In an effort to clean up ever-increasing pollution, the UK in July announced a proposal that sales of new diesel and petrol cars would come to an end by 2040. This announcement mirrors one made earlier by the French government, with a similar timeline and intent.
This means two of South Africa’s large new-vehicle export markets will, 23 years from now, no longer want our current product.
South Africa last year exported 195 764 new vehicles, including a large number of pick-ups, to Europe. The UK was South Africa’s largest single new-vehicle export market in 2016, at 100 356 units. France was at number five, with 19 204 units.
Can South Africa’s automotive industry survive Europe’s pursuit of cleaner air?
Yes, it can, says Toyota Motor Europe president and CEO and Toyota South Africa Motors chairperson Dr Johan van Zyl, but it will have to make some changes. So, too, will the South African government.
He adds that the challenges the South African automotive industry faces over the next number of years will involve more than emissions legislation.
“The competitive environment for the South African automotive industry will change dramatically, and it will be driven by a number of changes in some of our major export markets.”
What Is Really Happening in Europe?
The UK’s 2040 decision is driven by citizen activism, as well as the realisation that diesel vehicles – once considered the panacea for growing air pollution in Europe – may indeed produce less carbon dioxide (CO2) than petrol engines, but that they also emit high levels of harmful nitrogen oxides.
The European vehicle maker caught cheating on diesel emissions tests in the US did not help diesel’s case either.
In a combined 15 countries in the European Union (EU), diesel’s market share fell from 52.1% to 49.9% between 2015 and 2016.
A growing number of Brits – on their way to depart the EU – have already started to embrace the 2040 strategy. In 2016, close to 3% of all new cars sold in Britain were electric (0.4% of sales) or hybrid vehicles (2.5% of sales).
Around 44% of Toyota sales in the UK are hybrids.
By 2021, the motor industry in Europe has to meet EU regulations that require vehicle manufacturers to drop CO2 emissions to 95 g CO2/km, explains Van Zyl.
The average emissions level of a new car sold in 2016 in Europe was reported as 118.1g CO2/km.
“This 95 g target will be further reduced after 2021,” says Van Zyl. “To achieve 95 g, every vehicle manufacturer needs to look at the mix of vehicles it has in the market. It will require vehicle manufacturers to sell a certain amount of vehicles with electrification.”
Electrified vehicles are not the same as battery electric vehicles (BEVs).
‘Electrified vehicles’ is a collective phrase for all vehicles that feature an electric motor of some sort in the drivetrain.
Electrification, therefore, refers to full BEVs with no internal combustion engine (ICE); regular hybrids, where the ICE operates in parallel and in synergy with an electric motor; plug-in hybrid electric vehicles (PHEVs), where the electric motor can drive the vehicle for more than 50 km, otherwise it makes use of an ICE; and mild hybrids, where a small 48 V electric motor offers only a modest boost to the ICE.
Both PHEVs and full BEVs must be plugged in to be recharged.
The 2040 deadline does, most likely, not mean that 100% of new vehicles sold in the UK and France will have to be BEVs, says Van Zyl.
“However, I do think that, by 2040, we’ll see a completely different landscape when it comes to the technology used in cars. I don’t think the ICE will disappear completely, but it will be a much smaller, turbocharged, high-output small engine, linked to some form of electrification.
“This means hybrids of some form will be included, as well as other technologies, such as hydrogen vehicles. Toyota already has a hydrogen vehicle in production, namely the Mirai.
“Also, if there is a ban of the ICE, what type of alternative transport is there to take people into cities? Hydrogen buses, electric buses? Public transport will also need to change and that will take time.”
(The UK government says it will make £332-million available for local governments to take short-term action, such as retrofitting buses, to reduce air pollution.)
Van Zyl says Toyota is geared for the proposed changes in European legislation.
“Already 50% of our sales in Western Europe are hybrids. In [all of] Europe, including Russia, this number is 40%. In several countries in Europe, Toyota hybrid sales reach more than 50%.
“We can see that the market is changing. People are aware of environmental requirements, and there is also a clear change in mindset regarding diesel.”
Van Zyl adds that any new technology takes time to garner sufficient momentum and support.
“It took Toyota ten years to sell its first million hybrids. The last million took nine months. Today Toyota has sold more than 10.7-million hybrid vehicles globally.”
Toyota hybrids on sale in South Africa include the Prius, Lexus, Auris and Yaris derivatives.
EVs vs Hydrogen?
“Toyota’s view is that there is no competition between the various new technologies coming to the fore,” says Van Zyl. “We have a full spectrum of vehicles. We have BEVs, hybrids, plug-in hybrids and hydrogen and we believe each of these should be used where it is suited best.
