South African car exporters losing the EV race

Neale Hill, president of the National Association of Automobile Manufacturers of South Africa, says hostile local conditions and a lack of government policy on electric vehicles (EVS) are making it “extremely difficult” to sell the country as an investment destination.

“It’s getting more and more difficult for us to make a business case to our global head offices for continuing to invest in the South African automobile manufacturing industry,” he says.

In addition to dysfunctional rail and port services and rolling power cuts, local auto manufacturers are hobbled by lack of clarity on what state incentives will be available for them to regear for the new energy future.

They face a 2030 deadline after which the internal combustion engine vehicles they export to UK and European markets will be banned. With more than 60% of what they produce going to these markets, this will be a disaster unless they’ve switched to the mass production of new-energy vehicles by then.

In the absence of enabling policy from the government this is looking increasingly unlikely, and their principals in the US, Germany and Japan are asking tough questions about the future of the industry in South Africa.

Corporate head offices are not waiting for the South African government to get its ducks in a row, says Hill, who is president of Ford Motor Co Africa. They’ve started making decisions that could see South Africa left out as a future source.

“Original equipment manufacturers [OEMS] have been having a lot of very concerning discussions among ourselves and have been engaging with government to get some policy certainty in terms of where the industry is going.

“Europe is one of our biggest markets and they’ve been very clear in terms of their policies with regards to 2030 and 2035. We have a great level of concern related to what the future looks like in terms of South Africa’s ability to be an exporter of vehicles to these markets.”

By 2030, only EVS or hybrids and plug-in hybrids will be allowed to be sold in the UK and Europe. By 2035, all sales of vehicles powered in any way by internal combustion engines will be banned, and even that deadline is being brought forward by some countries.

“When you look at the investment cycles and decisions the auto industry needs to take, this is just round the corner,” says Hill.

But South Africa’s big five OEMS — BMW, Volkswagen, Toyota, Ford and Mercedesbenz — are still waiting for a policy spelling out what incentives the government will give them to start producing EVS, and what investments they can make in technology.

“Can we localise, for example, battery manufacturing? A lot of these sourcing decisions are already being taken elsewhere in the world because of the policy certainty that other markets have.

“We need a government policy that will allow us to sell to our principals the attractiveness of South Africa as a manufacturing location for export purposes on scale to other markets.”

Given the extent to which EVS have already been taken up in EU markets “we’re very late to the party”, he says.

In theory, free-trade agreements South Africa has with the EU and UK should give it advantages over alternative sources, but these will be “completely null and void” if by 2030 South Africa is not producing sufficient new energy vehicles for those markets.

These markets are already sourcing EVS from the likes of South Korea, mainland Europe and Mexico.

“Once we’re ready to supply EVS it will be a very difficult process for us to convince these markets to change these sourcing decisions in our favour,” says Hill. “If we had a cost advantage that would count in our favour, but that would depend on government policy we’re still waiting for.”

There was a commitment from the government that a white paper containing this policy would be issued in October last year, but this didn’t happen. Then there was an expectation that the minister of trade, industry & competition, Ebrahim Patel, would use last month’s South African Auto Week conference to give some indication of where the industry will be moving, but that hope was also dashed.

“Our principals are looking to us for a sign of policy certainty which we’re still not able to give them,” Hill says. “It’s very challenging for us to give them the confidence that something is coming. We’ve been telling them we’re engaging with government but the indications are we’re not going to see anything until February next year soonest.”

Citing as well “a dysfunctional Transnet freight structure, an erratic and inconsistent power supply and some of the world’s most inefficient port structures”, he says “it’s getting extremely difficult for us to make a business case to our principals for continuing to invest in the South African auto industry”.

Meanwhile, these principals are already starting to make investment decisions that are required in the short term.

“Regretfully, they’re not going to sit back and wait for the South African government to finally make up its mind.”

The decisions being taken in head offices in the US, Germany and Japan are making it difficult for South Africa to be a broader part of where the industry is going, he says.

“We’re seeing decisions made in terms of where batteries are being assembled and manufactured, where raw materials are being procured. And those decisions are not coming to South Africa.”

In other words, the longer the government delays the more excluded from the lucrative Evsourcing loop South Africa is going to be, with dire implications for an industry that provides 112,500 direct jobs and last year invested R9.8bn in the South African economy.

“Once those decisions are made and the direction is set in terms of where money is being spent and factories are being built, that process kick-starts and it goes. It’s not something we can all of a sudden stop and say, ‘Hold on, South Africa’s come to the party, we’re now going to re-evaluate the decision.’

“Those decisions are cast and the train moves on.”

Hill was with Ford in Australia when auto manufacturers were pulled from the country in 2017 “because our principals felt the government no longer seemed to value the industry”. He’s getting an “uncomfortable” sense of déjà vu, he says.

“We can see the same thing happening here.”