Naamsa proposes purchase subsidy as the ‘most appropriate’ EV incentive model

20th February 2023 By: Irma Venter - Creamer Media Senior Deputy Editor

Naamsa proposes purchase subsidy as the ‘most appropriate’ EV incentive model

Naamsa | The Automotive Business Council has proposed the “provision of a direct, fixed new-energy vehicle purchase subsidy” as the most appropriate incentive model to support South Africa’s move to electrified vehicles (EVs).

EVs include battery electric vehicles (BEVs), hybrid electric vehicles (HEVs) and plug-in hybrid vehicles (PHEV).

Naamsa says the subsidy is necessary given the “price sensitivity of the South African market”, as well as the substantial price gap that exists between NEVs and internal combustion engine (ICE) vehicles. 

“The value of the subsidy will be determined by the type of new-energy vehicle (NEV) being subsidised,” says Naamsa.

“An incentive of this kind would optimise support for entry-level NEVs, with less benefit for more expensive NEVs.”

Governments around the world have used subsidies of various forms to boost EV sales in support of reducing their carbon footprint.

Naamsa on Monday released its thought leadership discussion document on NEVs for South Africa.

This comes as the local automotive industry still awaits the release of government’s NEV policy, set to guide and support the country’s transition from ICE vehicles to EVs.

The Department of Trade, Industry and Competition (DTIC) in May 2021, released a green paper on NEVs, promising a White Paper in October of the same year. 

However, the department has failed to publish the White Paper.

It is now believed that some direction will flow from this week’s National Budget.

“As the President hinted during his State of the Nation Address at the beginning of this month, we are all eagerly waiting [on] the National Budget speech announcement to inform the NEV Roadmap going forward,” says Naamsa CEO Mikel Mabasa.

“Once there is a clear policy directive and commitment from government, this should allow all our original equipment manufacturers [OEMs, or vehicle manufacturers] to act with speed ,and for the DTIC to finalise an NEV White Paper without further delay.”

NEVs sales in South Africa showed a significant year-on-year increase of 431.7% last year, up from 896 units in 2021, to 4 764 units in 2022.

However, this number is negligible as a percentage of total new-vehicle sales, at 0.88%.

Despite lower running costs, the higher upfront price tag of NEVs (linked to higher production costs, mainly related to battery costs) has been the main inhibitor to increased NEV uptake in South Africa, believes Naamsa.

This is exacerbated by value-added tax, an ad valorem excise duty based on a sliding scale up to 30%, import tariffs; and limited product availability, especially in terms of more affordable EVs.

Currently, the average international price gap for NEV models relative to their ICE equivalents is 12% for PEVs, 43% for PHEVs, and 52% for BEVs, reports Naamsa.

‘Rapid Adoption’
Mabasa states that the rapid adoption of newer drivetrain technologies, both in local production and in the domestic sales market, is critical to the South African automotive industry’s long-term success and growth. 

“The only way to have a successful automotive manufacturing base is to keep up with technological developments.

“The South African automotive industry cannot be running on one development technology track, whilst the rest of the world is way ahead on the same track. 

“If we want to remain globally competitive, we have no option but to play with the big global players who are leading the NEV charge,” he notes.

“Regrettably, South Africa has been painfully slow in finalising its governance and policy transformation priorities. 

“We need to urgently enhance existing auto policies to facilitate a high-yielding business environment, including developing an attractive fiscal and regulatory framework that makes South Africa a highly competitive and compelling location for NEV production.

“The rapid technological advancement in the automotive industry and the global commitment by world economies to a greener future, mean the evolution in vehicle production will rapidly develop in the next ten years, far more than it did in the last 100 years. 

“This evolution requires a clearly thought-out public policy regime and prudent fiscal planning,” says Mabasa.

Apart from a purchase subsidy, Naamsa’s thought leadership document also calls on expanded support to vehicle and component manufacturers in order for South Africa’s largest manufacturing sector to survive the global shift to EVs.

The document states that the domestic auto sector is at risk of losing more than 50% of its production volume from July 2025, which sees the proposed introduction of Euro 7 emission regulations in Europe, to 2035, which will witness the banning of ICE drivetrains in almost all European countries.

Europe is South Africa’s biggest new-vehicle export market.

The biggest component export from South Africa is also the catalytic converter, which is tied to ICE vehicle production.

Only two vehicle manufacturers currently produced HEVs and PHEVs in South Africa. There is no BEV production.