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Auto industry pleased with EV allocation, but more will be needed – Naamsa

22nd February 2024

By: Irma Venter

Creamer Media Senior Deputy Editor

     

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Naamsa | The Automotive Business Council has welcomed the announcementby Finance Minister Enoch Godongwana in his Budget Speech on Wednesday that government will offer financial support for the local automotive industry to expand from the production of internal combustion engine (ICE) vehicles to a manufacturing line-up that includes electric vehicles (EVs).

However, while “that number is a good start, it will not be enough”, cautions Naamsa CEO Mikel Mabasa.

“A notable component of the Minister’s announcement is the introduction of an investment allowance for new EV investments, set to commence in March 2026,” he explains.

“This allowance enables businesses and investors involved in EV production to claim 150% of their qualifying investment spending in the first year. 

“This financial incentive is a crucial step in attracting investments, fostering innovation, and driving the growth of the EV sector within South Africa.”

The investment allowance for EVs is a complementary initiative to government’s existing Automotive Production Development Programme (APDP.) 

Mabasa notes, however, that the allocated R964-million for this new initiative should be viewed in the context of the average annual investment by all seven of the country’s original equipment manufacturers (OEMs, or vehicle manufacturers), which currently totals about R5-billion.

“It is also important to note that the investment support is coming only in 2026. In 2026 you won’t have seven OEMs in South Africa as you do now. You’ll have nine – BAIC and Stellantis will also be here. We don’t think government is taking this into account.

“It is a good start, make no mistake, but we’ll continue to engage government to get an additional allocation,” says Mabasa.

Yesterday’s Budget announcement also made no mention of incentives for consumers to buy the more pricey EVs – another matter high on the local automotive industry’s wish list.

“Government has indicated that this will form part of Phase 2, with Phase 1 the incentivisation of EV production,” Mabasa tells Engineering News Online.

“By Phase 2 the economy has hopefully turned, enabling us to stimulate demand for EVs.”

Local Content Focus
Naamsa notes that the composition of the APDP post the EV investment-phase remains critical in ensuring the transitioning from traditional ICE vehicles to a dual platform that includes EVs by 2035.

The current APDP rewards the use of locally made parts, among other factors.

Of specific concern is EV battery production, which is largely situated in Japan, South Korea and China.

The battery is the most expensive part of an EV.

“The industry will continue to engage with government to carefully manage some of the challenges associated with the implementation of the APDP, especially concerning vehicles with limited local content,” says Mabasa.

“We hope to compare notes around the adoption of an APDP rate specifically designed to cover instances of low local content.”

Massive Losses Owing to Loadshedding
Mabasa adds that Naamsa recognises the Budget’s attention to challenges in the electricity sector, with a specific focus on reducing loadshedding and improving energy security. 

“The impractical levels of loadshedding experienced in 2023 had significant repercussions for the automotive industry, resulting in substantial financial losses and deferred investment funding,” he warns.

“With losses reaching R200-million per OEM for the last six months of 2023, the industry is eager to see improvements which  will enhance operational stability and drive future investments.”

Edited by Creamer Media Reporter

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