The latest manufacturing production stats released this month (for January 2025 Production), paint a worrying picture, with overall manufacturing down year-on-year by 3,3%, with the motor industry once more a major contributor to manufacturing in South Africa, down by -10%.
There has been a string of recently made statements, by various motor manufacturers in the country that have all painted a growing concern around the competitiveness issues that the failing infrastructure and related issues in the country are causing.
OEM’s Major Contribution to Jobs at Risk
There are currently seven original equipment manufacturers (OEMs) producing cars in South Africa, that contribute in the region of 5% of South Africa’s total GDP. The Motor manufacturing industry in South Africa employs over 320 000 people, directly and indirectly across the full value-chain with over 110 000 direct jobs.
These include BMW, Mercedes-Benz, Ford, Nissan, Isuzu, Toyota, and Volkswagen
Volkswagen South Africa has recently invested over $15 billion in a new production facility that is set to commence production of a new SUV model next month but, has warned that the ongoing issues with electricity power supply and issues around the slow port’s facilities, are taking its toll on completeness of the prices of the vehicles produced, and may result in diminishing investment and ultimately job losses if model prices are uncompetitive.
Manufacturing Sector at Risk
There are 117 VW production plants worldwide and today each region competes with the others for production of new models. Volkswagen Group Africa chair and MD Martina Biene has said recently that extra costs are imposed on local manufacturers and long-standing legacy importers that require “a political discussion”. She further stressed that South Africa’s position as a competitive vehicle manufacturing destination is under threat.
Other OEM’s such as BMW, have also invested heavily in new manufacturing facilities, with $4billion investment in its new manufacturing plant in Roslynn Pretoria, that is the sole production plant for the new BMW X3 series.
Both VW and BMW have had to invest heavily in electricity back-up supply systems, with VW having spent over R130 million on generators to ensure smooth production operations. However, this all comes at a cost to the price of the vehicles and the competitiveness against a global market.
The bulk of South African produced vehicles are for the export market, with BMW exporting over 95% of its X3 range, while Ford exports around 65% of its Ford ranger range and VW exporting the bulk of its Polo rage to international markets.
Financial Implications of Infrastructure Issues for Manufacturers
VW’s new generators, while helping ensure better production, costs the company around R1,6 million each day they must run due to power cuts and failures.
While local planned power cuts have reduced recently, there are still regular power outages, with the Kariga area where VW is located suffering from over 120 days of outages in 2024.
Ford has pointed to the poor and unreliable rail infrastructure in the country that has been neglected for too long. The result is that Ford is compelled to use road transport of its vehicles that costs around 30% more to get its models to the port in Durban.
Toyota South Africa Motors (TSAM) CEO Andrew Kirby has also raised concerns, and in particularly has spoken recently about the surge in Chinese vehicle imports and its impact on local production.
While competition is generally welcomed, Kirby argues that the rapid influx of imported vehicles creates an uneven playing field and accelerates de-industrialisation.
Historically local OEM factories assembled cars using parts from domestic suppliers, a process known as Completely Knocked Down (CKD) production. However, since 2018, CKD production in South Africa has declined by more than 11%.
More vehicles are being imported as fully built units, particularly from Asia, that is able to produce vehicles at scale at much lower input costs and overheads such as wages, which reduces local job opportunities and investment in the manufacturing sector.”
South Africa’s Automotive Masterplan (SAAM) 2035 revisited
SAAM’s was intended to create a framework that ambitiously wanted to see vehicle manufacturing in South Africa Double, to 1% of the global automotive manufacturing sector. This was to create a broad knock-on increase in employment as well as growth in the wider local automotive part ecosystem.
However, the plan has not had much success on the ground, 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 had 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% from 2023.
Two major issues are pivotal in this regard:
- 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.
BMW has also led a contingent of OEM’s to request that the government allow local manufacturers to be able to covert billions due to them in export credits into cash so that they can offset increasing input costs.
What is clear is that the local OEM sector is increasingly experiencing pain and South Africa cannot afford to lose anymore manufacturing nor export industries and future investments.
There is a deep need for a re-think in the industry, and the SA government needs to start prioritising South Africa and its crumbling infrastructure if it is to remain a competitive market for major industrial manufacturing investments.
Read More About the OEM Request for Credit Conversions: READ HERE
