South Africa’s Motor Industry at a Crossroads

With EV transitions looming and unfair import advantages growing, the sector needs innovative policies to future-proof itself. Can the government step up? More from David Furlonger of FinancialMail.

 Summary:

• The South African automotive sector is stuck in policy limbo, with outdated strategies failing to support the shift to EVs. Manufacturing targets remain unmet, and frustration within the industry is growing.
  
  
•  Imported vehicles, particularly from China and India, dominate sales due to competitive pricing and subsidies, leaving local manufacturers struggling to keep up. The current rebate system may be unintentionally aiding competitors.
  
  
• With key export markets moving away from internal combustion engine (ICE) vehicles, South Africa risks being left behind. Government incentives are proposed but lack urgency, while international trade tensions (such as potential Agoa exclusion) add further uncertainty.

Being a motor industry executive these days is rather like having your birthday on February 29. Celebrations don’t come around very often. The past four months have shown a welcome recovery in previously miserable new vehicle sales — a shift that Mazda Southern Africa MD Craig Roberts says appears to be continuing in February — but after a brief bout of desultory flag-waving, life quickly slips back into an ongoing battle against regulatory and strategic odds.

Over the past few weeks, almost every motor industry pronouncement has been about the difficulty of operating in an unfriendly business environment.

Whether it’s unfair competition, policy weakness, economic slowdown, government inactivity or international events, the number of challenges is growing.


BMW South Africa’s manufacturing plant in Rosslyn, Tshwane. Picture: LEFTY SHIVAMBU/GALLO IMAGES

One, at least, appears to have eased temporarily. Last month, when ArcelorMittal South Africa (Amsa) announced the imminent closure of its Newcastle long steel plant, Renai Moothilal, CEO of the National Association of Automotive Component & Allied Manufacturers, warned of a potential 16,000 job losses in the components industry and another 100,000 across the motor industry.

Amsa supplies about 70,000t of speciality steel annually to the industry, most of it to components companies. Moothilal said the sudden loss of supply would force companies to import at great expense while they sought other sources — a process that could take up to a year.

Now, he says, Amsa has committed to provide the industry with sufficient stock for this year at least, so “that is some immediate relief”.

There are other pockets of optimism. Progress is being made in developing a pan-African motor industry, offering huge potential to South African vehicle and components producers.

Martina Biene, MD of Volkswagen Group Africa and president of the African Association of Automotive Manufacturers, says that while the process is aided by development of the African Continental Free Trade Agreement, the motor industry should accelerate its own customs and standards-alignment efforts. “We should not let the execution of a process we all agree on get in the way,” she wrote in Business Day.

There is other good news. BMW South Africa is reaping the rewards of a R4bn investment in the new X3 car range that launched late last year. CEO Peter van Binsbergen says the Rosslyn assembly plant in Tshwane can barely keep up with international demand.

Chinese brands are also pleased with themselves as they increase local market share. Like Japanese import Suzuki, which is hot on the heels of Volkswagen in terms of sales, some regularly report record monthly new vehicle sales at a time when the overall market remains relatively weak. Toyota South Africa president Andrew Kirby predicts that, despite some growth this year, the market still won’t recover to pre-Covid levels.

The South African motor industry is a major contributor to the economy. Vehicle and components production accounts for 22% of national manufacturing output and 14.7% of export revenue. Between 2017 and 2023, multinational vehicle manufacturers invested R53bn in their South African subsidiaries.

More than two-thirds of vehicles manufactured in South Africa are exported — last year that amounted to 390,000. In 2023, the last year for which complete figures are available, the value of vehicle and components exports hit a record R270.8bn, contributing to an industry trade surplus of R21.1bn.

Including vehicle retail, the motor industry accounts for 5.3% of GDP.

All this means there is a solid base on which to build for the future. The question is: do policymakers have the wit and the will to do so effectively?

Policies that have shaped the industry are not necessarily still relevant. Most vehicles built here use a petrol or diesel internal combustion engine (ICE). The world, however, is shifting to electric vehicles (EVs). Most of South Africa’s major export markets plan to outlaw the sale of new ICE vehicles in the next decade.

To keep exporting, companies will either have to go electric or find ICE-friendly markets. These include other African countries.

Some companies, including BMW South Africa, Mercedes-Benz South Africa, Toyota South Africa and Ford Southern Africa, already include hybrid vehicles — using joint EV and ICE technology — on their assembly lines.

The government has offered to incentivise the manufacture of fully electric plug-in EVs but the industry wants the deal to include hybrids. In October, President Cyril Ramaphosa said the government was open to this idea and would also consider consumer incentives to stimulate local EV demand.

