SA’s EV tax break may lure China

South Africa is poised for Chinese investment in its US$27 billion automotive industry after the president signed a tax break for the production of so-called new-energy vehicles into law.

Three Chinese automakers have already signed non-disclosure agreements with the Automotive Business Council, chief executive officer Mikel Mabasa said, declining to identify them.

“With good government policies we will attract new investment, we will increase and retain investment,” Mabasa said in an interview on Friday.

Vehicles made by Chery Automobile Co and Great Wall Motor Co are increasingly competing with those from the local manufacturing units of carmakers such as Toyota Motor Corp and Volkswagen AG.

In December, Chinese ambassador to South Africa Wu Peng said his government was encouraging automakers to invest in the country.

While the industry has welcomed the step, it comes after years of warnings that car making, the jewel in South Africa’s manufacturing sector, is at risk because of legislation in its biggest export market — the European Union — aimed at phasing out the use of internal-combustion engines.

The tax amendment, first proposed in the national budget in February last year, was only enacted by President Cyril Ramaphosa on 24 December.

While some companies including Ford Motor Co and BMW AG make or plan to manufacture hybrids in the country, none have announced planned investment in battery-electric vehicles.

The local heads of Volkswagen and Isuzu Motors have said they don’t see a likelihood of their companies making EVs in South Africa.

Stellantis NV said it plans to once the operating environment is conducive.

While the uptake of electric vehicles in developed markets such as the EU and US has been slower than expected, South Africa needs to start producing them to keep its place in the global industry, Mabasa said.

Additional investment in charging-station networks, developing a supply chain that uses southern Africa’s mineral wealth and reducing taxes on car sales are all needed, said Mike Whitfield, the head of Stellantis sub-Saharan Africa.

The tax amendment “cannot and will not on its own be sufficient,” he said in an interview. Other steps are needed because “it’s not the only thing that can confirm an investment decision.”

South Africa is the world’s biggest producer of manganese, mines nickel and has deposits of rare earths — all key components in the manufacture of batteries for electric vehicles.

 It’s also the largest miner of platinum, used in the fuel cells that power hydrogen-fueled vehicles.

At the same time, local sales make up a large component of automaker revenue and import levies on electric cars — together with an ad-valorem tax that was originally intended for luxury vehicles — haven’t been adjusted for decades.

“We’ve shot our first warning bullet at government,” Mabasa said, noting that levies are higher than in other emerging markets.

The ad-valorem tax level should move “in line with inflation or they should get rid of it,” he said.

While South Africa remains the most attractive place for automaker investment on the continent given its infrastructure and relatively affluent consumer base, the industry needs more support, Mabasa said.

“If government is not supportive the industry will die,” he said. —Bloomberg.