The need for electric vehicle manufacturing in SA

MEDIA RELEASE

2 NOVEMBER 2021

South Africa must act now or risk losing lucrative European car export market by 2030

South Africa’s major export car markets such as the UK and Europe will no longer allow importation of internal combustion engine (ICE) vehicles by 2030, which means there is an urgent need for added investment to shift to electric vehicle (EV) manufacturing in SA.

“It is important to note that the potential impact of not making these investments may have dire consequences for our export-led car sector which is the envy of many globally,” said Simon Woodward, Automotive Sector Head at RMB.

The UK has been South Africa’s automotive industry’s industry’s top export destination for vehicle exports since 2014, while three out of every four South African-manufactured vehicle exports were destined for European Union countries in 2020.

Looking at the SA Department of Trade, Industry and Competition (DTIC) Draft Green Paper on the Advancement of New-Energy Vehicles in South Africa, Minister Patel released earlier this year, Woodward said that it was encouraging that there seemed to be a recognition of the need to modify existing manufacturing plants to produce hybrid and then ultimately electric vehicles.

The existing domestic automotive value chain needs to pivot towards EV’s - many of the tier 1 suppliers are multinational entities, which would be familiar with the emission reduction commitments its OEM (original equipment manufacturer) clients have made.

“It’s clear from the Automotive Green Paper that the stated goal is for SA needing to kick start and accelerate the production of EVs.” There is optimism that the SA government will use the feedback from the Automotive Green paper to promulgate regulation and formal state assistance.  Funders such as Banks stand ready to help fund this transition. Contextually, President Ramaphosa has said that the need for EV production in SA is one of 3 key climate change actions.

What has been pleasing to see is that some local manufacturers have already secured investment and adapted domestic production plants to ensure the flexibility to produce vehicles with alternative powertrains (the components that generate the power) to internal combustion engines.”

However, Woodward noted there is still a very material price point gap between EV and ICE models of similar size and output, “One OEM mentioned that its small SUV costs about R500 000.00 in SA, whilst the imported cost of the EV derivative would be about R750 000.00.”

We have also seen the collaboration between private entities and OEMs to extend the EV charging platform footprint in SA. In addition, we anticipate in-operable charging stations which are compatible for all EV brands - “it seems like we will avoid a VHS vs Betamax format war” Woodward said.

But to justify the further material investment needed in skills and plants, car manufacturers cannot be expected to make these investments on their own.

“They will require support from the SA government, perhaps via higher value export incentives, as well as banks and organised labour,” Woodward added.

While supporting our export market business is paramount, he said we should not forget about developing the domestic EV market too. This is a critical component for SA to pivot from an exclusively ICE production market to an EV producer- the rapid development of sales of EV cars to SA consumers from a few hundred per annum currently to more than 10 000 p.a.

“A good starting point would be for government to consider tax incentives for the purchase of new, domestically produced EV vehicles. The current import tax regime for EVs is punitive and adds tens of thousands of Rands to the cost of even the most basic EV vehicle,” Woodward noted.

Some OEMs seem to be confident that the SA government will play a critical role in facilitating the wider adoption of EV’s in SA. In addition, it would be great if fleet car operators and the SA Government could add EV’s vehicles to their respective fleets, which may help to give consumers confidence to join the early adopters.

Besides making EV products far more affordable to the greatest possible numbers of consumers in SA, one additional adoption hindrance needs urgent attention - the lack of charging stations in and between cities and towns in South Africa.  

“We are aware that the car manufacturers may be considering the funding of a company which builds and operates EV charging stations nationally to vastly increase the charging network. This mooted utility could also attract 3^rd party funding. However, this appears not be imminent - it may make sense for the OEM’s to consider funding into the existing network providers. Further, it will be interesting to see the role which the fuel energy companies take in terms of making its forecourts available for the increased installation of EV power units.”

The good news is that the price of EV batteries has been coming down over the past 10 years. In addition, we know that EV powertrains are more efficient that ICE, given that the former are simpler with less moving parts, which theoretically would lead to lower maintenance costs for the consumer over the ownership lifecycle. The quest is on for far more efficient inverters, which should lead to increased range of EV’s, this to hopefully quell so called “range anxiety”.

In addition, the other obstacle to overcome is consumer scepticism regarding their ability to charge up their vehicles in their homes due to frequent power outages in SA. Whilst this causes inconvenience for consumers, we do know that most cars will be charged overnight and between bouts of power outages.

“This is an understandable worry which needs to be overcome. A potential solution could involve the coupling of incentives by car manufacturers and the government so that new EV cars are sold with photovoltaic (PV) solar solutions - like solar panels. These would help homes become less reliant on the grid, ensuring a more reliable power supply,” Woodward concluded.

End

Note to editor:

The FirstRand Bank group, via its operating brands, RMB, FNB and Wesbank are major funders to South Africa’s automotive sector. The bank is committed to playing a prominent role in the establishment and success of a EV future in South Africa, for the sake of its customers and also as a responsible corporate citizen that is aligned to best practice ESG outcomes.

Contact:

Kate Kelly l kate.kelly@rmb.co.za l 079 637 4663