Component makers hit by vehicle production cutbacks

Cutbacks in local vehicle production are having a “significant” effect on components manufacturers, says Renai Moothilal, director of the National Association of Automotive Component and Allied Manufacturers (Naacam).

However, a slowdown in demand growth for electric vehicles (EVs) could be a bonus for local producers of platinum-based catalytic converters, which clean harmful exhaust emissions from petrol and diesel internal combustion engines (ICE).

The domestic new-vehicle market for cars and light commercial vehicles (LCVs) is well down this year. Car sales have fallen 5.1% and light commercials, mainly bakkies and minibuses, by 9.3%.

Most cars sold in SA are imported but LCVs are predominantly local. On average, SA-made cars and LCVs contain about 40% local content.

The sales picture is even sadder for exports, which swallow more than two-thirds of local vehicle production. Car exports are down 7.7% so far this year, from 137,701 to 127,057, and those of light commercials by 24.3%, from 72,748 to 55,066.

Direct SA components exports to overseas assembly plants are also down by an estimated 24% — hitting producers with what Moothilal calls “a double whammy”.

Early year forecasts that 2024 vehicle production would exceed 2023 now look unlikely to be met, forcing motor companies and their suppliers to cut back on volumes and working hours.

A few weeks ago, Mercedes-Benz SA (MBSA), which exports more than 90% of C-Class cars built at its East London assembly plant, announced plans to move from three daily working shifts to two, in response to lower-than-expected export sales. Though the slowdown is still officially in the consultation phase, Moothilal says local C-Class components orders began to be cut “more than a year ago”.

German competitor BMW SA is also in slowdown production mode. In its case, the reason is the planned phasing out of the X3 sports utility vehicle range, which will be replaced by a new version next year. This is having an inevitable knock-on effect on suppliers.

Last Tuesday, MA Automotive Tool & Die, which manufactures metal vehicle components such as body panels, chassis and fuel tanks, informed staff that the company’s two plants in Rosslyn, Tshwane, would go into short-time working from August 12 until the end of the year. Company head Henk van der Merwe told Business Day that the decision was a direct result of the X3 changeover at BMW SA.

Moothilal said EU engine homologation rule changes are also proving a challenge to some companies, including Toyota SA, where Hilux bakkie production is now behind schedule.

Add to these examples the production challenge for all local vehicle manufacturers in the face of shrinking demand both at home and abroad and it is no wonder that Moothilal said: “There is a definite negative impact on components production. We don’t know yet what the overall production impact will be. We will have to wait and see.”

Likewise, industry insiders said it is too soon to know what will be the effect on employment. Some components jobs have certainly been lost and there are concerns that small local companies low down the supply chain — those that supply the sub-parts and widgets that eventually make up the complete components — may be at risk.

Moothilal said the effect of reduced production is being felt across the supply sector. No single product is hurt more than others — though demand for catalytic converters continues its long-term decline.

The good news for producers is that this decline may not be as rapid as some fear. In SA, the overwhelming majority of consumers buying EVs are selecting traditional hybrids, which are driven by twin motors — one electric and the other ICE. The ICE element continuously regenerates its electric sibling, so there is no need for plug-in charging.

Figures from vehicle manufacturers and importers association Naamsa show that of 7,283 new EVs sold in SA in the first four months of this year, 6,184 were traditional hybrids. Another 270 were plug-in hybrids, where the electric batteries need external charging, and 829 fully, electric plug-ins with no ICE component.

Brandon Cohen, chair of the National Automobile Dealer’s Association, said the lack of recharging points around the country, coupled with consumer “range anxiety” — the fear of batteries running out of charge mid-journey — put traditional hybrids, which are also much cheaper, firmly in the local EV driving seat for the foreseeable future. “I see a lot more coming to the market,” he said. “Consumers see them as much more convenient.”

Globally, despite many governments’ desire to enforce EV purchasing for environmental reasons, there is a consumer pushback. General Motors, Volkswagen and Porsche are among the latest companies to rethink their EV timetables. Klaus Rosenfeld, CEO of multinational components producer Schaeffler, told journalists last week: “The EV boom has slowed down and there is clearly a renaissance of hybrid drivetrains.” However, he added that because of government emissions targets around the world, the long-term trend towards full electrification “is intact”.

A report by the PwC consultancy group shows that in the second quarter of 2024, total EV sales in the EU’s five biggest markets grew by 11% from a year earlier, compared with a 2% drop in ICE demand. The report said this overall growth was driven by a 21% boost from non-plug-in hybrids: “The hybrid market share in the EU top five now stands at 32%, meaning that almost one in three vehicles now sold in the region are hybrids.”

In the US, where presidential hopeful Donald Trump has promised to revisit emissions targets if he wins November’s election, hybrids are also in demand. The PwC report states: “Hybrids have become a popular consumer choice because the range of product offering continues to increase, the hybrid price premium has declined and (there is) a growing willingness among buyers to make a cautious first step into the electrified market.”

China, as ever, goes its own way. In the second quarter, said PwC, year-on-year sales of traditional hybrids grew 9%, plug-in hybrids 98% and full-electric vehicles 13%.