DAVID FURLONGER: Can motor companies really go it alone on EVs in South Africa?

Happy almost-anniversary! In a few weeks, it will be exactly 10 years since former trade & industry minister Rob Davies declared that the government was ready to propel the South African motor industry into an electric future. To hasten the sale and manufacture of electric vehicles (EVs), he promised “demand stimulation, public education, investment support and an accommodative regulatory framework”.

The industry is still waiting.

It would be eight years before his successor, Ebrahim Patel, started to put Davies’s words into action. In May 2021, the department of trade, industry & competition (DTIC) published a new-energy vehicle (NEV) green paper, inviting comment but also offering preliminary proposals like duty cuts and production incentives. The paper was mainly on EVs but also left the door open for hydrogen and other clean forms of propulsion.

It might have been light on detail, but it was a start. It recognised that the South African motor industry has to move away from polluting, petrol- and diesel-guzzling internal combustion engines (ICEs). It produces almost no EVs but more than half of vehicles built in South Africa are exported to the EU and UK, where sales of new ICE vehicles are to be outlawed. The European parliament recently confirmed 2035 as the cut-off date. In the UK, it’s 2030. Some other export markets have similar deadlines. Transition periods start in as little as three years.

Local EV demand also has to develop. Fewer than 5,000 — less than 1% of the market — EVs were sold here last year. All the main local manufacturers say they will follow the EV route eventually, but most multinational parents will expect a solid local sales grounding first.

Patel said he hoped to have firm policy proposals ready for the cabinet by October 2021. But then, in the words of a sketch from Monty Python’s Flying Circus: “Suddenly … nothing happened!”

Well, not completely nothing. Motor industry executives say there have been lots of discussions, even joint task teams between the government and the industry. But actual policy direction? Demand stimulation? Public education?

Government officials dropped heavy hints that policy clarity would come with last week’s budget. In anticipation, Naamsa published its own NEV discussion document two days before the budget, to encourage policy debate.

Finance minister Enoch Godongwana made no mention of NEVs in his speech. However, page 67 of the background document carried a brief mention of R728.8m of NEV incentives available through the government’s existing automotive production and development programme (APDP) and a three-year, R18.9bn allocation to the DTIC “for incentive programmes to stimulate business investment machinery and equipment”.

Though not automotive-specific, finance ministry spokesperson Mfuneko Toyana said this week the R18.9bn would help the department finalise the NEV programme and its implementation.

Naamsa head Mikel Mabasa declared the industry “utterly disappointed” at the lack of actual policy and said an urgent industry CEO meeting this week would seek a way forward. Discussions could include vehicle manufacturers making the EV transition “with or without the support of government, who have made it clear to all of us that they are working off a different timeline to the rest of us and to the rest of the world”.

Going it alone is hard to imagine. In markets around the world, government incentives have been key in persuading consumers to stop buying ICE vehicles. Multinationals have plenty of other investment destinations to choose from.

However, it’s a sign of their desire to stay in South Africa that they have offered to match government price incentives. Last year, it was proposed that traditional hybrid vehicles, in which an ICE continuously recharges a battery-electric motor, should enjoy a R20,000 discount; that plug-in hybrids, which also have dual motors but in which the electric one requires external recharging, should drop R40,000; and all-electric vehicles with no ICE, R80,000.

Given EV prices in South Africa, where many all-electric vehicles cost more than R2m and even hybrids are beyond the reach of most consumers, those would not be big incentives. But double them with manufacturer support, and they start to become interesting.

Online vehicle retailer AutoTrader, in its latest hybrid car report published this week, says latent consumer demand for traditional hybrids is booming. Toyota South Africa says it can’t meet local demand for the hybrid version of its home-made Corolla Cross, which comes with a manufacturer discount. The message is clear: get the price right and people will buy.

Policy insiders say the cost of incentives is among the government’s sticking points. There appears to be common ground between industry and DTIC on the nuts and bolts of EV policy, but the National Treasury has to OK financial implications.

Patel said late last year: “Most of the work the government has been doing is seeing what is affordable and what is not.” Toyana said this week that discussions between the Treasury and the DTIC on “appropriate funding for the NEV policy specifically” were still under way.

The dream for Naamsa and the DTIC is that EVs should account for 20% of local sales of new cars and bakkies by 2025, 40% by 2030 and 60% by 2035. Unrealistic as those targets seem, even a fraction would cost many billions of rand, once you multiply R20,000, R40,000 and R80,000 discounts by 100,000 or 200,000.

Where does that money come from, in South Africa’s straitened economic circumstances — particularly as, in the early stages at least, the beneficiaries would be well-off consumers, the only ones able to afford EVs? Can South Africa tax the poor to help the rich?

The growth of the local motor industry in recent years has been down to clear, precise and long-term policy. The current APDP offers the same incentives to both ICE and EV technologies. The motor industry says it needs bigger benefits if it — and consumers — are to make the EV leap. Past pronouncements from Patel suggest the DTIC shares that view.

If companies are to spend billions of rand on future products, they say they need to know the rules under which they will do so. Car models have a life cycle of about seven years, bakkies of at least 10. The industry says time to turn intention into action is running out.

Questions for this article were sent to the DTIC last Friday, asking about its policy intentions. The department confirmed receiving the questions but had not replied by Thursday morning this week.