By Donald MacKay
It is ironic that Elon Musk, a South African, is the global godfather of the electric vehicle (EV) industry, yet there are no Teslas in South Africa, not even the terrifying Cybertruck, a vehicle well designed for the South African cash-in-transit heist market.
He recently observed on X that Teslas are not available in South Africa because “(i)mport duties are super high in South Africa to protect the domestic industry. Doesn’t make sense for Tesla, given that electric cars are not locally made”.
Musk is right. Despite there now being an EV white paper, published by the Department of Trade, Industry and Competition (DTIC), there is no reason to believe our roads will soon silently be flooded with EVs.
Minister of Trade, Industry and Competition Ebrahim Patel, in the forward to the white paper, identifies the importance of reducing greenhouse gases as the primary reason for South Africa needing to transition from devouring dead dinosaurs, to swallowing sunshine, but this is only partly true.
A more significant issue is that our biggest export markets, particularly Europe and the UK, are pushing hard to get all internal combustion engine (ICE) vehicles off the road by the mid-30s. Because very few of the cars we make in South Africa are sold locally, we have no chance of making up the shortfall locally.
The automotive industry, although touted as our great industrialisation success story, only exists in South Africa because of very large subsidies (taxpayer funded) and high import duties provided to the industry.
These duties don’t function like normal duties, though, as local car manufacturers receive duty rebates according to the number of cars they produce. A large producer will end up with more rebate certificates than they can use to remove the duties on imports of models they don’t make locally, and these are then sold to car importers who don’t produce locally. In other words, a substantial part of the import duties are paid by car importers to the local car manufacturers when they sell the certificates.
According to National Treasury, R41 billion was provided as subsidies to local car manufacturers in 2021, which is considerably more than all the customs duties collected on imported cars.
Because South Africa is not a natural home for automotive production (far from the main markets, poor infrastructure, and low levels of education), the subsidies are essential to keeping the manufacturers in the country.
EV production is even more challenging and so the subsidies would need to be commensurately larger. Where South Africa is one of the few countries subsidising car production, we will be swimming in a very deep ocean of EV subsidies.
To get companies to set up their EV production here will thus require not only that we overcome the same challenges as we have with ICE vehicle production, but that we also provide subsidies large enough to outweigh the hefty subsidies from far wealthier countries. The problem with subsidy wars, after all, is that the winner is the country to last runs out of money and we’ve already run out of ours.
The challenge facing any industrial policy driven industry is what to do when you need to prune or even cut down the money tree. The automotive industry is the “fourth largest in terms of output across all manufacturing sectors”, according to the EV white paper, making it politically impossible for the government to let go of, yet something will have to give here.
There is no reason to believe South Africa’s balance sheet will look better in 2026, when the paper aims to have EV production up and running in South Africa, and likely will look worse.
As with all of South Africa’s industrial policies, localisation (setting up charging stations and beneficiating minerals) is seen as a key part of making the industry work, but I think this overplays the value of beneficiation.
Think of beneficiation as having two components. The first is the minerals. Here, South Africa and the bigger continent is very well endowed, and we definitely don’t want to miss the minerals boom as happened in the past.
The second is the manufacturing of the relevant components out of these minerals and this is, well, a manufacturing process. Manufacturing can be done anywhere the main inputs can be brought together. Yes, the minerals are one part of that, but so are the skills, infrastructure, and other materials.
Japan was the world’s largest producer of steel for decades and they have no iron ore. South Africa sits on massive iron ore reserves, but ArcelorMittal South Africa (Amsa) had to close their furnaces in October 2023 because of an iron ore shortage caused by Transnet. It cost Amsa R50 million to restart the furnace.
The EV subsidies proposed by the government will go to the producers, not the consumers of EVs, and if the ICE subsidies are anything to go by, these will not be passed on to consumers.
If we get EV production off the ground, the largest beneficiaries will likely be the foreign consumers of these vehicles.
As the fiscal situation in South Africa deteriorates, the pressure will rise for the government to reduce the subsidies they provide to the automotive industry.
Unless we see massive economic growth, carried on the wings of flying pigs, it is unlikely we will ever see a globally competitive EV industry in South Africa.
Donald MacKay is the founder and CEO of XA Global Trade Advisors. He has been advising both local and foreign companies on global trade issues for over two decades. X handle: XA_advisors; email: [email protected]; website: xagta.com
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