South Africa’s Naamsa Recommends Incentives Up To R80,000 ($4,320) To Catalyze Growth Of EV Sector

South Africa has been quite slow when it comes to introducing policies and incentives catering to the electric mobility sector. It would be in South Africa’s best interest to expedite this, as over 70% of vehicles produced in South Africa are exported to Europe, a region where electric vehicle sales are growing and a region where internal combustion vehicles face a blanket ban by 2035.

There is some hope though, as 2 years ago, South Africa’s Department of Trade, Industry and Competition  (DTIC) published a Green Paper on the promotion of new energy vehicles (NEVs). The Green Paper’s aim was to lay the groundwork for a policy formulation and to coordinate a long-term strategy to position South Africa new energy vehicle and vehicle component manufacturing. Now, naamsa, the Automotive Business Council in South Africa has just released its “New Energy Vehicle Roadmap Thought Leadership Discussion, The Route To The White Paper” document.

In the paper, naamsa notes that the South African National Greenhouse Gas Inventory shows that the transport sector is the fastest growing source of greenhouse gas emissions, accounting for around 10.8% of national GHG emissions and that direct emissions from the road sector account for most of that, mainly from the combustion of petrol and diesel. Accelerating the transition to electric vehicles will not only help reduce these emissions, but also reduce foreign currency outflows via imports of all those fossil fuels. Although South Africa’s grid is still powered mostly by coal, it can only get greener as new lower carbon generation capacity will be added over time in the next couple of decades as South Africa retires quite a large chunk of its aging coal power plants.

Image courtesy of BMW

Since South Africa already has quite a large internal combustion engine vehicle production and associated component manufacturing industry, naamsa’s NEV thought leadership discussion document notes the need to have “a meaningful NEV transition in South Africa will require a careful balance between incentivising a sustained shift in domestic market demand to NEVs; establishing an appropriately aligned, renewable energy-based charging infrastructure; and supporting a shift in South African vehicle production, away from ICE vehicles to a mix of hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs), and battery electric vehicles (BEVs).”

The report adds that in order to support the transition of the South African automotive industry to an NEV-dominated market, and at the same time continuing to develop the local industry in line with the objectives of the South African Automotive Masterplan (SAAM) 2021 – 2035, some of the interventions recommended for the South African government to consider are:

1. Commitment to reduce CO2 emissions across the entire auto value chains as soon as it is practically possible. The report adds that although EVs have zero tailpipe emissions, CO2 is emitted during the manufacture, distribution, recycling, and disposal process and that carbon neutrality for motor vehicles cannot be achieved without CO2 emissions reductions throughout their life cycle, based on overall life-cycle assessment.
2. Ensure that the manufacturing base in SA is protected, strengthened, and retained, given that the country is at risk of losing more than 50% of its production volume from July 2025 (due to Euro7 emission regulations in Europe) to 2035 (banning of ICE drivetrains in almost all the European countries)
3. Introduction of NEV purchasing subsidies based on Government’s ability to support the suite of policy options for the purchase of HEV, PHEV, and BEVs
4. Alignment on NEV import tariffs from the EU and the UK from 25% to 18% under the SADC EU EPA and SACUM EU EPA, along with more flexible Rules of Origin for exports to the EU and the UK
5. Provision of a 50% CKD rebate on the import of specified NEV components for a limited period

Here is a look at the recommended subsidies to support the South African automotive industry’s NEV transition to 2035 to drive increased NEV consumption:

• R20,000 ($1,080) subsidy for the purchase of HEVs (plug-less hybrids) up to 31 December 2030
• R40,000 ($2,160) for PHEVs up to 31 December 2035
• R80,000 ($4,320) for BEVs up to 31 December 2035

The subsidies would be reviewed periodically and adjusted based on NEV cost competitiveness changes over time relative to ICE vehicles. The subsidy program will cost  R7.6 billion to 2025, R31.9 billion to 2030, and R94.5 billion to 2035.

The report also says that in addition to the above, the auto industry is prepared to match the purchasing subsidy from government for the different NEV categories in order to narrow the price differential between NEVs and ICE vehicles further to stimulate an accelerated off-take of NEVs in the country.

It’s really great to see these discussions and recommendations. I really hope the South African government adopts most of these recommendations. With only 1024 BEVs sold since 2018, its clear to see that sales of BEVs have been slow in South Africa compared to similar auto markets around the world. This is due to the limited variety of BEV models in the country, coupled with the high import duties and taxes levied on electric vehicles. This means most of the vehicles available in the global market would end up being quite expensive compared to their equivalent ICE vehicles if they were introduced in South Africa.

This price difference would be more prominent in the smaller vehicle segments, making it a bit challenging to sell those EVs. Taxes in South Africa are set at 18% for ICE imports vs 25% for EV imports. There is also the ad valorem tax for EVs, which pushes the cost of an EV to more than 2X that of the average price of a new ICE vehicle of a similar make/model in most cases. This is probably why the majority of EV models in South Africa are the more premium models where the pricing is more competitive than in the smaller vehicle segment. These recommendations, if adopted, will really go a long way in closing the gap between the price of ICE vehicles and NEVs in South Africa.

South Africa desperately needs more affordable electric vehicles to really kickstart the transition. Let’s hope more OEMs start looking into bringing EVs to South Africa.

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