We are not going to manufacture electric vehicles (EVs) or their components in South Africa in the next decade, even if the Electric Vehicles White Paper promises the first electric cars by 2026. This has interesting implications for South Africa.
Electric cars, it turns out, are very different to their internal combustion engine (ICE) cousins. There is just much less to them, so far few components. A very big battery and an electric motor replace all the complexity of an engine and gearbox, removing a lot of jobs from the value chain. You would think this would make it easier, not more difficult, to produce in South Africa, but that too is not the case.
The battery is not just a massive torch battery. It’s complicated, can catch fire if not made properly (and sometimes if it is), and is also very, very heavy. This leaves the manufacturer with a conundrum.
Extra weight pushes up shipping costs dramatically, so you probably want to make the battery close to where you will make the car and the car close to where you will sell it. All this doesn’t bode well for production in South Africa. Beneficiation, I hear you say, but not this won’t cut it either, for two reasons.
We are, unfortunately, not good at manufacturing complicated things, which can be seen by how much less complex our export basket has become over the past 30 years.
We don’t have many highly skilled people in South Africa and those we do have keep leaving. We also make it difficult for skilled migrants to stay in South Africa resulting in a perpetual shortage of skilled people. Being close to some of the minerals is not going to be enough reason to set up shop here.
Even if we got beneficiation right, and I hope we do, we have to import the minerals we don’t have in abundance and it’s not clear why the battery producers would rather not import our minerals and make the battery elsewhere, where investment is welcomed.
According to Trade & Industrial Policy Strategies (Tips), there were 2 258 fully battery electric vehicles (BEVs) on the road at the end of 2023 (0.43% of the total number of cars sold locally in 2023). It took 11 years to get to that number, with almost half made up just in last year, so certainly the pace of uptake is accelerating nicely.
Tips say that for EV production to make economic sense in South Africa, we need to get that number up to 5% of total cars sold, or about 23 000 BEVs a year. To reach that target we would need to remove the import duties on BEVs.
The government is reluctant to do this because they fear it will disincentivise investment in BEV production locally, but this misses the point.
Duties can be raised later if required, but to keep duties high in the hopes of manufacturing magically arriving is poor trade policy. It’s also counter-productive. If we want to sell more cars, then we need to make them cheaper, and it seems as if production won’t happen without a local market.
I don’t think sufficient Eskom electricity is the binding constraint here, despite being noted as a risk in the white paper. Companies like Zero Carbon Charge are doing a lot to build fully off-grid solutions across the country. Subsidies in this space make more sense than subsidising production of EVs. Other companies will follow. It would help if the South African National Roads Agency Limited got fully and visibly behind such initiatives.
Most importantly, we would have to out-subsidise the world’s biggest subsidisers in this space: China and the US. To put this in perspective, in 2022 the Chinese BEV producer BYD received €2.1 billion (R43bn) in purchaser subsidies, R11bn more than the whole automotive sector in South Africa. That is just one producer. Purchase subsidies to all brands amounted to €4.2bn in 2022.
In China, the subsidies are paid to the producer, not the consumer, they have the effect of lowering the cost of all cars, not just those sold locally.
The US and the EU are following suit. To manufacture in South Africa, we need to overcome all the hurdles noted above and be able to give enough to producers to draw them away from markets with big subsidies and big consumer bases. This is tough now that our magic money tree has stopped bearing fruit.
BYD’s entry model, the Seagull, retails for $10 000 in China (R196 000). If we remove all duties (30% at present), we start to look at a car which can be sold below R300 000 in South Africa. This is VW Polo and Toyota Corolla Quest territory and certainly would see interest. Subsidies after all, are the gift of the donor, and in the case of EVs, perhaps we should embrace those Chinese subsidies with both arms?
Donald MacKay is the founder and chief executive of XA Global Trade Advisors. He has been advising local and foreign companies on global trade issues for more than two decades. X handle: XA_advisors; email: [email protected]; website: xagta.com.
* The views in this column are independent of “Business Report” and Independent Media.
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