STUCK IN THE ICE AGE
Concerns around sustainability and climate change are driving the electric vehicle transition, with some countries putting in place plans to ban internal combustion engine vehicles outright. If South Africa doesn’t reinvent its motor sector, it risks bein
Acrossroads or a fork in the road? Whichever metaphor it prefers, the local motor industry must make an urgent decision on its future direction. Will it be part of the global electric vehicle (EV) revolution or will it stick stubbornly to the old ways, in the shape of the petrol and diesel internal combustion engine (ICE)?
If the latter, say some, it won’t matter what diversion the industry chooses. The road will lead inevitably over the edge of a cliff.
While it will be some years before current ICE technology disappears completely, new automotive technologies are developing at a breathtaking rate. By the time South Africa decides it wants to adopt them, it may be too late.
“The world won’t wait for South Africa,” Mikel
Mabasa, CEO of the National Association of Automobile Manufacturers of
South Africa (Naamsa), tells the FM.
That’s why, in the absence of clear government policy, he says the industry should take “a leap of faith” and commit to EV manufacture. Waiting indefinitely for government to make up its mind is not an option.
It may account for less than 1% of global vehicle production, but the South African motor industry is vital to the local economy. Since 2021, vehicle and components companies — many of them foreign multinationals — have invested more than R26bn in local manufacturing, according to the Automotive Industry Export Council (AIEC).
Last year alone, they invested nearly
R12bn, contributed 4.9% to GDP and 22% to total manufacturing output, employed nearly 120,000 people directly, and supported hundreds of thousands more jobs across the economy.
In addition, the industry exported a record R227.3bn of goods and boasted a trade surplus of R19.6bn.
Nearly all of this revolves around ICE vehicles. However, governments around the world plan to ban their sale in coming years in pursuit of environmental goals, with some starting as soon as
2025. Several motor companies are already phasing out production. It’s thought ICE, as we know it now, could be history by 2050.
That’s a real challenge for the local industry. Besides Toyota South Africa and Mercedes-Benz South Africa (MBSA), which both make limited numbers of EVs, production is exclusively ICE.
That means more than twothirds of the cars and bakkies built in South Africa are exported to countries that soon won’t accept them.
Of 555,889 vehicles manufactured in South Africa in 2022, 66.9% were exported. Most exports go to the UK, which will ban ICE vehicles after 2030, and the EU, which will follow suit after 2035. The
latter, however, has allowed a temporary stay of execution for ICE using carbonneutral substitute fuels instead of petrol and diesel. These “e-fuels” are still in the early stages of commercial development and it’s not yet clear if they have a longterm future.
The policy vacuum
Last month, trade, industry & competition minister Ebrahim Patel cited this reprieve as one of the reasons for the government once again postponing a policy decision on the local sale and manufacture of new energy vehicles (NEV) a broad term that refers primarily to EVs but also includes hydrogen and other clean sources of energy. If the EU, a major export market, doesn’t know what its future holds, should South Africa try to second-guess it?
Patel also doubts Eskom’s ability to meet the needs of a mass migration to EVs. Early this year, the electricity parastatal said it had a plan to meet potential recharging needs. Apparently not. Says Patel: “The strain [mass recharging] could put on electricity supply, which is already fragile, would be a big challenge for us.”
He adds that increasing demand on a mostly coal-based electricity grid could undermine South Africa’s climate change commitments.
Government’s biggest worry, however, is cold, hard cash. How is it going to pay for everything? In most countries where EV sales have taken hold, the shift from ICE was initially driven by generous buyer incentives to bridge the price gap between the two technologies.
Local motor companies want a similar plan here. Even though they say they are prepared to match any incentives offered by the government, their pleas are falling on deaf ears.
The government, for its part, finds production support more palatable. Its current automotive production & development programme (APDP), which runs to 2035, doesn’t distinguish between ICE and EV investments, which can claim identical incentives. If it’s necessary to offer more for EV production, it can be managed affordably within existing legislation.
Patel says the government is also uncomfortable with the industry suggestion that the initial EV sales thrust should come from imported vehicles, allowing manufacturers to replace them progressively with local products as domestic volumes increase.
Government prefers it the other way around: export-led production first, then local market development.