“All these technologies can contribute to reducing carbon emissions.”
Van Zyl believes, however, that hydrogen is the ultimate energy source for the future.
“The biggest advantages can be gained where hydrogen is created by using green electricity, such as generated through solar plants. The biggest benefit? You can easily store hydrogen for a long period and you can transport it. You can only store electricity [by means of] massive, expensive batteries.
“The longer-term future is where hydrogen is the main energy source for a hydrogen society – where it becomes our main energy source as human beings, and not only for the vehicles we drive, but also for our entire community.”
Van Zyl acknowledges, however, that BEVs are winning the shorter-term battle for dominance on the road.
“I do believe it will take longer for hydrogen to really become a mainstream energy source, because of the infrastructure requirements associated with it.”
Hydrogen vehicles require specialised fuel stations. Already Belgium, the Netherlands, France, Germany, Norway, Denmark, Sweden, Austria, Switzerland and the UK have, or are planning, hydrogen fuel stations.
In contrast to this is the concept that BEVs can use the existing electricity grid as charging infrastructure.
There have been numerous questions, however, on the ability of European grids to handle any large-scale migration to BEVs, as well as the availability of electricity. Simply put, can you charge your BEV on quick charge, and boil your kettle, or will this action trip the fuse? And what if everyone on the street owns an BEV? How will that affect the grid?
Whatever the technology that rises to the top in the shorter to longer term, it is clear “that the motor industry cannot do this alone”, notes Van Zyl.
“We need the private sector and government institutions to participate in the introduction of all these new technologies.”
He says any questions regarding sufficient electricity supply, or of providing a network of public BEV charging points, will probably be answered by the private sector’s business appetite.
If there are rewards, the private sector should have an appetite for the associated risk.
“Another question is whether off-peak power will remain cheap off-peak power if everyone charges their vehicles at night,” says Van Zyl.
In South Africa, Clean Fuel or More Expensive Cars?
Prior to South Africa contemplating the changes within its largest new-vehicle export market, the country has to deal with its lack of clean fuel, says Van Zyl, as this will also have a far-reaching effect on the local market.
In 2012, government published new petrol and diesel specifications, indicating that cleaner fuels should be introduced from July 1, 2017.
The new specifications are largely in line with the Euro V emission standards, as opposed to the current Euro II standards.
However, ongoing wrangling between the liquid fuels industry and government, primarily the Department of Energy and the National Treasury, on a suitable cost-recovery mechanism to facilitate payment for the anticipated R66-billion upgrade of the country’s refinery fleet, has delayed the process significantly.
It would appear that South Africa will only have cleaner fuel, by law, by 2023, says Van Zyl.
Europe is already on Euro VI emission standards for passenger cars.
This means that the South African automotive industry is required to build vehicles for the local market to Euro II specifications, but vehicles for the European export market to Euro VI specifications.
“Older technologies will eventually become more expensive because of economies of scale,” warns Van Zyl. “Production of the oldest-technology engine is now becoming just as expensive, or more expensive, than a new-technology engine, because the new-technology engine has economies of scale. With the old technology, a manufacturer has to keep a specific line operational at small volumes. It doesn’t make any economic sense.”
This is bad news for South African consumers.
“This means car buyers will eventually have to pay more for the old engine technology we are forced to build and sell here, because we cannot offer them new technology as the country’s fuel is not compatible with the engines,” explains Van Zyl.
He believes, however, that South Africa will, ultimately, find a solution to the fuel conundrum.
“South Africans are some of the best crisis managers in the world. They have been dealing with crises for so many years they have learned to react quickly. But, I must say, they are not the world’s best planners.”
Yes, a Hybrid Pick-Up Is Possible
The South African automotive industry currently produces only one hybrid model, and that is at the Mercedes-Benz plant, in East London.
“If South Africa wants to continue to be an export base for European markets, we will, most probably, have to produce more hybrids,” says Van Zyl.
“It won’t be easy, however. If a country wants to export technology competitively, it needs to localise the technology. There will have to be an investigation into whether there is a components supply base for such technologies in South Africa.”
A large portion of South Africa’s exports to Europe includes pick-ups. Logic dictates that European legislation would also affect the sales of these vehicles on the continent.
Toyota sells around 40 000 Hilux pick-ups in Europe a year, most of them exported from the Durban plant.
Ford in South Africa is also a big bakkie exporter to Europe.
Does it, therefore, mean that South Africa will, eventually, have to build a hybrid pick-up for the European market?
“Anything is possible,” says Van Zyl. “The carbon dioxide requirements are such that hybrid technologies – perhaps mild hybrid technologies – would be required to make it possible to sell pick-ups in Europe. But that type of decision is a Toyota Japan decision. I don’t want to speculate on this matter.”