Biene says proposals alone won’t create a viable EV industry. For that to happen, the government must take a broader policy approach. “We need a well-regulated and competitive local mining sector to deliver the minerals we need for battery manufacturing efficiently and reliably,” she wrote in Business Day.

“This will keep material costs down and help us deliver on the dream of developing EVs that are affordable to a mass-market consumer.”

Nothing more has been heard yet of Ramaphosa’s EV incentive proposals. Nor is it clear when the country will see the results of his state of the nation pledge last week to tackle problems with water, energy, transport and other infrastructure issues. The staggering inefficiency of South Africa’s ports, in particular, has been a logistical and cost nightmare for the motor industry.

Under the 2021-2035 South African automotive master plan, the government undertook to tackle infrastructure issues as its part of the bargain. Its failure to do so has affected the industry’s own commitments, which are governed by the automotive production & development programme (APDP). Indeed, Kirby says this failure has contributed directly to the deindustrialisation of the South African economy at a time when the opposite should be happening.

The motor industry has not escaped this trend. Under the master plan, annual vehicle production was supposed to grow from 600,000 to 1.4-million by 2035, employment from 120,000 to 240,000 and average local content from 42% to 60%. Nearly seven years after these goals were set, production remains below 700,000, employment has barely moved and local content is down to 38%.

Plans to increase black participation in the components industry are also moving more slowly than expected.

Obviously, one can’t discount the impact of Covid on these targets, but that can’t account for the growing sense of policy frustration.


In an APDP and master plan review this year, trade, industry & competition minister Parks Tau will be asked to adjust both programmes to take account of changing circumstances.

These include the fact that international events have had a significant impact on the local industry. For example, US President Donald Trump appears to have taken a personal dislike to South Africa, which is threatened with removal from the African Growth & Opportunity Act (Agoa), which offers duty-free access to the US.

Van Binsbergen says 20% of BMW South Africa’s X3 production goes to the US. In 2023, aggregate South African vehicle and components exports there were worth R27.9bn. With R28.8bn coming this way, the combined R56.7bn made the US South Africa’s second-largest automotive trade partner, after Germany.

Vehicle manufacturers and importers association Naamsa says: “If Agoa is not renewed, South African auto exports could face significant headwinds.”

It’s not just exports that Tau will have to address. When the master plan was designed, planners thought imports might eventually constitute 40% of new vehicle sales. In the event, their share is about 60%. Even with duty barriers, South African assembly plants struggle to compete with the unit costs of high-volume foreign plants, particularly in India and China. Together, these two countries accounted for 37% of all new vehicles sold in South Africa in 2023. This figure is now thought to be over 40%

Chinese brands have the added advantage of generous government production subsidies in their home country, helping them to undercut the prices of competitors in markets around the world.

This import surfeit is why Van Binsbergen and Biene say the local industry needs an innovative plan to cut prices on South African-made vehicles. Under the APDP, local manufacturers of cars and light commercial vehicles earn production-based credits. These credits, converted into production rebate certificates (PRCs), are used to reduce import duties on vehicles not made locally.

Some exporters don’t import enough vehicles to use up their PRCs, so, rather than waste their value, they trade them, usually at a discount through brokers, to imported brands wanting to reduce their own duty liabilities.

Roberts says PRCs are an integral part of Mazda’s pricing model. Faced not just with import duties but also ad valorem and emissions taxes, he says: “Brands like ours are reliant on PRCs.”.


In principle, any importer, including Chinese, can bid for PRCs. The irony that local manufacturers should be helping importers take away their business is not lost on industry insiders. That’s why they want the government to allow manufacturers to use PRC values either to directly subsidise their retail prices or to reduce the nominal duty value of imported components, to cut manufacturing costs.

On top of this, the industry wants the government to close an APDP loophole that allows importers to bring in semi-built vehicle kits requiring minimal assembly, no local components and only a handful of jobs. This process, known as semi-knockdown (SKD) assembly, allows them to reduce duties to as little as 5%.

Van Binsbergen says this is a clear contravention of the APDP’s intention, to incentivise high-volume manufacture. Moothilal says South Africa should consider copying the Thailand policy model which allows newcomers a brief SKD window before upgrading to full manufacture. If they don’t comply, they are heavily penalised, including payment of all back duties.

In South Africa, some companies have continued SKD for many years, with no fixed deadline for upgrading. Moothilal says: “We have world-class assembly plants and components producers. We don’t want to see South Africa reduced to an SKD destination.”

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