The government has taken the first step towards mapping out a roadmap for the production of full electric vehicles (EVs) in the country with the publication of an Auto Green Paper on the advancement of new energy vehicles in South Africa.
The release of the green paper coincided with a budget vote speech on Tuesday (May 18) by Minister of Trade, Industry and Competition Ebrahim Patel, who stressed that the green paper is not official government policy.
Patel said it is a result of inputs from the big seven vehicle original equipment manufacturers (OEMs) in South Africa and the National Association of Automotive Component and Allied Manufacturers (Naacam), concerns raised by the National Union of Metalworkers of South Africa (Numsa) and issues the government sees as important policy priorities.
“The green paper sets out a vision for the need to be able to produce electric vehicles,” said Patel.
“We need to do that with urgency because the reality of climate change is such that countries are setting targets of how many fossil fuel vehicles they want on their roads and we want investors and headquarters of OEMs to see South Africa putting up its hand very early in the decision-making process about where production will be located in future.
“You miss that bus, then others would have a consolidated presence in the electric vehicle market,” he said.
Speed of the essence
The green paper has tight timeframes. It will be gazetted by the end of this month for public comment, with the aim of finalising the strategy within 90 days to allow the policy proposals to be submitted to cabinet for consideration by October 2021.
Patel agreed it is quite a tight timeframe but stressed the need to give the automotive industry a sense of where the county is heading from a new energy vehicle perspective.
He said the government has injected urgency into this process because a number of years’ elapse between the adoption of a policy and the retooling that is required by OEMs, and the years of preparation component manufacturers need to reposition themselves for the new models that will come off the production line.
Read: Record SA auto component exports in 2020 despite Covid-19 (May 10)
“We do need to produce electric vehicles,” said Patel.
“We don’t want South Africa to become simply a market for electric vehicles produced elsewhere in the world, relegating our car making simply to [those with] internal combustion engines [ICEs].
“Then, as the world shifts more and more to electric vehicles, we will be left with a stranded asset in the form of a large assembly capability that has not been adjusted to electric vehicles,” he said.
Patel stressed in his budget speech that climate change represents a very real and grave threat to South Africa’s future economic prospects, not least because global markets are changing fast.
“We must recognise the urgency of the situation and take action accordingly,” he said.
“We must step up efforts to build full electric vehicles in SA to maintain our capacity to export to key markets such as the EU and UK, both of which have set new targets and deadlines to reduce the number of fossil fuel reliant vehicles on their roads.
“We need charging infrastructure – and must expand the existing 200 charging points for electric vehicles in SA using the agreed SABS standard,” he said.
Patel added that the big opportunity will be in the advancing technologies based on green hydrogen energy, with time projected to be the best solution to humanity’s energy needs.
He said SA is well-positioned to become a key player in the green hydrogen energy economy, with the country’s reserves of platinum group metals used as a catalyst in green hydrogen fuel cells and vanadium used in battery storage technologies.
Patel said he has mandated the Industrial Development Corporation (IDC) to be the industry commercialisation agency to work with the Department of Science and Innovation on achievement of its roadmap and will appoint a panel led by Dr Johann van Zyl, an experienced global carmaker, to finalise a report on the practical actions to be taken to realise the opportunities for SA.
“Covid-19 reminded us that in a globalised world, if we get it wrong, the price all of us pay is huge,” said Patel.
“And hence we must continue to ensure an economy that is congruent with international best practice in the field of energy production, that is climate friendly.”
Van Zyl is former CEO of Toyota South Africa and currently chair of Toyota SA. He recently retired from international positions he held with Toyota Motor Corporation (TMC) of Japan, including TMC operating officer and CEO of Toyota Motor Europe.
Facts and figures
The green paper states that global sales of new energy vehicles rose by 43% to 3.24 million units in 2020 despite the overall drop in new vehicle sales in 2020 due to the Covid-19 pandemic.
It says the forecast is for global new energy vehicle passenger car sales to exceed passenger car ICE sales by 2038.
“For the domestic automotive industry to remain relevant, it needs to be integrated into the global EV value chain as it is clear that the rise of EVs is inevitable.”
EV sales in South Africa comprised only 92 units, or 0.02% of the total 380 206 vehicles sold in the domestic market in 2020, which was down from the 154 units sold in 2019.
Hybrid vehicle sales accounted for 232 units in 2020.
Proposals and key policy instruments in the green paper include that consideration should be given to further encouragement of the country’s transition to electric vehicles.
“EVs may need to be incentivised additionally, based on a careful analysis of cost structure, volumes and the effect of technology innovation, to reduce the current price gap as compared to ICE vehicles,” states the paper.
Tax changes in the offing?
Sascha Sauer, the new head of Audi SA, last week urged the government to accelerate its thinking and decision making about how SA’s automotive industry proceeds along the route towards EVs and electromobility.
Sauer said governments in all the major markets, including Europe, the US and China, all support EV cars financially but the SA government is penalising EVs by imposing a 25% duty rate on EV imports when the majority of car imports enjoy a preferential 18% duty rate.
Patel said on Tuesday a potential restructuring or reduction of the ad valorem tax rate is one of the options identified by the industry.
He said if a compelling case can be made for a reduction of the ad valorem tax on EVs, it can begin to even out the selling price of these two different technologies – ICE vehicles and EVs.
“There are also options on the table for either a reduced or zero duty on certain EV components, like the battery pack for a limited period.
“Our challenge is to sequence that so carefully that we don’t have a disruption to the domestic production capability that produces vehicles that consumers want,” he said.
Mikel Mabasa, CEO of automotive council Naamsa, has welcomed the release of the green paper.
“We believe very strongly that this is a very progressive route government has taken because new energy vehicles are the new future for the automotive industry and South Africa cannot afford not to plan a significant role in the direction that the world is taking in terms of the introduction of new energy vehicles,” he said.
Mabasa said the future of SA’s automotive industry depends on the outcome of discussions on the green paper.
“Remember that 64% of what we currently produce in SA goes out as exports and we need to make sure that we secure those exports.
“The emphasis in the minister’s paper is definitely on promoting local manufacturing of EVs in the country,” he said.
“We want to support that and make sure that SA participates as effectively as possible.”