South Africa’s automotive industry, valued at approximately $27 billion, is set to benefit from increased Chinese automakers investment following a significant government tax amendment. President Cyril Ramaphosa recently enacted a law enabling a 150% tax deduction on investments in the production of new-energy vehicles, including hydrogen-powered and electric vehicles.
Mikel Mabasa, CEO of the Automotive Business Council, revealed that three Chinese automakers have signed non-disclosure agreements to explore opportunities in the local market. While details remain confidential, Mabasa emphasised the importance of government policies in attracting and retaining investment.
Chinese Automakers Making Waves
Chinese brands such as Chery Automobile Co. and Great Wall Motor Co. are gaining traction in the South African market, challenging established players like Toyota and Volkswagen. The momentum aligns with comments by Wu Peng, China’s ambassador to South Africa, who noted his government’s active encouragement of automotive investments in the country.
Navigating Challenges in Transition
The tax incentive arrives as South Africa faces mounting pressure to adapt to global automotive trends. The European Union’s legislative push to phase out internal-combustion engines has cast a shadow over the country’s traditional car-making sector, often considered a cornerstone of its manufacturing industry.
Despite some strides in hybrid production by companies such as Ford and BMW, no major automaker has committed to manufacturing battery-electric vehicles in South Africa. Volkswagen and Isuzu have expressed doubts about local EV production, citing unfavourable conditions. However, Stellantis has indicated it could produce EVs if the operational environment improves.
Leveraging South Africa’s Resources
South Africa’s rich mineral reserves, including manganese, nickel, and rare earth elements, are crucial for EV battery production. Additionally, the country is the world’s largest producer of platinum, a key component in hydrogen fuel cells. Capitalising on this mineral wealth could enhance the supply chain for EV production.
However, challenges persist. Import levies on EVs and outdated luxury taxes increase vehicle costs, discouraging local sales. Mabasa has called for tax adjustments to align with inflation or to be scrapped altogether, warning that high levies hinder the industry’s growth.
Infrastructure and Policy Support Needed
Industry leaders have stressed that tax incentives alone are insufficient to secure investments. Mike Whitfield, head of Stellantis sub-Saharan Africa, highlighted the need for improved infrastructure, such as charging stations, and broader policy support to sustain long-term growth.
A Critical Juncture for the Industry
While South Africa remains an attractive destination for automotive investment due to its infrastructure and affluent consumer base, the industry requires sustained government backing to thrive. “If government is not supportive, the industry will die,” Mabasa cautioned.
The recent tax reform is a promising step, but further measures are essential to position South Africa as a competitive hub for electric vehicle production on the global stage.
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