South Africa must make the shift towards electric vehicles (EVs) if the country is to have a large and growing auto sector, says Minister of Trade, Industry and Competition Ebrahim Patel.
“There is no debate in government on the need to shift to electric vehicles,” Patel said on Thursday, in an address to an SA Auto Week conference at the Kyalami Grand Prix Circuit and International Convention Centre.
“It’s expected that sales of new energy passenger vehicles will surpass those of combustion engines by 2038,” he said.
However, Patel failed to provide any specific timescale about when the Green Paper will become a White Paper and official government policy.
The Green Paper was published on 18 May 2021 and the stated aim was to finalise the strategy within 90 days to allow the policy proposals to be submitted to cabinet for consideration by October 2021.
The policy has not yet been finalised, resulting in criticism from most locally based original equipment manufacturers (OEMs).
Cost factor
It appears the cost of government support for the transition to EVs and new energy vehicles (NEVs) has delayed the finalisation of the policy.
Patel acknowledged that many of the players in the auto industry are anxious – rightly so – that government should make the policy announcement as quickly as possible.
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But he stressed he is keen that when an announcement is made, a sustainable programme to support electric vehicle production is announced and the industry is able to rely on the commitments made by the government.
The urgency to finalise the policy is driven by the decision by the UK that internal combustion engine vehicles (ICE) will be banned from 2030, with a similar ban coming into effect in the European Union from 2035.
Almost four of every five vehicles produced in South Africa in 2021 were destined for Europe.
Mapping out the issues
Patel said he has sat down with the OEMs and the National Union of Metalworkers of South Africa (Numsa) leadership to map out all the issues that need to be addressed.
“We published a Green Paper last year, and following that Green Paper and the inputs received from a number of players who had made submissions, we did a costing exercise.
“That costing exercise convinced us that we needed to rethink the elements of the package that we had in mind, shifting from an initial focus to see how we can incentivise fairly rapidly the consumer market in South Africa, into a shift with a greater emphasis on the production of electric vehicles,” he said.
Patel said the balance between the resources that go to a production incentive, and those that go to a consumer incentive, plus the timing of those incentives, is “absolutely critical”.
“That’s been what most of the work in government has been about: trying to look at each of the costings, turning it around a few times, to see what is affordable, what is not affordable,” he said.
Patel said the first step in finalising the financial support package that government is considering was the Medium-Term Budget Policy Statement (MTBPS) presented on Wednesday.
Read all our MTBPS coverage here.
“The minister of finance needed to identify what is the fiscal envelope that is available over the next three years.
“There are new challenges that may come up, but yesterday [Wednesday] was important in that it gave a signal to the market that we feel we can have a medium-term fiscal framework that is sustainable.
“Off that back, what we now do is we begin to work out the budget programme that is announced in February next year,” said.
‘Fiscal envelope’ hints
There was only a brief reference in the MTBPS about the transition to (EVs).
It said that in the context of a global transition from internal combustion engines to electric vehicles, the Department of Trade, Industry and Competition will reprioritise funds towards the new energy vehicle road map.
“The associated initiatives will enable South Africa to retain its automotive export markets and employment base,” it added.
Government and the auto sector
Patel said on Thursday the auto sector is very significant and, with the economic multipliers, accounts for more than 5% of South Africa’s GDP.
He said there is a narrative “out there sometimes” that government provides too much support to the auto sector.
But he said government has run the numbers that show the sector is fiscally neutral and the tax revenues it generates are equal to or more than the benefits it receives without counting the jobs, the impact on GDP and on local economic development, and so on.
Patel stressed that government has to perform a balancing act in determining the policy.
He said one of these is the mix between locally procured and imported components, adding that the elephant in the room is domestic EV battery production.
Energy for EVs
Patel said government is in discussions now to see how it can leverage South Africa’s mineral base to chart a commercially viable road forward in battery production.
He said it will require partnerships with the OEMs, but highlighted that each OEM is still largely making its own decisions on batteries.
“We don’t yet have a generic approach and that’s beyond the power of any national government to deal with,” he said.
BMW SA CEO Peter van Binsbergen said now is not the right time to invest in a battery plant for EVs in South Africa, because the industry does not have the equivalent “AAA or AA” battery for EVs.
Patel said other factors government has to take into account include its conclusion that it has to be sufficiently cautious because the electricity grid is “absolutely stretched”.
He said the government is not looking for a major increase in energy demand on the grid in the next 18 months to two years, during which period it will be seeking to consolidate the renewable energy programme and increase the supply of energy.