The Automotive Masterplan and BEVs
The South African government and the local automotive industry are currently developing a replacement programme for the Automotive Production and Development Programme (APDP), scheduled to come to an end in 2020.
Government’s new incentive programme, currently named the Automotive Masterplan, will run to 2035 – five years short of the ICE ban in the UK and France.
Should this masterplan include a special dispensation to ensure and facilitate the production of hybrids and BEVs in South Africa?
“I don’t think these vehicles need to be incorporated,” says Van Zyl. “It should be part of special incentive packages given for specific categories of manufacturing. It could be placed under the Industrial Policy Action Plan, rather than [including] it in the masterplan.
“The masterplan does not need to be complex. It is an industrial policy to develop an industry. We must try to keep it as simple as possible.”
Of more concern to Van Zyl is that any new government programme would have to offer sufficient incentives to deal with a fast-changing global trade environment.
Yet another event in Europe that will have significant impact on South Africa is the fact that Japan has just concluded a preferential trade agreement with the EU.
This agreement kicks off in 2019. It will see the immediate disappearance of duties on components and parts imported into Europe from Japan.
“With South Africa’s free trade agreement (FTA) with Europe, we have the benefit of a duty reduction on our exports to the EU,” notes Van Zyl. “However, this benefit will disappear, [when our industry is] compared with Japan – and the competitiveness of Japanese suppliers will increase.”
The trade agreement between the EU and Japan will also see the duty on vehicles imported from Japan reduce over a period of ten years.
“That would mean that the competitiveness of Japanese-manufactured product – where it currently has a disadvantage of about 10% [compared with] its competition – will improve,” says Van Zyl. “This will have an impact on South Africa. The landscape of future competition is set to change.”
He adds that a recent FTA between North Africa and the EU means that North Africa’s automotive market is serviced from Europe, instead of Southern Africa.
“These are all reasons why changes to the APDP must be quite dramatic to ensure the competitiveness of the South African motor industry,” says Van Zyl.
He describes discussions between government and the South African automotive industry on the Automotive Masterplan as “good and productive”.
He adds that he still believes the South African components supply base is not “yet competitive enough” for the global stage.
“The biggest disadvantage the local supply base faces remains low volume. If industry and government want to achieve the very ambitious target of producing more than a million vehicles in South Africa a year, any new programme will have to be quite aggressive when taking into account the changes that will take place in the global environment.”
Why Bother with Europe?
Is Europe, however, the answer to growing South Africa’s automotive manufacturing industry? Should the country not instead forgo the challenge of producing vehicles for this demanding market in favour of exports to the rest of Africa, which has fuel-equivalent markets?
No, says Van Zyl.
“It is true. There will be markets that will use ICEs for a long time still, based on their level of economic development, but this will also, over time, change. If we want to be relevant on the global stage, we need to keep on exporting to Europe and Africa.”
South Africa’s exports into the rest of Africa have collapsed in recent years, largely on the back of low commodity prices, falling from 61 839 units in 2014 to 21 564 units in 2016.
Apart from being CEO of Toyota Motor Europe, Van Zyl is also senior managing officer within Toyota, a position he was appointed to in April.
His team looks after 54 markets in Europe, as well as two factories in the UK, one in France, another in the Czech Republic, two in Poland and one in Turkey. Toyota’s list of European assets also includes two engineering centres, one design style studio and one production design studio.
“We hope to achieve one-million new Toyota sales in Europe in 2017,” says Van Zyl. “Our market share is 4.7%.”
New-vehicle sales were 800 000 units when Van Zyl took over the reins in 2015.
“Europe is a very competitive market and Toyota competes with many national marquees, such as the three French brands,” he notes.
“The biggest challenge for me was moving from South Africa, where Toyota is the clear market leader, with a more than 22% share, to one where Toyota is not the market leader.”
Diversity, however, presented no difficulty.
“Coming from South Africa, that is certainly no challenge. In Brussels, we have 64 nationalities working at the Toyota head office.”
Rapidly evolving legislation, national brands and new power train technology are not the only issues Van Zyl has to deal with in Europe.
He believes the first Level 3 autonomous drive vehicle will appear on a European highway by 2020, challenging the way society has historically used and viewed the motor car.
Bisecting Level 0 (no automation) and Level 5 (no human required), Level 3 refers to a vehicle where all driving functions are automated, with a human required to take over if needed.
“Toyota believes the joy of driving is important. We believe autonomous driving technology should act more as an extra layer of safety – as a guardian angel,” says Van Zyl.