The Automotive industry in South Africa is a complex one with multiple incentives offered by the government to entice Auto manufacturers to invest in manufacturing in the country.
There have been significant gains for the country by doing this, including the sector growing into one of the country’s main economic sectors, contributing over 4% to the county’s Gross Domestic Product (GDP), and while there has been a decline in manufacturing over the past year, it has established itself as a significant export industry for the country.
The latest Manufacturing Production data released last week indicate that while total manufacturing production in South Africa decreased by 0,4% compared with 2023, the automotive sector saw worrying decrease of over -13% in manufacturing volumes.
South Africa levies a 25% import tax on all imported automotive parts and passenger vehicles, although there are some preferential rates that apply to certain regions such as the EU. In addition, there are tax benefits for the manufacturing companies.
One of these incentives is the Automotive Production Development program (APDP), that allows manufacturers to off-set production costs against tax credits they pay on their imported parts or vehicles that are fully imported.
Price Cut Plan Through Credit to Cash Conversion
This last week, Peter van Binsbergen, CEO of BMW South Africa, announced a plan to potentially support local vehicle sales. This plan was developed by a group of several local Original Equipment Manufacturers (OEM) that plan to approach the South African government to allow them to convert billions of Rand (ZAR) currently held in unused import duty credits into a cash equivalent. The credits are awarded to OEMs who manufacture a certain number of vehicles within South Africa every year, and allow these automakers to reduce import duties on vehicles and components that are not locally made.
The idea is that the manufacturers will then look to cut the local vehicle selling prices by using the cash to reduce manufacturing input costs. The plan is equally a move to protect the local automotive industry from a growing threat of cheaper priced imported brands, and in particular, Chinese manufactured vehicles, that are rapidly gaining market share in South Africa.
South Africa’s Automotive Masterplan (SAAM) 2035 revisited
Created in 2018, SAAM’s was intended to create a framework that ambitiously wanted to see vehicle manufacturing in South Africa Double, with the knock-on increase in employment as well as growth in the wider local automotive part ecosystem.
However, the plan has not been much of a success to-date, and the government and industry stakeholders have now agreed to revise the automotive Masterplan in 2025 with a view to creating a more feasible framework that can be attained.
South Africa has been successful in growing its vehicle exports by close to 50% growth between 2020 and 2023 – from 271287 in 2020 to 399549 in 2023. Numbers for 2024 however were dismal, with only 308380 vehicles exported for the year, a substantial decline of 22,8%.
This did not happen in isolation, with the automotive industry worldwide, excluding China facing severe headwinds over the past year. Even well established, large multinational groups such as Nissan and others, seeing large down scaling of operations in order avoid closing their doors.
What are the Causes of Export sales Falling?
There are several factors at play but two are the major issues.
- South Africa currently produce a very limited number of electric or alternative powered vehicles and with so many nations moving away from combustion engine vehicles, this has hurt the export numbers.
- The rise of Chinese vehicles as very competitive products with prices that are making it difficult for local manufacturers to compete with.
Alongside the credit conversion proposal, South Africa’s OEMs are also planning to plead with the government to integrate plans for the manufacturing of electric vehicles (EVs) into the SAAM framework and its accompanying component, the Automotive Production and Development Programme (APDP).
EV vehicle Manufacturing Could Spur Growth
The South African Government has recently announced the introduction of an EV vehicle production incentive programme, that will see an incentive that will allow for a 150% tax deduction on investment in electric- and hydrogen-powered vehicle manufacturing within South Africa, that will only apply to strictly EV vehicles and not to hybrids.
BMW and VW have echoed a warning given by South African vehicle manufacturer Toyota, that said that more must be done to protect the domestic manufacturing industry from cheaper imported vehicles, particularly those hailing from China that provides extensive subsidies to its automakers which allow them to undercut vehicle prices of established brands in many global markets, beyond South Africa.
“The purpose of the APDP is to incentivise high-volume production. There is no reason the [SKD] companies should be treated favourably,” said Van Binsbergen.
“APDP credits are intended to incentivise domestic production, but what is their point if you can’t use them? If we don’t find a way to monetise them, some companies may question the need for second or third daily production shifts, and the extra jobs that go with them” He commented.
With requirements for more Electric vehicle manufacturing and more domestic sales due to falling exports, it makes a world of sense for such a plan to be considered with due consideration for the thousands of jobs that could be created compared to the loss of thousands of jobs and the loss of GDP growth if this is not implemented.
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