The Future of South Africa’s Automotive Industry: Insights from BMW’s CEO
In the latest No Free Lunch Podcast, Greg Stewart chats with BMW South Africa’s CEO, Peter van Binsbergen about the future of the automotive industry in the country.
Are South Africa’s automotive manufacturing prospects headed for decline or renewal? With industry leaders raising concerns about sustainability, exports, and policy support, understanding the landscape is crucial. The conversation delves into key insights shared by Peter, on the current state and future challenges of the local automotive sector. Whether you’re an industry stakeholder, policy maker, or car enthusiast, these perspectives shed light on what the industry needs to thrive.
The Current State of the South African Automotive Industry
Listen to the conversation Here:
South Africa’s automotive sector is at a pivotal crossroads. Traditionally, the country has been a significant producer, with two out of every three cars sold locally being manufactured here. However, recent trends show a sharp decline to only about one-third of vehicles sold in South Africa currently locally produced.
As Peter van Binsbergen explains:
“The auto industry is at a crossroads. Local manufacturers are selling less and less in South Africa, while exports are under pressure due to geopolitical shifts and reliance on European and UK markets.”
This decline is compounded by external factors like rising transport and electricity costs, and policies that, while supportive, haven’t fully addressed the industry’s needs for sustainable growth. Notably, Morocco’s automotive sector has surged ahead, overtaking South Africa as a regional leader, illustrating fierce regional competition.
Major Challenges Impacting Production and Growth
- Reduced domestic sales: A shrinking local market diminishes production incentives.
- Export pressures: Dependence on Europe and the UK makes South African exports vulnerable to global shocks.
- High operational costs: Transport and electricity costs are significant hurdles.
- Policy support gaps: While incentives exist, they often lack the flexibility needed to encourage broader model inclusion and localisation.
Understanding these challenges is essential for stakeholders seeking to revive the sector and ensure long-term sustainability.
Policy Support and Investment: What’s Missing?
Government policies play a crucial role in shaping the automotive industry’s future. Historically, programs like the Motor Industry Development Program (MIDP) and Automotive Production and Development Programme (APDP) have supported production and job creation.
“The auto industry needs a supporting package to stay in South Africa. We’re calling for recalibration rather than radical change,” says van Binsbergen.
The industry advocates for:
- Recalibrating existing incentives to better match current market realities.
- Including hybrid and plug-in hybrid derivatives in support programs, not just full battery electric vehicles.
- Streamlining policy development to speed up investment decisions, as BMW’s own investments into plant electrification occurred ahead of current policies.
Additionally, they emphasize collaboration with government to create a future-proof environment, balancing the rapid global shift toward electrification with local economic realities. The current pace of policy development is considered too slow to unlock local manufacturing potential fully.
The Path Forward
Implementing flexible, comprehensive support packages that encompass multiple vehicle types will be key. This will encourage automakers to produce more models locally and attract new brands to South Africa—something that could prevent the industry from following Australia’s example of losing manufacturing capabilities.
Building a Future-Ready Automotive Industry
Embracing Electric Vehicles and Industry Transformation
The industry recognizes that the move toward electric vehicles (EVs) is inevitable. However, South Africa faces specific hurdles:
- Absence of full EV manufacturing: Currently, no local factory produces a complete battery electric vehicle.
- Need for infrastructure and skills: Transitioning towards EVs requires significant investment in charging infrastructure and workforce skills.
- Policy gaps: Announcements regarding incentives for EV development are delayed or incomplete, slowing progress.
Van Binsbergen emphasizes:
“We need to make decisive decisions to keep the industry competitive, including investments in electrification and supporting the supply chain.”
BMW has already made strides—electrifying its Rosslyn plant with plug-in hybrid models prepared for the global market—highlighting the potential if policies support incremental steps toward full EV manufacturing.
Focus on the X3 Success and Model Innovation
The BMW X3 has been a standout success in South Africa, being produced locally and exported globally. Its status as the only factory worldwide producing the model offers a competitive advantage.
Van Binsbergen notes:
“Producing the X3 here allows us to serve the global market efficiently, but the lack of new model approvals for South Africa limits our ability to expand this success.”
This highlights the importance of model localisation, which depends heavily on supportive policies and streamlined authorisation processes.
The Role of Consumer Affordability and Market Dynamics
An often-overlooked aspect is affordability. The ad valorem tax, initially designed as a luxury tax, now impacts all cars due to inflation and static policy settings—raising consumer costs and constraining market growth.
“Adjusting the tax curve could help grow the domestic market, making cars more affordable and encouraging local purchasing and manufacturing,” states van Binsbergen.
A healthier domestic car market benefits both consumers and the industry by fostering competition, expanding supply chains, and creating jobs.
Strategic Outlook: How Can South Africa Reinvent Its Automotive Industry?
Key levers for change include:
- Policy recalibration: Smaller, targeted adjustments in duties, incentives, and taxes can make a substantial difference.
- Supporting broad model inclusion: Enabling hybrid, plug-in hybrid, and EV models to benefit from incentives encourages industry diversification.
- Localizing supply chains: More brands producing locally will create jobs, reduce costs, and strengthen the sector.
- Investing in skills and infrastructure: Building a robust environment for EV manufacturing, charging networks, and workforce training.
Van Binsbergen stresses the importance of collective effort:
“We need to collaborate with government to develop policies that encourage industry investment, preserve jobs, and enable innovation.”
By focusing on these areas, South Africa can avoid the fate of industries that have moved offshore and instead build a resilient, future-oriented automotive sector.
Final Thoughts
The future of South Africa’s automotive industry hinges on strategic policy support, investment in electrification, and fostering local manufacturing. BMW’s experience illustrates both the opportunities and hurdles—highlighting the need for a concerted effort between industry players and government.
As van Binsbergen concludes:
“We are fighting for jobs, for growth, and for a vibrant industry here in South Africa. The choices made today will determine whether the industry thrives or diminishes.”
By aligning policy, investment, and innovation, South Africa can position itself as a competitive player in the evolving automotive landscape.
FAQ: South Africa’s Automotive Industry
What are the main challenges facing South Africa’s auto manufacturing sector?
The key issues include declining domestic sales, export pressures due to geopolitical shifts, high operational costs, and policy gaps that limit industry growth.
How is policy support played a role in the industry’s future?
Support policies like incentives and tax adjustments are vital. They need to be recalibrated to include hybrid and EV models and to encourage local manufacturing and model diversification.
What opportunities exist for growth in South Africa’s automotive sector?
Expanding local production of hybrid and electric vehicles, improving infrastructure and skills, and attracting more brands through supportive policies can stimulate growth.
Why is electrification important for South Africa’s automotive industry?
Electrification aligns with global trends, reduces emissions, and can make South African manufacturing more competitive internationally, provided policies support incremental transition.
How can consumers benefit from industry reforms?
Lower taxes, better affordability, and more model choices will foster a healthier market, create jobs, and lead to better mobility options for South Africans.
