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Automotive industry demands more urgency for EV transition

Sibahle Malinga
By Sibahle Malinga, ITWeb senior news journalist.
Johannesburg, 23 Feb 2024
Government’s electric vehicle budgetary allocation is expected to be channelled towards component value chain initiatives.
Government’s electric vehicle budgetary allocation is expected to be channelled towards component value chain initiatives.

South Africa’s automobile industry has welcomed government’s budget allocation of R964 million and tax incentives to help support the country’s transition to new energy vehicles (NEVs).

However, the industry is disappointed that the implementation of government support, scheduled for 2026, does not align with the timelines of the Automotive Production and Development Programme (APDP) and requires more urgency.

Finance minister Enoch Godongwana said in his National Budget Speech this week that the Department of Trade, Industry and Competition has reprioritised R964 million over the medium-term to support the transition to electric vehicles (EVs).

The funds are in line with the New Energy Vehicles White Paper, approved by Cabinet in 2023.

Godongwana explained: “To encourage the production of electric vehicles in SA, government will introduce an investment allowance for new investments, beginning 1 March 2026. This will allow producers to claim 150% of qualifying investment spending on electric and hydrogen-powered vehicles in the first year.

“The incentive will be implemented in addition to the existing support under the APDP.”

The NEV White Paper outlines government’s strategy to transition to broader new energy vehicle production and consumption in SA, starting with EVs, he added.

The white paper outlines the intention to transition the automotive industry from primarily producing internal combustion engine vehicles, to a dual sector that includes electric vehicles, by 2035.

According to the Automotive Business Council, also known as the National Association of Automobile Manufacturers of SA (NAAMSA), the industry requires an immediate timeframe, as well as further funds from government, in order to fulfil the objectives set out in the APDP.

The APDP provides guidelines on the production incentive scheme aimed at creating an environment that enables registered light motor vehicle manufacturers to significantly grow production volumes, and component manufacturers to substantially grow value addition in SA.

Mikel Mabasa, CEO of NAAMSA, comments: “The allocated R964 million should be viewed in the context of the average annual investments by OEMs, which currently stands at approximately R5 billion.

“While government's commitment is evident and welcomed, it is important to recognise the scale of investments required by the industry. This funding should be seen as a significant initial step, with further collaborations and investments anticipated in the coming years.

“It is also important to note that the 2026 implementation rollout date for the investment allowance does not cover the pre-investment cycles before some of the production starts.

“NAAMSA will engage government to address any potential gaps in the timeline, ensuring the incentive framework aligns with the industry's pre-production requirements,” says Mabasa.

Furthermore, NAAMSA points out the engagement with government will focus on addressing some of the challenges associated with the implementation of the APDP, especially concerning vehicles with limited local content due to the predominant location of battery production in Japan, South Korea and China.

In the short-term, the existence of low local content necessitates government's consideration to support other key technologies, such as traditional hybrids and plug-in hybrids, it says.

“We hope to compare notes around the adoption of an APDP rate specifically designed to cover instances of low local content and the exploration of effective strategies to address the adoption of locally-produced EVs. The aim is to ensure the advantages of the programme keep the local industry globally competitive,” Mabasa adds.

Mikel Mabasa, CEO of NAAMSA.
Mikel Mabasa, CEO of NAAMSA.

The long-awaited EV policy is expected to be finalised this year. The industry has over the years urged government to hasten the policy.

It warned that the lack of a regulatory framework could result in SA facing the threat of losing significant investment from local multinational players, such as BMW, Toyota and Mercedes-Benz SA – which have announced local plans for EV production and sales.

Renai Moothilal, CEO of the National Association of Automotive Component and Allied Manufacturers, welcomed the package of support and tax incentive announced by the finance minister.

“Over 60% of South African-produced vehicles and R70 billion of local automotive components are exported per annum, and a large proportion of these exports are destined for markets that are placing bans on carbon-emitting vehicles.

“We expect that much of this allocation would be used to support EV component value chain activities as identified within the NEV White Paper.

“Automotive components − such as high voltage wire harnessing, high-voltage batteries and thermal management systems − have been identified as having high localisation potential due to the local availability of required raw materials and manufacturing capabilities.”

Moothilal believes that for the local industry to remain a relevant and competitive player in the global value chain, it must make inroads in transforming towards NEV production over the coming years.

“The budgetary allocation of funds to support this will certainly help drive this transition. Unlocking the local production of these and other high localisation potential EV components through investment support is key to creating economic development benefits, such as job creation, new business opportunities and technology transfer, which has the greatest potential in the components manufacturing subsector,” he concludes.

Renai Moothilal, CEO of the National Association of Automotive Component and Allied Manufacturers.
Renai Moothilal, CEO of the National Association of Automotive Component and Allied Manufacturers.