Lots of moving parts if SA wants to be an electric-vehicle contender

A shift towards the manufacture and sale of electric vehicles (EVs) in SA requires not just a structured local policy but also the willingness of international trade partners to rewrite local content rules so that the SA motor industry can transition to new technologies as painlessly as possible, says Naamsa.

In a discussion document published on Monday, the manufacturers’ association says that to successfully reduce its dependence on petrol- and diesel-powered internal combustion engines (ICE), SA requires a “careful balance” between stimulating EV sales and manufacture, and the creation of a local charging infrastructure based on renewable energy to keep them on the roads.

However, it cannot do it alone. Trade agreements require SA-made vehicles to contain at least 60% local content so they can land duty-free in the UK and EU. Between them these markets, which plan to outlaw the sale of new ICE vehicles by 2035, swallow more than half of SA’s total production of cars and bakkies. That 60% is unattainable on EVs unless engines are made in SA, which is not feasible in the short term.

“Without battery manufacturing in SA ... flexibility in the strict rules-of-origin requirements would be imperative for ongoing duty-free market access,” says Naamsa.

If not, the industry could shrink by more than 50%.

Though referring primarily to EVs, the document, “SA’s New Energy Vehicle (NEV) Roadmap”, accepts they are not the only potential clean alternative to petrol and diesel engine emissions. Hydrogen fuel cells and the carbon-neutral ICE fuels are also highlighted.

“While the long-term trajectory embraces a shift towards electrification, the industry recognises, at present, no single technology is capable of achieving carbon neutrality across the global automotive industry,” it says. “SA needs the flexibility to adopt multiple technologies and policies best suited to its unique socioeconomic realities, including current pressures to the national fiscus; our geographical location ... slow economic growth; and geopolitical considerations within the region and across the African continent.”

Naamsa says the goal of sustainable industry carbon neutrality is not achievable through clean engines alone.

Carbon dioxide (CO2) is also emitted during manufacture, distribution, recycling and disposal processes. “Carbon neutrality for motor vehicles cannot be achieved without CO2 emissions reductions throughout their life cycle.”

The discussion document was published two days before the government is expected to show its hand on the future of NEVs. A green paper in May 2021 was to have been followed by a white paper the same year. Instead, trade, industry & competition minister Ebrahim Patel has said the policy will be unveiled in this week’s budget.

In most countries where EV sales have flourished, they have been encouraged by generous consumer incentives. Patel, however, has hinted that because of financial constraints, the emphasis is likely to be on manufacturing incentives.

Naamsa believes some form of purchasing subsidy is necessary, so much so that the industry is prepared to match any government subsidy “to narrow the price differential between NEVs and ICE vehicles”.

It would help if the government were to reduce the import duty on European-sourced NEVs from the current 25% to 18% imposed on ICE vehicles.

When it comes to manufacturing, Naamsa wants the government to allow a temporary 50% rebate on selected NEV components while the industry gets up to speed, and to allow vehicle and components companies to claim back up to 50% on new NEV investments.

Under the Automotive Production and Development Programme motor companies can claim 30% and components companies 35%.

A joint study by Naamsa and Patel’s department set a target for NEVs to account for 20% of new car and bakkie sales by 2025, 40% by 2030 and 60% by 2035. That seems optimistic, given that 4,674 NEVs were sold in 2022, out of a total market of nearly 500,000. They included both all-electric vehicles and hybrid models.

In Europe and some other developed markets, hybrids will also be phased out in coming years but there is a strong view that they will play a leading role in SA and other developing markets for years to come.

furlongerd@businesslive.co.za