The sector is showing a 'continuous reduction of local content', which is a concerning sign of deindustrialisation. Picture: File
South Africa’s automotive industry is facing a threat from a shift away from locally produced vehicles towards imported products and from the entry of Chinese brands into the local market.
Toyota South Africa Motors (TSAM) CEO and president Andrew Kirby on Thursday highlighted a number of structural issues facing SA’s automotive industry.
Kirby said locally produced vehicle sales have dropped by 6.5% from 46% in 2018 to 43% in 2023, while Indian- and Chinese-sourced vehicle sales have increased from 18% to 37% in the same period.
He said domestic sales of Chinese vehicles have increased by 645% since 2018 to 7% of total sales in South Africa in 2023 and believes they will account for 10.5% of all vehicles sold in South Africa in 2024 when the final sales figures are released.
Indian-sourced vehicle sales in SA have grown by 79% in the same period and in 2023 accounted for 30% of total South African vehicle sales.
ALSO READ: Electric vehicles in demand as global sales surge in 2024
Kirby said SA’s automotive market is moving into “an unequal playing field” and believes it is vital that this is also addressed when the review of the SA Auto Masterplan takes place this year and not only focus on policy related to electric vehicles (EVs) and new energy vehicles (NEVs).
He said Chinese imports are disrupting markets all over the world and different countries are responding to that through increased import duties.
Kirby stressed the need to create a balanced playing field in SA because the Chinese government directly incentivises and supports the production of vehicles and parts.
“In South Africa, you can trade the [export] rebates but also have the option of investing in a semi knocked down (SKD) operation, which means a small investment and no investment in painting and welding, small assembly, small employment and you can effectively reduce the import duty down to 5% [from 25%],” he said.
“That is not an equal playing field. People [OEMs] have been investing in CKD [completely knocked down plants] at huge expense to try and make sure they are globally competitive and part of the global sourcing arrangements.
“Now we have this imbalance situation.
“I’m not suggesting that we put import duties on Chinese vehicles but we need to find a way as a country to create a balanced environment where we all thrive and there is more competition.”
ALSO READ: GAC cuts Emzoom and Emkoo prices by as much as R100 000
Mikel Mabasa, the CEO of automotive business council Naama, said the current disruption in the South African automotive market is “unprecedented” from the perspective of the new brands coming into the market.
Mabasa said the majority of Chinese vehicles in the South African market are not EVs but internal combustion engine (ICE) vehicles and there is an understanding that these Chinese manufacturers are bringing these vehicles into the market to position their brands while their offering to customers seems to be very compelling.
He said Chinese vehicle manufacturers are now taking this strategy to greater heights and are definitely interested in setting up CKD operations in SA.
“We currently have three that are definitely looking at CKD operations in South Africa and we are working with them to see if that will be practical for them,” he said.
NOW READ: Electric car sales set to reach new high in 2024 driven by China
Mabasa said the concerning aspect is that this evolution is not only taking place in SA but also, for example, in Morocco.
He said Morocco has just overtaken SA in terms of vehicle production volumes and in the first three quarters of 2024 produced 11.6% more vehicles than South Africa.
“Some of this has been driven by investments the Chinese have made in that market.
“The free trade agreements we have with some of the major markets are important because they [the Chinese] are also seeing that in order for them to import some of the vehicles they are producing in China, for example, into Europe, which are going to impose much bigger [import] tariffs.
“But if they are able to produce those vehicles in South Africa, that gives them a much better competitive edge,” he said.
ALSO READ: EU approves controversial 35.3% tariff hike on Chinese EVs
Kirby said SA’s automotive industry also faced three other structural challenges, which were the lack of a local and regional market, an incomplete EV policy in that it explicitly excluded new energy vehicle (NEV) technologies, such as hybrid electric vehicles (HEVs) and plug-in hybrid electric vehicles (PHEVs), and the risk of deindustrialisation.
He said the current SA Automotive Masterplan was signed in 2018 and had six pillars.
However, Kirby said two key enabling pillars – local market optimisation and regional market development – have not been suitably addressed.
He said this then inhibited the realisation of the other four pillars: localisation, industry transformation, infrastructure development and technology and associated skills development.
Kirby said successful industrialisation requires both CKD volume growth and localisation but the South African market is seeing a shift away from locally produced products towards imported products.
He said locally produced vehicle sales have deteriorated by more than 11% from 54% in 2018 to 60% in the 11 months up to November 2024.
Kirby said SA’s automotive industry has also experienced a 10% decline in localisation from 42% in 2021 to 38% in 2024, stressing that the industry requires a stable foundation for industrialisation, particularly in energy, logistics and infrastructure.
“If you have a shift towards imports and a continuous reduction of local content, those are early signs of deindustrialisation,” he said.
ALSO READ: VIDEO: Dongfeng debuts as latest Chinese brand in South Africa
National Association of Automotive Component and Allied Manufacturers (Naacam) CEO Renai Moothilal confirmed that localisation and the local content targets under the SA Automotive Masterplan have not realised to the extent as a sector they were hoping for and stressed that it is localisation that drives all the economic benefits, such as job creation.
Moothilal said the reality is that for a variety of macro and local policy issues and reasons, this objective has been “very sticky”.
“We are still less than 40% as a country for average localisation. We do have to pay a lot of attention to that.
“Some of the issues that we see in the market do not help that case. Last year alone there were significant volume reductions. It’s really hard to drive localisation business cases when the OEMs [original equipment manufacturers] don’t realise the volumes that they expect,” he said.
Moothilal referred to the announcement by ArcelorMittal this month that it will shutter its long-steel plans in Vereeniging and Newcastle at the end of this month.
“Although we expect some resolution to that issue, the fact that we got to a point where a key raw material like steel was in jeopardy for the component value chain isn’t really an ideal environment for localisation.
“As a country we do need to be a lot more aggressive chasing that target.”
This article was republished from Moneyweb. Read the original here.
NOW READ: GAC Emkoo throws surprise spanner in Chinese vehicle works
Download our app and read this and other great stories on the move. Available for Android and iOS.
