- Electric vehicles are yet to take off in South Africa, accounting for just 0.02% of all domestic automotive sales in 2020.
- And while the country's exports continue to grow, many key markets are looking to ban the sale of petrol and diesel vehicles within the next decade or two.
- To remain sustainable, South African manufacturers need to start building and selling electric vehicles.
- To stimulate this, government is looking to offer tax rebates and incentives to lower the cost of production, ultimately making electric vehicles more affordable for local buyers.
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A total of 92 electric vehicles were sold in South Africa in 2020, representing just 0.02% of sales in the domestic automotive market. A newly-published policy discussion paper has laid out government's thinking on ways to increase local production and sales of electric vehicles over the next decade.
South Africa's automotive industry contributes 6.4% to the national GDP, with the value of exports growing by more than 45% over the past five years. Prior to the pandemic, South Africa exported 387,125 vehicles – worth a record R148 billion – to 151 countries, according to the National Association of Automobile Manufacturers.
But key markets, like the UK, which accounts for more than a quarter of all South African vehicle exports, now plan to ban the sale of new petrol and diesel vehicles by 2030.
Forming a New Energy Vehicle (NEV) policy, which aligns with the broader automotive masterplan, has become an urgent point of focus for government.
The NEV Draft Green Paper, published by the department of trade, industry, and competition (DTIC) this week, represents a critical step in defining South Africa's policy regarding EV manufacturing, consumption, and competitiveness.
The draft policy is set to be gazetted for public comment before the end of May, with proposals tabled to Cabinet for consideration before October.
While policy changes are predominantly aimed at stimulating EV exports, the DTIC notes that improving domestic sales will attract foreign investment and align with the country's own carbon-reduction goals.
Central to this uptake plan is the introduction of EV incentives, tax reforms, and rebates.
The main hurdle facing domestic growth remains the vast price differences between EVs and internal combustion engine (ICE) vehicles. To lower the cost of EVs, the DTIC and National Treasury are considering reducing ad valorem excise duties which hike the price of both locally produced and imported "luxury items".
"A standard rate per kWH could be used (the industry suggests an average rate of 2020 of $137/kWh) to reduce the price of an EV in aligning it to be closer to the price of an ICE vehicle for a period of say five years in stimulating market demand for EVs," says the DTIC in its NEV paper.
This proposal has been coupled with Volume Assembly Localisation Allowance (VALA) credits which will offset manufactures' custom accounts, lowering the import costs of EV components. Rebates, generated through the Production Incentive (PI) programme, will offer further discounts to manufacturers.
Another suggestion tabled by the NEV paper is zero-rating import duties of unique EV components. An additional "sunset clause" reduces duties for a limited number of years while allowing local EV component production to grow to meet demand.
Other options listed by the DTIC include incentivising the use of regional raw materials used in the production of EVs, including lithium, nickel, and cobalt.
A "Challenge Fund", aimed at rewarding manufacturers who produce South Africa’s first EVs, has also been touted. Creating a "second life" for EV batteries – whereby they can be used to power homes during load shedding – is also intended to attract local consumption.
And while these incentives and rebates are aimed at satisfying local production, domestic sales are largely reliant on South Africa's ability to improve its energy, road, and charging infrastructure.
"First, the current charging infrastructure in the domestic market should be expanded to incentivise motorists to switch to EVs," says the DTIC. "The private sector should play a key role in enabling such development, on commercial terms."
EVs in South Africa should also rely on renewable sources of energy which "will ensure that the electricity used to charge vehicles does not negate the positive effects on the environment."