SA’s automotive sector faces critical challenges amid industry shake-up

Source: Unsplash

Master plan objectives

The Master Plan has several objectives, among them an ambitious target to increase SA’s market share to 1% in terms of global vehicle production and increase local content to 60%, as well as create more employment opportunities throughout the automotive manufacturing value chain right down to the dealership level.

Current challenges

However, currently we’re nowhere close to achieving these targets.

Policy and regulatory uncertainty, infrastructure challenges, particularly related to ports, which are still ranked as among the worst performing, and rail efficiency, which is critical to transporting vehicles to domestic and export markets, and until lately, energy security and reliability, continue to affect the growth of the sector.

Of concern is that, as a country, we’ve not yet effectively addressed the basics that are critical to ensuring a conducive investment climate for the automotive manufacturing sector.

As if this weren’t enough, the sector now faces an onslaught from imports of Chinese and Indian vehicle models. Chinese manufacturers are expanding their presence in SA with aggressive pricing strategies and offering the latest technologies through electric vehicles (EVs), which will further disrupt the market.

Impact of imports

While this is good for the price-conscious consumer, established brands will face an uphill battle to protect their market share. This requires them to adapt, offer more innovative features and competitive pricing to retain market share.

Unsurprising, there is an outcry from local manufacturers who are calling for government to do something about imported vehicles, as they say this is creating an uneven competitive landscape.

SA’s Completely Knocked Down (CKD) unit mix has deteriorated by more than 11% since 2018, from 54% to 60% in 2023, constituting of more being imported rather than produced locally.

Chinese companies enjoy significant subsidisation from their government, coupled with SA’s free trade of rebates and CKD options, which encourages de-industrialisation as it is attractive under Chapter 98 of the Automotive Production Development Programme.

Localisation levels have reduced by 10% since 2021, from 42% to 38% in 2023, with Tier 2 and lower suppliers being significantly underdeveloped.

Regulatory and policy issues

While there has been a lot of focus on the impact on the sector of the 30% tariff imposed on SA exports by the US, we have scored own goals, especially when it relates to regulatory and policy uncertainty, which is affecting efforts to attract investors and promote local manufacture of vehicle components.

Ironically, it has become cheaper to import components from mass-producing countries such as China than to produce them locally.

Manufacturing & Parts

SA secures China, India investments to boost local auto manufacturing

Nqobile Dludla  1 day

Some local vehicle manufacturers had initially tried to source components locally, but recently, they have increased imports from China, starting with tyres, which will result in local manufacturers losing market share, and this will ultimately affect their viability and job security.

The closure of GoodYear has not helped either, as this will increase imports of tyres.

Impact on vehicle component manufacturing

Domestic beneficiation of vehicle components has also been dealt a major blow following the planned closure of ArcelorMittal, a development that could have been avoided had government stepped in to protect the steel sector, especially from scrap steel imports.

The closure of ArcelorMittal will have a snowball effect in the downstream value chain, and potentially could result in further job losses.

Infrastructure and logistics improvements

It’s not all doom and gloom, however. When it comes to infrastructure and logistics, we’re beginning to see initiatives by Transnet to bring in the private sector to run the railway lines.

This will improve efficiency in transporting vehicles, particularly between the Eastern Cape and Gauteng. We, however, need an efficient port infrastructure to improve efficiency in transporting vehicles.

Policy recommendations

On the policy front, government should impose measures to protect the automotive sector from imports, while making it easier for existing and new investors to operate profitably.

These are critical interventions needed if SA is to compete with countries such as Morocco, which is taking advantage of its geographical proximity to European markets.