What SA needs to scoot into the electric-vehicle future
Electric vehicles are set to have a dramatic effect not just on the automotive manufacturing but on industry more widely, and on a range of other sectors such as energy and transport. This raises major issues for firms and policymakers.
After an initially slow take-up, electric vehicles are starting to make rapid inroads. Forecasts have become much more upbeat over the last few years as battery costs fall and regulation tightens. Bloomberg New Energy Finance, admittedly among the more bullish, predicts global passenger electric-vehicle sales rising from 2-million in 2019 to 10-million in 2025. They expect electric vehicle sales will exceed those of internal combustion engine (ICE) vehicles by as soon as 2037.
The major constraint is, of course, the cost relative to alternatives. But purchase costs are set to fall further in line with rapidly declining battery prices. Maintenance and running costs are already low.
These developments are also attracting a flood of new entrants. The most well-known is Tesla but, in China, there are more than 300 registered electric-car start-up companies. China now accounts for 48% of the world market for passenger electric vehicles.
The shift to electric power has already happened in two-wheelers, with more than 25% of the global market already electric. This is mainly due to their huge presence in China, where there are more than 300-million electric two-wheelers in use. Penetration is much lower in other major motorcycle markets such as India, Indonesia and Vietnam, but is growing rapidly from a low base. And in the EU, sales of e-bikes have taken off.
The advent of electric vehicles is causing some concerns in developed-country markets. Recent studies indicate that the increasing share of low-emission vehicles will have a significant negative effect on automotive employment. Electric vehicles require far fewer parts and much less maintenance. But lower total costs of ownership will allow consumers to spend more on other goods, increasing output and employment in other sectors.
Similar results could be expected in SA, though the negative employment effects in automotive manufacturing are likely to be muted given the already low level of local content, especially in drivetrain components. In fact, the switch to electric technology could represent an opportunity to increase levels of localisation.
National circumstances vary widely and adoption leaders in the developing world are likely to include countries with large markets and established industries. Apart from India and China, these include Thailand, Mexico and Brazil.
Supportive policies could include low-cost measures to promote domestic demand (lower taxes, small subsidies); support for domestic production (tariffs on imports of automotive products with some exemptions for components); and infrastructure support (charging facilities). The establishment of “smart grids” which, for example, allow for lower electricity pricing to households at off-peak times is also of key importance. Some of these measures could be implemented on a trial basis in selected cities.
In developing markets, it would make sense to go for the new emerging technology rather than ICE technology, which is set to become obsolete in the medium term. SA accordingly faces a major set of policy choices for the promotion of electric vehicles. There may exist an opportunity to leapfrog into emerging electromobility technologies in a product where the market is expanding rapidly and where the basic assembly technology is already well established. Successful production may then offer opportunities for industrial expansion in related areas.
Yet, sales of electric vehicles in SA in 2018 were minimal and the charging infrastructure remains very limited, though the rollout is now accelerating.
The question of the rate of adoption is complicated. Is it feasible to project substantial conversion to electric vehicles in SA, where there is neither much fiscal space to subsidise alternative, greener engine technologies, nor much base-market demand? Also, it is difficult to make a case for a middle-income country to subsidise imported electric vehicles for high-income consumers.
Take-up needs policy support
But given that electric technology will be the main form of propulsion for new vehicles within two to three decades, there are significant imperatives to shift SA’s market towards electric technology. While operating conditions in various countries play an important role, the extraordinary differences in the take-up of electric vehicles across countries are driven to a large degree by policy. There is little policy support for electric mobility in SA, though there are a number of initiatives and policy documents on the issue by the National Association of Automobile Manufacturers of SA, various government departments and other stakeholders.
SA’s cities are experiencing severe and increasing levels of air pollution and the costs are high. Electric vehicles offer the benefits of reduced urban air pollution and reduced CO2 emissions, though the latter depends on how electricity gets generated. In SA, electric vehicles do not have significantly lower CO2 emissions than ICE vehicles due to the dominant role of coal-based power. But this is gradually changing and the advent of smart grids will offset the need for increased power generation. A further advantage would be reduced fuel imports.
There are enormous complexities, however. While the current market for electric vehicles in SA is tiny, our main automotive export markets are in developed countries, where the transition to electric technology is proceeding apace. China and, to a lesser extent, other developing countries such as India and Thailand have significant subsidies for electric vehicles in place. A major driver is governmental ambition, supported by manufacturers, to establish ascendancy in electric vehicle technology.
In SA, as in other countries, the development of the electric vehicle sector is par excellence an industry that requires “joined-up” policy across different government departments. Appropriate policy to develop the market and a domestic production strategy need to be seriously investigated.
• Anthony Black, a professor at the School of Economics, University of Cape Town, is a contributing researcher to the Industrial Development Think Tank, based at the Centre of Competition, Regulation and Economic Development, University of Johannesburg.