How SA auto manufacturers can take advantage of global shifts

In response to carbon footprint reduction requirements for the automotive industry, an emerging global shift is taking place from the initial targets and aspirations set by various countries where the focus turned primarily to fully electric vehicles (EVs).

There is now a growing realisation that the future is not electric only.

Read:
First signs of SA auto industry deindustrialising, warns Toyota CEO
SA auto industry faces threat from shift towards imported vehicles
SA auto sector faces perfect storm

Ultimately the industry can look to a diversified portfolio of offerings, including EVs, hybrids, internal combustion engines (ICEs), and in the longer-term also hydrogen.

This comes on the back of fast technological advancements and more information becoming available, which in turn is driving more informed decisions.

This could all play to the advantage of the SA automotive manufacturing sector – if we start taking actions to leapfrog from where we are today.

Although electric vehicles have grown to more than 20% of new cars sold globally, the initial rapid growth and pace of adoption is losing momentum in most markets while sales of hybrid vehicles are accelerating.

New vehicle sales in SA

The same trend has happened in South Africa, with overall sales of fully electric, hybrid and plug-in hybrid cars rising 7% last year to 16 716, driven by a 281% increase in plug-in hybrid (PHEV) sales, from 738 in 2024 to 2 810 – while sales of EVs and conventional, self-charging hybrids declined slightly.

The increase in PHEV sales was most likely due to the market arrival of 12 new imports priced under R1 million.

Global growth in adoption of conventional, self-charging and plug-in hybrid vehicles is being driven by a number of factors at both policy and consumer level.

Policy factors 

Several European countries have reduced or phased out subsidies for electric vehicles, while the US has eased fuel economy rules and cut tax credits for EVs.

The European Commission has softened its emissions reduction targets, and the EU is widely expected to announce changes to the 2035 date for a complete ban on ICEs.

This is in response to lobbying from European automakers under pressure from US tariffs and the rising influx of cheap Asian imports.

Why EVs are falling out of favour

From a consumer point of view, experience in mature EV markets is showing that the resale value of EVs drops far more over three years than comparable hybrid and combustion engine vehicles.

This is largely due to battery degradation concerns and rapid technology advances.

While the energy costs of running the vehicle may be lower, the high initial purchase price and steep depreciation make the total cost of ownership of an EV far higher than a hybrid over a typical five-year period.

The key ownership advantage of an EV over an ICE vehicle – that of energy/fuel cost – is also being eroded as countries like the UK phase out government subsidies, sharply increasing the real cost of electricity for public charging.

Coupled with this there is rising demand for electricity, driven by the demand and fast growth of data centres around the globe.

EVs are also losing favour in environmental impact terms.

Their ‘zero emission’ label may be misleading when considering the full lifecycle, particularly the carbon footprint of mining raw materials and battery manufacturing. There are also difficulties in the recycling and disposing of the batteries.

In regions with fossil fuel-heavy grids, like South Africa, charging EVs largely means shifting the emissions from the tailpipe to the power station.

A hybrid vehicle can have a lower overall CO₂ impact over its lifetime.

With ongoing concerns around electricity availability, limited charging infrastructure and security of the charging infrastructure, hybrids may offer South African motorists more robust and flexible options to reduce emissions.

Read: SA auto industry to speed up vehicle charging station project

The initial hype around EVs has now been tempered by economic and practical realities that South Africa can learn from.

Overall, it increasingly appears that the future of the automobile is diverse – a combination of electric and battery electric vehicles, plug-in and conventional hybrids, the internal combustion engine remaining for some time in some regions of the world, with hydrogen combustion engines and hydrogen fuel cells coming into the mix as this becomes more feasible and cost-effective.

What this means for SA

Greater adoption of hybrid vehicles in SA’s key export markets – Europe and the UK – presents the local industry with some significant, practical advantages in making the transition to cleaner energy technologies without immediately needing to overcome the limitations of domestic EV infrastructure, high EV costs, and limited consumer adoption.

Manufacturing hybrids and plug-in hybrids locally will enable manufacturers to better meet the emissions standards of key export markets, retaining SA’s export competitiveness while meeting the small but growing domestic demand.

Since hybrids retain an internal combustion engine, there is an opportunity to adapt existing production lines and upskill workers in handling hybrid, electric motors and battery integration.

Similarly, the shift will support localisation of components and the local value chain from manufacturers to automotive component suppliers.

Such a shift is also supported by the 150% tax allowance that comes into effect in the new tax year starting in March for investments into manufacturing electric and hydrogen-powered vehicles.

CKD manufacturing must be favoured

It is particularly vital that this and other incentives for manufacturing new energy vehicles in South Africa support completely knocked-down (CKD) manufacturing over semi-knocked-down (SKD) assembly.

SKD is the import of partly built-up vehicles and associated components for local assembly, creating minimal local employment and edging local automotive component manufacturers out of the market.

The relatively ‘low-cost for high-spec’ aspect of SKD vehicles is displacing the market share of vehicles manufactured locally over decades by global automakers.

ADVERTISEMENT:

CONTINUE READING BELOW

The latter operate CKD manufacturing, with high levels of investment and technology transfer, and high local content that generates employment within these manufacturer as well as in a deep value chain of surrounding component manufacturers and indirect suppliers and service providers.

Listen/read:
Chinese SUVs are ‘iPhone moment’ for rest of motor industry
Chinese and Indian vehicles now make up almost 50% of CMH’s sales
Is WeBuyCars another victim of cheap Chinese vehicles?
Chinese entrants compel WeBuyCars to take ‘a bit of margin squeeze’
SA weighs steep tariffs on vehicles from China, India

From a policy perspective, it is thus important that the SA Automotive Masterplan 2035 be reviewed and adjusted to reverse the current position that incentivises SKD assembly over CKD manufacturing.

It needs to put localisation and local job creation at the forefront.

Automotive policy must also take a flexible, pragmatic, technology-agnostic approach, rather than focusing on a single option such as battery electric, in order to leverage existing strengths and enable manufacturers to diversify the mobility technologies they pursue.

While uptake of new energy vehicles in South Africa is still relatively low due to high costs, it is also important to incentivise the consumer side of the equation to stimulate local demand.

Additionally, policy needs to provide greater incentive for incoming investors to localise their component supply chains and incentivise investment in localising components for new needs such as battery assembly, fuel cells and hydrolysers.

Alongside this, the policy should be looking to the future and be stimulating conditions to promote the assembly of hydrogen vehicles and components in this market.

Here in Nelson Mandela Bay, where we have a strong automotive manufacturing industry, we have the opportunity to maximise on this opportunity through the proposed R100 billion Hive Hydrogen green ammonia production plant, which has been earmarked to be established in the metro.

Read: Unlocking the tourism potential in Nelson Mandela Bay

With the right policy support and export agreements in place, this could be the moment for SA automotive manufacturing to regain lost ground and leapfrog into an emerging, diversified mobility future.

Denise van Huyssteen is CEO of the Nelson Mandela Bay Business Chamber.

Follow Moneyweb’s in-depth finance and business news on WhatsApp here.