Auto sector frustrated with government over electric vehicle transition policy

There is growing frustration in South Africa’s automotive industry about the government’s lack of urgency in finalising its policy on the transition to new energy vehicles (NEVs) in the country.

“We are having a conversation with ourselves,” said one senior automotive executive on Wednesday.

Despite the government in May 2021 publishing an Auto Green Paper on the advancement of NEVs in South Africa, with the stated aim of finalising the strategy within 90 days to allow the policy proposals to be submitted to Cabinet for consideration by October 2021, the policy has not yet been finalised.

There is a growing feeling among automotive executives that the process has stalled.

This was reinforced by the absence of Minister of Trade, Industry and Competition Ebrahim Patel at a thought leadership roundtable discussion on the Transition to New Energy Vehicles organised by automotive business council, the National Association of Automobile Manufacturers of South Africa (Naamsa) on Wednesday.

Patel cancelled his planned participation on Tuesday evening because he had to attend a cabinet meeting.

ALSO READ: SA car manufacturers planning harsher fight against cheap, illegal imports

Market rule changes

FirstRand CEO Jacques Celliers said the last thing South Africa can afford is to miss arguably the most substantial transition the industry will witness over the next few years.

“The markets in which we participate and supply to as a country [have] made certain rule changes and you ignore that at your peril.”

Celliers said that everyone recognises there is a transition phase and the solution for the future has been identified and it’s quite obvious what the world is trading into.

In a thinly veiled reference to the problems at Eskom and other state-owned enterprises (SOEs), Celliers said several sectors in South Africa are currently challenged as a consequence of poor decisions a decade or two ago.

“The challenge for leadership … is to make sure that important things never become urgent because when you get into that phase of urgency, the wrong decisions get made and chaos ensues,” he said.

President of Naamsa and Ford Motor Company Africa Neale Hill highlighted the reason for the urgency of government policy certainty on the transition to NEVs.

Hill said the UK has been South Africa’s top export destination since 2014 but already in 2017, it had announced a ban on the sale of new internal combustion engine (ICE) vehicles by 2040, and then in 2020 it accelerated the deadline twice to 2035 and 2030.

He added that the European Parliament in February this year formally approved the ban on the sale of new ICE vehicles in the region from 2035.

Hill said South Africa’s automotive industry is an export orientated industry – 66.9% of vehicle production was exported in 2022.

Of these exports, 72.7%, or three out of every four vehicles, were destined for the UK and the EU, he said.

Hill said the automotive trade analysis for 2022 reflects vehicle exports to the UK and EU region have contracted by almost half, from R837 million in 2021 to R421 million in 2022.

“The relevance of this is that the impact of the ban on the sale of ICE vehicles is evident long before those due [ICE ban] dates.

“This why it’s so important for domestic vehicle production to be aligned with the technology shifts to safeguard our exports,” he said.

ALSO READ: Tshwane’s vehicle manufacturing plant will create 18,000 jobs, says Makhura

Electric cars on the road

Hill added that the Presidential Climate Committee indicated that the automotive industry could support the country’s just energy transition, particularly in the short-term, by having 750 000 battery electric vehicles (BEVs) on the roads by 2030.

He said the 750 000 BEV target is not unrealistic but remains subject to the approval of the transitional requirements for both the supply and demand side.

“What is imperative at present is an urgent pronouncement on government’s intention as soon as possible, which is imperative when considering the importance of timing on the interventions so they are aligned with the investment decisions and lead times of the OEM [original equipment manufacturer] head offices when considering allocation of next generation NEV production cycles,” Hill said.

“South Africa has already missed the upcoming round of NEV model investments, for which the decision date is three years before the start of production and realistically will only be considered for the next round of investments around 2030,” he said.

Hill said the differential between the average cost of an ICE vehicle and a full battery electric vehicle is 52% and the South African industry can only be sustained with both – about 60% exports and 40% domestic market sales.

“So both demand and supply side support is required. But timing is absolutely crucial for us to achieve this but sadly the clock is ticking and ticking fast,” he said.

ALSO READ: Stellantis inks deal aimed at vehicle production in South Africa

New partnerships

Former minister of Trade and Industry and chairman of Uba Holdings Alec Erwin said he did not see technology changes in the automotive industry as a massive threat to South Africa but as a massive opportunity because the country has capacity and advanced manufacturing facilities.

Erwin said certain minerals South Africa has used for centuries have become more salient now because of slightly new production methods. He said there is no way Africa and South Africa will repeat “the Imperial error” by sending ores to other countries for beneficiation.

Erwin said South Africa had to start thinking about new partnerships, adding that the global balance of economic powers have changed for the next 120 years.

He said this requires confidence, dialogue and speed.

“You don’t have to wait for government. Do it. It’s a new world,” said Erwin.

“If anyone thinks they can disengage from South Africa and still want to manufacture something, they are dreaming. It’s not possible.”

He added that South Africa has to move quickly but does not think a massive amount of new regulation or facilities are needed.

“We can build pretty much with what we have got with some clever tweaking,” he said.

ALSO READ: Major vehicle manufacturers move to invest in SA

No production constraints

Acting Department of Trade, Industry and Competition Director-General Malebo Mabitje-Thompson said the most viable way for government to support and help the sector to grow to the next level will be through a manufacturing focused approach by starting with the production of NEVs in South Africa as an initial step.

Mabitje-Thompson said the government did not want to risk South Africa becoming the last place where ICE vehicles are produced while other markets capture NEV production.

“It’s for that reason we are saying let’s start here first,” she said.

Mabitje-Thompson said the good news is that the Automotive Production and Development Programme II (APDP 2) is in place and a large chunk of this programme is “technology agnostic”.

She said there is no policy position now that is a constraint from a production perspective that prevents the industry from producing anything that still has an element of ICE vehicles.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.