President Cyril Ramaphosa at the Mercedes-Benz plant in East London. Picture: Elmond Jiyane, GCIS
President Cyril Ramaphosa at the Mercedes-Benz plant in East London. Picture: Elmond Jiyane, GCIS

Mercedes-Benz Cars has invested €600m (R10bn) to expand its East London manufacturing plant to make next generation C-Class vehicles, mostly for export, including the new Mercedes-AMG high-performance range.

This is the largest single vehicle investment by a foreign original equipment manufacturer (OEM), says Nico Vermeulen, director of the National Association of Automobile Manufacturers of SA.

Investment by OEMs tends to be long term.

In 2015, BMW invested more than R6bn in a plant north of Pretoria and had started production of the X3 sport utility vehicle. At about the same time, Volkswagen and Toyota invested similar amounts in their plants near Port Elizabeth and in Durban, respectively, with Ford adding another R2.5bn.

Mercedes announced the investment on Tuesday during a visit to the factory by President Cyril Ramaphosa. The president has set up a team to help attract $100bn (R1.2-trillion) in investments into the country over the next five years.

“The announcement by Mercedes-Benz Cars to inject R10bn in the South African economy signals to the positive momentum we are making to realise the ambitious target of raising R1.2-trillion in new investment,” Ramaphosa said.

The investment includes the construction of a new paint shop and a new body shop, an upgrade of the assembly shop and new logistics warehouses. Overall, the new buildings add about 65% more space to existing buildings for passenger vehicle production.

“The investment is also a sign of our commitment to SA and efforts to revive economic growth as well as the socioeconomic development of the East London region,” said Markus Schäfer, divisional board member of Mercedes-Benz Cars.

SA makes more than 600,000 passenger and light commercial vehicles a year with state support through the Automotive Production and Development Programme.

“The [Mercedes] investment will support and stimulate economic activity throughout the automotive value chain, particularly in the East London region, and should also be positive for employment growth in that area,” Vermeulen said.

Industry participants including components manufacturers, are waiting for the government to announce new incentives beyond 2020. This is expected before the end of 2018.

It is not yet clear how new US trade sanctions will affect the South African industry.

Market intelligence suggests that Mercedes exports to the US from East London are relatively small, at about 5,000 units.

The East London plant produces about 110,000 C-Class vehicles a year, of which more than 90% are exported.

Correction: June 27 2018  

An earlier version of this article attributed the comment about the significance of Mercedes-Benz's investment for SA's R1.2-trillion investment target to Markus Schäfer of Mercedes-Benz Cars, when it was in fact said by President Cyril Ramaphosa