Photo: AP
Photo: AP

Urgent need for investment to shift to electric vehicle manufacturing in SA

By Time of article published Nov 3, 2021

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Simon Woodward

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 South Africa.

It’s 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.

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

Looking at the Department of Trade, Industry and Competition Draft Green Paper on the Advancement of New-Energy Vehicles in South Africa, which Minister Ebrahim Patel released earlier this year, 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 EVs – many of the tier 1 suppliers are multinationals, 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 South Africa to kick-start and accelerate the production of EVs. There is optimism that the 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 Cyril Ramaphosa has said that the need for EV production is one of three 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, 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 in SA, while the imported cost of the EV derivative would be about R750 000.

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

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 South African government, perhaps via higher value export incentives, as well as banks and organised labour.

While supporting our export market business is paramount, we should not forget about developing the domestic EV market too. This is a critical component for South Africa to pivot from an exclusively ICE production market to an EV producer– the rapid development of sales of EV cars to South African consumers from a few hundred a year at present to more than 10 000 a year.

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 rand to the cost of even the most basic EV vehicle. Some OEMs seem to be confident that the government will play a critical role in facilitating the wider adoption of EVs in South Africa. In addition, it would be great if fleet car operators and the Government could add EV 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 South Africa, one additional adoption hindrance needs urgent attention – the lack of charging stations in and between cities and towns in this country.

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 third party funding. However, this appears not be imminent – it may make sense for the OEMs 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 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 fewer 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 EVs – this to hopefully quell so called “range anxiety”.

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 South Africa. While 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 PV (photovoltaic) solar solutions like solar panels. These would help homes become less reliant on the grid, ensuring a more reliable power supply.

Simon Woodward is the Automotive Sector Head at RMB.

*The views expressed here are not necessarily those of IOL or of title sites.

BUSINESS REPORT ONLINE

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