It’s a classic chicken-and-egg standoff. Most multinationals say that exports alone aren’t enough to persuade them to invest. They must also be assured of local demand for what they make. The current exceptions are MBSA and BMW South Africa (BMWSA), which export more than 90% of production.
MBSA builds some EV versions of its C-Class range and has the capacity to do more. BMWSA’s X3 sports utility vehicle (SUV) is entirely ICE but CEO Peter van Binsbergen has made clear his desire to add EVs to the next product range, due in 2025.
BMWSA, which is celebrating its 50th anniversary, is expected to make an investment announcement soon.
Van Binsbergen tells the FM: “The transition to the production of NEVs is critical to future-proof our local industry.”
However, the relatively small size of that industry — global production last year was more than 85-million — and the fact that “we currently have no real NEV competencies to offer in a wider automotive production environment” makes it a hard sell to multinational parents.
The other major companies with
South African subsidiaries — Ford, Isuzu, Nissan, Toyota and Volkswagen — all enjoy strong local demand for their ICE products. But Volkswagen South Africa (VWSA) MD Martina Biene says that it makes no economic sense for massmarket companies to build something the local market doesn’t want or can’t afford.
It’s a view shared by MBSA joint-CEO Mark Raine. Despite his company’s overwhelming export bias, he says the industry as a whole needs local consumer demand. “If that doesn’t exist, what is the purpose of being in South Africa? If there’s no demand, there’s no need for local production.”
VW in Germany has already decided its Eastern Cape plant will continue to make ICE for at least another decade.
That will eventually mean forgoing some lucrative European sales, but Biene says she plans to offset that in Africa.
Most African countries, like South Africa, lack the immediate will or infrastructure to go electric. They will have to do so eventually, but until then they offer a lifeline for ICE producers. If, as planned, the African annual new-vehicle market can increase from 1-million to 3-million by 2035, it will provide a serious outlet for the South African motor industry, which is responsible for more than 50% of total African vehicle production.
Even then, South Africa can’t wait too long. Morocco, Ethiopia, Ghana and Egypt are among countries marketing themselves as EV production sites. It’s another reason why Ford Africa president Neale Hill says South Africa must avoid complacency about its automotive future. Companies want to stay here, certainly, but not at all costs. The 2017 disinvestment of General Motors proved that.
A cry for clarity
Patel has made it clear that industry’s desire to kick-start
South African demand through incentives is a nonstarter. He told parliament last month:
“The cost of the industry’s proposals is significantly beyond our financial capability as a government. We have looked at where we can have the highest impact with the resources available.”
He added: “We believe that it is a responsible and prudent way and that it will yield better results than simply putting up an unaffordable one and then ... we have to adjust the plan.”
Motor companies say they understand the difficulties, but the government can’t put off a policy decision forever. After 10 years of promises, they are becoming audibly agitated. In May 2013, Patel’s predecessor, Rob Davies, announced an NEV “roadmap”, declaring that the government would support the motor industry’s switch to EV manufacture. That would include buyer support.
There have been lots of talks between the government and industry since. In many respects they share a common vision. But translating “talk” into “walk” has proved elusive. Targets have been set but then filed away and apparently forgotten. For example, Naamsa says a joint task team estimated that the industry should aim for a 20% EV share of the newvehicle market by 2025, then 40% in 2030 and 60% in 2035.
That first target date is just two years away. Yet in 2022, EVs accounted for just over 1% of the local car market and, says Mabasa, a mere 0.88% of the overall market. That’s a far cry from the 20% estimate. So while the pace of growth is accelerating, few think the proposed target shares are even remotely achievable.
It looked like the bottleneck was clearing when, in May 2021, Patel’s department published a green paper discussion document. It should have been followed later that year by a white paper outlining intended policy. After repeated missed deadlines, Patel says he now hopes it will be ready by March 2024.
Some vehicle manufacturers say this dithering is causing them uncomfortable conversations with their American, Japanese and German parents, which make investment decisions based on global group needs and not from a sense of duty to South Africa. Biene, for example, says some German executives wonder if South Africa is actually ready for the future.
“Even if government can’t give us the final shape, at least give us a clue that we can take back to our investors,” says a CEO who prefers not to be named.
