpherson, Patel said it wants to publish the white paper as soon as possible. He said growth of the postapartheid SA motor industry was based on policy continuity.

“We have not chopped and changed in a manner that has not been predictable.”

The industry would argue that predictability is precisely what is lacking right now. Twothirds of vehicles manufactured in SA are exported.

The EU and UK alone account for more than 50% of production. The UK’s ICE shutoff date is 2030 and it has given no sign yet of whether it plans to follow the EU’s e-fuels exemption. Some smaller export markets plan to put up the shutters as early as 2025.

Motor companies say the danger of losing many of their markets is real. Vehicle life cycles, ranging from seven years for cars to 10-12 years for bakkies, mean SA manufacturers are already pushing against ICE bans.

Only two companies now produce EVs — Toyota SA for domestic customers and Mercedes-Benz SA for export. Both make hybrid EVs, using dual ICE and electric motors. These will also be barred eventually from many export markets. No-one in SA yet produces battery electric vehicles (BEV), which are entirely electric.

Ford Africa president Neale Hill, who is also Naamsa president, said at last week’s conference that companies have to make investment decisions at least three years before starting production of new vehicles. SA has already missed the wave of EV investment. That is why “we need an urgent pronouncement from government”.

Naamsa CEO Mikel Mabasa observed: “Ambiguity is not helpful.”

Other executives warned against assuming that because motor companies have been in SA for decades, they will stay forever. Isuzu Motors SA MD Billy Tom said: “This is a leadership moment for SA Inc. SA does not have a God-given right to the auto industry.”

Competitors are queuing up. Thailand, a major global producer of bakkies, is negotiating free-trade agreements with the EU and UK that will allow its vehicles to land duty-free, like those of SA. Chinese motor companies, which have turned wholesale to EV production, are starting to target European markets with cheap cars. Mike Whitfield, chair of the African Association of Automotive Manufacturers, said several African countries are ahead of SA in adopting EV policies and offering themselves as continental production sites.

Toyota SA president Andrew Kirby said: “We have to realise this is a heck of a fight. We can take nothing for granted.”

Adding to the challenge is that accelerating global freight costs are nibbling away at cost advantages offered by current automotive policy incentives. The SA industry, literally half a world away from many of its parts suppliers and its export markets, needs incentives to be competitive. Volkswagen SA MD Martina Biene said rising logistics costs have “almost eaten up” those advantages.

Former trade & industry minister Alec Erwin said the SA motor industry has overcome challenges before. There is no reason to think it would not do so this time. Automotive policy requires “tweaking ”, rather than a complete overhaul. He said: “I don ’ t see [the EV challenge] as a massive threat but as a massive opportunity.

“The longer we take to make difficult decisions, the more the opportunity will evaporate.”