SA needs to position itself for global EV market growth now
The SA automotive master plan does not specify any goals for electric vehicles and mainly focuses on internal combustion engine vehicles
Over the past five years there has been a concerted effort across the world to reduce carbon emissions. Many industries are transforming themselves accordingly to deliver a greener future. This is also true for the automotive industry, which is investing heavily in the research, development, and production of electric vehicles (EVs) — a cleaner alternative to internal combustion engine (ICE) vehicles.
Governments, especially in developed markets, are enacting laws and policies that support EVs and penalise ICE cars. The EU, to which SA exports 60.6% of its total vehicle production, is a key advocate for EVs and has put in place carbon emission reduction mandates for 2020 and 2021. As a result of this transition, SA’s automotive industry must work hard and fast to position itself for the anticipated rise in global EV market growth.
There are generally two types of EVs, namely battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). BEVs are fully electric vehicles with rechargeable batteries and no fuel tank, while PHEVs are mainly powered by electricity and use petrol as a backup. Since the global EV market is expanding, most automotive manufacturers have already released or are working towards releasing EV models.
According to a McKinsey EV Index report (2020), 105 BEVs and 38 PHEV models were launched globally in 2019, with expectations of introducing about 450 additional models by 2022. The global sales of EVs increased from 540,000 to 3.24-million units between 2015 and 2020. Sales were driven by an increase in demand due to regulated emission standards, competitive pricing, increase in choice of EV models and availability of charging infrastructure. In terms of markets, the global EV leaders in 2020 were Europe (43%), China (41%) and the US (10%).
From a supply viewpoint, most automotive suppliers are positioning themselves in line with changing policy, lower pricing driven by advances in technology, and EVs going toe to toe with standard ICE models in terms of aesthetics and performance. As an example, in February 2021 Kia announced an update of its plan S strategy that had focused on two core pillars of advancing EVs and expanding mobility services, to include a third core pillar of strengthening purpose-built vehicle (PBV) business. The updated plan S included EVs making up 40% of the company’s vehicle production with target sales growth of 880,000 units by 2030. It plans to launch its first dedicated EV later in 2021 with a target of 11 new models by 2026.
SA’s vehicle production mix must mirror global developments in the industry. The country’s biggest market for ICE vehicles, the EU, is transforming towards EVs through progressive carbon emission policy adjustments
Jaguar Land Rover plans to launch six BEVs by 2026 and for most of its sales to be all-electric vehicles by 2030. In November 2020, VW announced that the group will spend R1.3-trillion in capital expenditure and R&D for electrification, hybrid powertrains and digital technology over the next five years (2021-2025). The group intends to launch about 70 all-electric models and 60 hybrid models by 2030.
According to BMW SA, the group expects to have a total of more than 1-million EVs on the roads worldwide by the end of 2021 and at least 25 EV models by 2023. In Africa, Kiira Motors, a Ugandan state-owned vehicle manufacturer, plans to start production of EVs in July. The EV plant is in collaboration with a Chinese manufacturer and will have a capacity of 5,000 electric buses and other EVs per year.
However, this momentum is not without hurdles. EVs are currently more expensive than ICE vehicles. According to the Citi GPS EV report, EV components cost $25,356, 48% more than ICE vehicle components at $17,190. The additional cost for EVs is mostly accounted for by the additional battery requirements.
Furthermore, EVs have a limited drive range (currently between 135km and 521km) and require more charging (refueling) time (taking four minutes using an ICE vehicle in comparison to a minimum of 35 minutes for an 80% charge for EVs) and still need to develop the necessary nationwide infrastructure required to enable unlimited convenience when travelling to different places.
These challenges are slowly being tackled and, as evidenced by Tesla’s favourable valuation, investors have shown an appetite to come on board.
SA produced 447,213 vehicles in2020, a 29.2% decline from 2019 (631,921 units). The country also contributes less than 1% of global vehicle production and this might be reduced if the EV opportunity is ignored. The main SA trading partners are the EU (73%), Asia (10.9%) and Africa (6.3%). In 2020, Europe contributed 197,355 units of the 271,283 units exported. EVs in SA remain the preserve of the elite and have not yet become mainstream.
To date there are no production plants within the country and all the 1,290 EVs sold in the country over the past two years were imported. This is concerning given the global rush to participate in the growing EV market.
The SA automotive master plan (SAAM) that will be in effect from 2021 to 2035 does not specify any goals for EVs. It mainly focuses on ICE vehicles, with a 2035 target of 1.4-million units per annum. Looking at what is happening globally, the market share for ICE vehicles will gradually decline until it becomes a very small portion of the global car sales outside Africa by 2030. Since SA’s major trading partner (Europe) is already gearing itself for the future, SA must act now to remain relevant.
The EU has passed a new emission standard that requires a maximum of 95g of carbon dioxide/km for passenger cars. The regulation states that 95% of the continent’s fleet must meet this standard in 2020 and 100% in 2021. This has resulted in a surge in EV sales from 600,000 units in 2019 to 1-million units in 2020. To put this into perspective, if SA does not put policies in place to attract EV production in SA it will lose export sales to the EU. Ford’s Silverton plant, which has the capacity to produce 200,000 vehicles per annum and employ about 3,350 personnel after the R15.8bn investment announced in 2021, might not be able to operate at full capacity in the next few years if there is insufficient consumer demand.
There is a possibility that SA focuses on exports to the rest of Africa, since Sub-Saharan Africa has a significant population of about 1.34-billion. The region still has a low motorisation rate of 42 vehicles per 1,000 individuals, which is 333% lower than the global average of 182 vehicles. However, most of the African population cannot afford new vehicles — the continent accounted for only 1.3% to the 91.4-million global new-vehicle sales in 2019. There is a significant market for used vehicles in Africa as 25 of the 54 African countries have no policy regulating the importation of used vehicles while 27 have age limitations of between three and 15 years.
The automotive industry’s landscape is changing. Over the longer term, EVs will grow at the expense of ICE vehicles. SA’s vehicle production mix must mirror global developments in the industry. The country’s biggest market for ICE vehicles, the EU, is transforming towards EVs through progressive carbon emission policy adjustments.
SA should respond by taking steps to shift towards producing EVs for this market. The government has an important role to play in enacting enabling policies that attract focused investment in strategic areas such as EV production. Partnerships can enhance the viability of producing EVs locally. Incentives should also be considered to stimulate local demand for EVs, as this will make it attractive for original equipment manufacturers to build EV production plants in SA.
By so doing. the SA automotive industry will future-proof itself and continue to contribute to employment creation, tax revenue and foreign currency generation.
• Chivandire, a chartered financial analyst, is an associate at research and strategy consultancy Birguid.
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