It wouldn’t be the first time. Government is a serial offender when it comes to overdue automotive policy. Before the first version of the APDP was introduced in 2013, BMW in Germany became so fed up with bureaucrats’ procrastination that it refused to commit to a planned investment until it received a written guarantee of certain benefits.
The current exasperation runs all the way through the manufacturing chain. Components companies, whether local or foreign-owned, also need to make plans. Some are already producing EV components for overseas assembly plants. But for long-term planning and security, they also need to know their options for domestic demand.
Renai Moothilal, director of the National Association of Automotive Component & Allied Manufacturers (Naacam), says small, emerging black suppliers may be particularly at risk from the policy vacuum. One of the main platforms of the APDP is the creation of a strong black supplier base. Only, many newcomers lack the financial and technological resources to survive a prolonged period of uncertainty or a sudden change in demand.
He says: “The sooner an announcement is made about starting EV production, the better it will be for the whole auto sector. Components companies make decisions based on vehicle platforms. Lack of policy means these announcements can’t be made.”
Why is a decision so urgent? Worldwide sales of electric cars increased by 60% in 2022, to nearly 11million. Forecasts for 2023 range from 14-million to 17-million.
In 2017, only one in 70 new cars was electric; last year, it was one in seven. Over the same period, ICE car sales decreased by 25%. In South Africa, Naamsa reports that 4,674 electric cars were sold last year, out of a total market of 363,092. That’s one in 78.
Analysts say ICE sales will be over
taken globally by EVs within five years. In some countries, they are already dominant. In Norway, for example, they account for more than 80% of new-car sales. In South Africa, as mentioned earlier, it’s barely 1%. But even that figure understates the gap.
Finding the middle ground
In most fast-track EV markets, figures refer only to plug-in EVs. South Africa’s biggest sellers are traditional hybrids, which have two engines: an ICE one continuously recharges its battery-electric partner, so there is no need for outside recharging.
Some sales are of plug-in hybrids, which also have two engines; the electric one, which has limited range on its own, has to be replenished from outside. Then there are battery-electric vehicles (BEV), with no ICE component and wholly reliant on plug-in charging.
Some countries plan to outlaw the
sale of hybrids, even plug-ins, in coming years. South Africa, on the other hand, is just coming to terms with them. Toyota SA last year built 2,711 traditional hybrids for the local market. The number would have been more but for floods that forced the company to temporarily close its Durban assembly plant. MBSA built 2,577 plug-in hybrids but they were all exported. Of 2,140 EVs imported into South Africa last year, 1,513 were traditional hybrids.
It’s taken many years for South Africans to overcome their mistrust of hybrids — but Toyota SA says it now can’t keep up with demand. Marketing head Leon Theron tells the FM that when the
Corolla Cross, which is available in either ICE or hybrid models, was launched two years ago, the forecast demand for hybrid versions was 15%. Actual demand turned out to be 55%, and the company hasn’t been able to get enough battery packs from Japan.
With more supplies promised, Toyota SA plans to launch hybrid versions of its Hilux bakkie and Fortuner SUV early next year.
Consumer surveys by online automotive retailer AutoTrader show strong latent demand for all EVs, but particularly for hybrids — provided the price is right. There is a view that, as EV production volumes grow, prices will come down to ICE levels within the next five years.
Despite plans in some markets to phase out hybrids, Theron thinks they have a strong future in South Africa.
Toyota Japan also believes in them. While much of the industry chases a BEV future, the world’s largest automaker says it will keep its options open on hybrids and synthetic-fuel ICEs.
Some South African companies selling imported BEVs are also bullish. MBSA has launched five BEV car models since August and plans to introduce two SUVs later this year.
While BEVs now account for less than 10% of local MBSA sales, Raine expects this to exceed 50% within three years. He says the company has no plans to sell locally made hybrids.
Not everyone is convinced. Some of the world’s big EV players, such as Ford, VW and Kia, are waiting to see what the government will do before they launch electric options here. They say they want to but it’s too big a gamble if they don’t know what the rules of the game will be.
Still, not to worry. Like the rest of the industry, they’ll have their answer in one more year. Or two. Or three.