DAVID FURLONGER: When R80,000 is loose change

Would an R80,000 discount on a R1.8m electric car, bringing down the price to “only” R1.72m, persuade you to buy?

It’s a question being asked within the government and in motor industry boardrooms as the two sides continue to haggle over how best to persuade South Africans to buy electric vehicles (EVs). Out of 6.7-million sales of all-electric vehicles worldwide in 2021, 218 were in SA.

I write “all-electric” because the EV banner includes different levels of electrification. Most of those on SA’s roads — and there aren’t many — are hybrids, containing both an electric battery pack and a traditional petrol/diesel internal combustion engine (ICE). The latter provides most of the power but the electric contribution cuts exhaust emissions and enables fuel consumption to be reduced by 25%-30%.

Because their electric charge is constantly replenished by the ICE and by braking, the battery packs don’t require external recharging — unlike plug-in hybrid EVs (PHEVs), which use a combination of ICE and external power.

All-electric vehicles have no ICE motors and are dependent exclusively on plug-in recharging. The battery-electric vehicle (BEV), as it is generally known, is considered the long-term future of motoring. Its two hybrid cousins are stepping stones and will be phased out in many markets in the next few years.

PHEV options are limited in SA. Audi SA head Sascha Sauer says most of those in Europe require an environmental quality of petrol not available in SA, or likely to be in the next few years.

Reasons for the slow take-up of BEVs in SA are several and well known: they include the low number of vehicle charging stations to replenish batteries, Eskom’s inability to guarantee electricity and the high price of EVs.

The last of these has been overcome in other countries by governments offering cash incentives to consumers, for example through tax breaks or generous allowances in return for scrapping ICE vehicles.

In SA, there’s nothing. Indeed, EU-sourced EVs (the majority of those arriving in SA) are actually penalised through a 25% import duty, rather than the 18% on ICE vehicles.

The reason, says Volvo Cars SA MD Greg Maruszewski, is that the automotive trade agreement was signed years ago, before EVs became an issue, and has not been updated.

The cheapest BEV on the market is the tiny Eleksa CityBug which, for R230,000, provides a top speed of 55kmh, a single-charge range of 100km and lots of curiosity value for other road users because of its design.

That apart, prices limit most SA BEV customers to the upper-income echelons of society. BMW and Mini offer relative bargains below R800,000 before Porsche, Jaguar, Audi and Volvo take prices deep into seven figures.

Hybrids are available for much less. Most are imported but Toyota SA makes its own, the Corolla Cross. The car is available either as a hybrid or all-ICE. The hybrid version is about R20,000 more than the ICE. That’s a much smaller gap than on most hybrids.

That’s because the company factored in expected incentives after the department of trade, industry & competition published a green paper last year on its plans for EV and other new-energy automotive technologies.

A white paper was expected to follow in October, outlining detailed policy plans, including incentives. According to insiders, a main reason for the delay is that government is agonising over how to pay for the billions of rands in incentives that might become payable.

Sauer says that in discussions between the government and the industry, one suggestion is for a purchase price incentive for different levels of technology: R80,000 for a BEV, R40,000 for a PHEV and R20,000 for a basic hybrid.

Audi SA this year launched its range of performance BEVs, the e-tron. With prices starting from R1.8m, retail, planning and supply chain head Asif Hoosen says an R80,000 discount would have little impact on the purchasing decision of customers, most of whom are buying cash.

“At that price level, it’s a gesture, nothing more,” he says. (I wish someone would aim an R80,000 gesture at me!) As the retail price goes down, the incentive would become more inviting.

At this stage, the incentive proposals are just that — proposals. There’s a lot more bargaining to be done. Sauer says there are several ways for the government to cut the price. One is to reduce the Europe-sourced import duty from 25% to 18%. Another is to rein back ad valorem duties attached to EVs. On a R1.8m e-tron, that duty is R260,000.

However, as Maruszewski observed recently, some in government may balk at the idea of making life financially easier for those who, given BEV prices, are already among SA’s wealthiest people.

The trouble is, it has to. Like all automotive innovations, such as airbags and power steering, EV technology started in expensive models and is working its way down. Nearly all the mass-market brands in SA are already selling BEVs in other markets and reducing their reliance on ICE.

Sales of ICE and even hybrid vehicles will be banned in many markets in the next few years. Companies like Audi, Volvo, Jaguar Land Rover, BMW and Mercedes-Benz have announced timetables to phase out ICE manufacture. In SA, it’s already almost impossible to find a new Volvo ICE.

While the EV transition will be slower in SA than in many developed countries, it can’t delay too long. Nearly all the vehicles made here are ICE. More than 60% are exported, the overwhelming majority to countries planning to outlaw them, meaning they will potentially lose most of their customers from 2030, when the ICE ban kicks in. A hybrid ban will follow in 2035.

That’s why multinational motor companies, which own all SA’s major producers, are anxious for the government to publish its white paper. The sooner they know the likely future EV environment, the sooner they can plan for new-generation technology.

As part of the equation, says Sauer, they need to be confident of a strong domestic market for vehicles built here. BMW and Mercedes-Benz may export over 95% of their SA production but mass-market brands will insist on a strong local demand base.

Despite the challenges, and the high prices of most BEVs, Sauer is bullish about prospects. Several companies have announced plans to launch new BEV models in SA in coming months. If they follow through on their promises, Sauer thinks last year’s 218 sales could conceivably grow to 500 this year and 1,000 in 2023.

If the government offers a clear incentive strategy, Asif suggests this could rise to 2,000 by 2025. “Then we’re talking of a 5% share of the premium category,” he says. “The numbers may not look big but the growth rate would be.”

The real challenge will come in trying to persuade lower-income customers to go electric — though sky-high fuel prices may help. The cost of recharging a BEV amounts to loose change, rather than the bank loan required for an ICE.

Sauer says: “The market will learn eventually that EVs are not just for the rich and famous but for everyone. As an industry and as a market, we have no choice but to go this  route. We are doomed to be successful.”