An Industry on a Crossroad

There is no doubt that various Global and Local Micro as well as Macro Environmental factors, business conditions and circumstances are currently at play forcing the South African Automotive Industry to start to explore and reexamine its Future within the Global Automotive Industry. Leading Automotive Original Equipment Manufacturers (OEM’s) in the South Africa (Nissan Group of Africa, BMW SA, Toyota SA, Volkswagen SA, Mercedes Benz SA etc) have no option but will have to start to carefully reexamine their strategic options amidst a rising domestic fuel price as well as the inevitable global reality of Electric Vehicles, Electric Buses and Electric Trucks.

These have become incredible driving forces of change which the industry will have no option but to confront and respond to in the medium to long term.

By 2030 nearly 90% of global automotive production and sales will be attributed to Electric Powered Vehicles, Buses and Trucks.

Similarly global Multi National Energy Businesses like Shell, BP, Chevron etc are slowly exiting their Fossil Fuel businesses by transforming their business models to become fully fledged Electrification and Vehicle Charging businesses within the Electric Vehicles/trucks/Buses Supply Value Chain in the Future.

If the much talked about and feared high fuel price situation (e.g. R40/litre for petrol) in South Africa is anything to go by, it is should serve as an early precursor and an omen that Fossil fuel will no longer be the energy of the future globally.

The fact that 2 major refineries in South Africa (Engen and Sapref) have all stopped local fuel refining operations in favour of importing, is a strong sign that diesel and petrol in South Africa are not going to get any cheaper going forward.

The South African automotive OEM industry has no option but to choose between 2 Strategic Choices:

1. Continue to manufacture internal combustion engines (ICE) and become obsolete in the long term

2. Change and transform their manufacturing plants to produce Electric Vehicles/Trucks and Buses for the domestic and export markets (USA, Europe, Japan etc) and become globally competitive in the medium to long term

What the South African government should be doing is to be providing industry support to all  Automotive OEM’s within the Industry to get them to manufacture Electric Vehicles, Electric Buses and Trucks in the medium to short term (by 2025 at least). The leading global nations (USA, Japan , Europe etc) have all offered attractive subsidies and investment incentives to get their domestic automotive OEM’s and in so doing they  converted their automotive manufacturing facilities towards producing and assembling Electric Vehicles, Electric Trucks and Buses.

The leading global automotive OEM’s (Ford, GM, Toyota, Daimler Benz, BMW, Volkswagen etc) will all be 100% producing and distributing Electric Vehicles and Electric Buses and Trucks by 2025 to 2030 and will start to phase out the internal combustion engine (ICE) as early as 2024.

Leading South African Energy companies are now fully importing diesel and petrol for our domestic market. They must have realized that incurring massive Capital Expenditure to upgrade Fossil Fuel refinery business operations under turbulent and adverse prevailing macro and micro environmental conditions where there is negative industry growth prospects (in the medium to long-term) is not a wise Business Decision – this is probably what went through the minds of the decision makers at Sapref and Engen refineries in South Africa when they recently closed local refining of fuel.

After all Global multinational companies like Chevron, Shell and BP are all transforming their business models by exiting fossil fuel businesses and to move towards being fully fledged electrification energy businesses in the medium to long term.

The South African automotive companies are also on a cross road because by 2025 to 2030 they will become obsolete if they do not immediately start to produce Electric Vehicles (EV’s) for their Export Markets (USA, Japan, Europe etc) – their internal combustion engine powered vehicles will no longer be accepted (from 2025 onwards) in these markets.

It is worth noting that Uganda and Kenya in East Africa have already resumed with the assembling and manufacturing of Electric Buses for their respective domestic markets. In West Africa, Nigeria and Ghana have been successful in setting up automotive manufacturing facilities for their respective domestic markets which will eventually supply vehicles throughout the region. Automotive OEM’s leading this manufacturing expedition in West Africa are: Nissan and Peugeot (in Nigeria), Volkswagen and Nissan (in Ghana).  

It cannot be ruled out that these West African automotive manufacturing facilities may in the Future (medium to long-term) transform themselves into being sourcing facilities for Electric Vehicles, Electric Trucks and Electric Buses for certain Export Markets such as USA, Japan Europe etc.

The message is this, given the increasing automotive manufacturing activities elsewhere in Africa (Egypt, Nigeria, Ghana, Kenya and Uganda) South Africa can no longer afford to see itself as the only ideal and preferred automotive investment destination of the future within the African continent.

Therefore the immediate solution for South Africa is to work on a long term plan, to initiate an automotive industrial policy which provide attractive subsidies and incentives to the South African Automotive Industry to be stimulated to resume manufacturing of Electric Vehicles, Electric Trucks and Buses. Collaborative efforts are also required between government and the Energy Companies to invest in Electric Vehicles, Electric Trucks and Electric Buses mass charging infrastructure across all major centers and hubs throughout all provinces in South Africa.

Given South Africa’s electricity challenges, this will require synergic and innovative Private Public Partnerships (PPP) initiatives between various automotive OEM’s and the South African government’s Department of Trade and Industry. While these entities may have worked together in the past in designing past automotive related trade policies, they may now be required to work closely more than before to prepare South Africa Automotive Industry to take a giant leap of faith into the future.

It is now clear that Fossil Fuel will not be the energy of the future. For global and South African based fleet owners, Electric Trucks and Buses make sense from an operating cost and Capex point of view – it is cheaper to operate Electric Trucks and buses compared to their Diesel counterparts.

Similarly for retail consumers, Electric Vehicles (EV’s) will offer long term cost of ownership savings amidst the current high diesel and petrol costs associated with the Internal Combustion Engine (ICE) vehicles.

Article Written by:

Des H Rikhotso,

Automotive Sales & Marketing Professional

Contact Number: +27 76 538 7905, Email: [email protected]

Rikhotso is an Automotive Sales and Marketing Professional with more than 20 Years’ Experience within the Southern and Sub Saharan African Automotive Business and Industry Landscapes gained at leading Automotive Original Equipment Manufacturers (OEM’s) – BMW Group SA, Peugeot Motors SA, Volkswagen Group SA, Lexus/Toyota SA, Nissan Group of Africa and G.U.D Holdings.

 He writes this article in his personal capacity. He is currently serving in the following Positions and Portfolios:

Managing Director of  The HDR Group of Companies, Consulting Academic Lecturer at Mancosa (Durban Campus), Founding Director of Va Nkuna MotorCity Retail Holdings (Pty) Ltd and Independent Trustee at Mafarana Community Development Trust (MCDT).

 

 

https://www.linkedin.com/pulse/industry-crossroad-future-south-african-automotive-pgdip-ba-mbl

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