New energy vehicles loom large in the discussions on the evolving automotive manufacturing landscape – but the time for the internal combustion engine is not yet over.

Two experts from the industry discussed the important topics of whether the legacy original equipment manufacturers are being left behind by disruptive innovators like Tesla and BYD, and the new energy vehicle landscape in a South African context during a breakaway session at this year’s Tshwane Energy Summit on Thursday, 20 June 2024, held in Menlyn Maine, Pretoria.

The breakaway session was hosted by the Tshwane Automotive Special Economic Zone, Africa’s first automotive city and an important player in the country’s automotive manufacturing sector.

Introducing the session, TASEZ CEO Dr Bheka Zulu provided the insight into the new energy vehicle (NEV) landscape globally and locally. “We all know that the NEV space has been growing. In the last year, if you compare figures from the first quarter of last year, it grew by 8.7% – units that have grown from 1 665 to 2 220. And in the second quarter, that number grew to 3 042. These are the some of the figures that show the demand and the need for the sector to grow.”

He noted a number of important milestones in the drive towards cleaner energy: the publication in 2023 of a White Paper on NEVs aimed at unlocking the potential of South Africa’s NEV market; the fact that 2024 marks a centenary of manufacturing in South Africa – and Ford is celebrating its 100 years in South Africa.

Opportunities available in NEV space

The NEV space is one that can open opportunities in unexpected ways, Dr Zulu noted, such as the “last mile” programmes that have rolled out across South Africa delivering goods to the consumers’ doors via scooters or motorbikes. This is particularly important in growing the township economy.

Although a critical element, NEVs are not confined to passenger vehicles but will also impact public transport and freight and logistics, Dr Zulu said.

South Africa exports the majority of its vehicles, so it needs to comply with the clean energy regulations set by it external markets. For example, Europe has set stringent regulations that have to be met by the automotive manufacturers: it will require 55% lower carbon-dioxide emissions from 2030, with a target of zero from 2035.

Mobility Centre for Africa co-founder Victor Radebe delivered a thought-provoking talk asking are the legacy OEMs sleeping at the wheel in the face of disruptive innovation by front-runners such as Tesla and BYD.

Using the work of academic and business consultant Clayton Christensen, Radebe dived into the concepts surrounding “disruptive innovation” noting that “it’s like a tidal wave that strips over established industries creating new markets, whilst leaving old ones in its wake.”

Disruptive innovation starts humbly, often ignored or dismissed by established companies. But then it marches on, transforming the landscape and toppling giants, Radebe said.

“Christensen’s The Innovators Dilemma explains why many established firms, despite their resources and expertise, find themselves in this predicament hesitating at the edge of innovation,” Radebe said, adding: “This is where legacy OEMs find themselves.”

Rise of the NEVs

The automotive manufacturing industry is currently experiencing a seismic shift driven by the electrifying rise of NEVs. “Legacy OEMs are finding themselves in the slow lane compared to speed stars like to Tesla and BYD.”

This technological race is not just about who gets to the finish line first, but who can navigate the twists and turns of innovation without losing control, Radebe noted.

One of the innovations of NEVs is that the manufacturers build most of their parts, whereas the biggest OEMs rely on a supply chain of multiple suppliers from across the globe.

Radebe looked at the potential drivers for change:

• policy imperatives, where policy acts as the wind in the sails of NEV adoption. “Nowhere is this more evident than in China … On the other side of the globe, the US and the EU have their own regulatory roadmap, albeit with some potholes and detours”. Tariff issues could also play a significant role in enabling or preventing new comers to the sector; and
• shifting geopolitics and decarbonisation, where “the journey towards decarbonisation is not without its challenges”. Shifting geopolitics could throw a wrench in the world, particularly with the US and EU imposing stiff tariffs on Chinese EVs. These tough tariffs range from 38% to 100% in the EU and US respectively. These tariffs are intended to protect domestic jobs and address concerns about unfair subsidies, yet they also risk making Chinese EVs less competitive, potentially slowing the transition to greener transportation. “The decarbonisation of the transport industry hinges not only on technological advancement and market dynamics, but also on navigating the context interplay of international relations and trade policies.”

Another important element is that of the minerals required to make the batteries required by the NEVs. “If you look at the upstream supply chain, China controls the extraction of the of the raw materials. They control the processing of the raw materials.”

The beneficiation of minerals is a hot topic in South Africa that will have to form part of a more in-depth negotiation.

“The future outlook of the automotive industry will be shaped by those who dare to navigate the choppy waters of innovation in geopolitical, geopolitical uncertainties,” Radebe said.

“Legacy OEMs need to embrace a bold strategy to protect their turf, whilst diving headfirst into the new technology and business models, partnerships, heavy investments in innovation, and a willingness to disrupt their own operations.”

NAAMSA’s chief policy officer, Tshetle Litheko, brought the topic closer to home, discussing the NEV landscape and outlook in South Africa.

NAAMSA represents the South Africa automotive manufacturing industry and the seven original OEMS in the country.

NEVs, the next natural step

Litheko noted that because of environmental pressures, the innovation and migrating towards NEVs is unavoidable – “it’s the next natural step”.

South Africa currently produces 0.5% of the global production of cars. Through its South African Automotive Master Plan, it aims to produce 1% of the world’s cars by 2035. However, Litheko noted, the export markets that South Africa has are now looking to cleaner energy vehicles such as hybrids and EVs. So, the current production of vehicles with internal combustion engines will not be fit for purpose and South Africa will need to adjust its products accordingly.

“That said, one of the biggest markets that we need to factor in is the 1.4 billion market in Africa – and that market is not about to migrate or evolve into these NEVs.” In the African market the production of cars is around two million, with South Africa producing a third of that.

He then referenced India, with a similar population density to that of Africa, and pointed out that India currently produces almost eight million vehicles annually. “India is the biggest and fastest growing exporter of cars into South Africa (and by extension into Africa).” Taking a leaf out of India’s book, South Africa should be dominating this market.

Specialisation has been the key mark of South Africa’s success as a country. The seven OEMs based in South Africa have exclusive lines globally: “The VW Polo driven anywhere in the world comes from Port Elizabeth (now known as Gqeberha), the C-class Mercedes Benz driven anywhere in the world was made in East London.” Specialisation has meant South Africa has developed its industrial capacity to levels that sustain meaningful industrial development in the country.

Crucial to South Africa’s automotive manufacturing industry is that the country develops vehicles based on an incentive programme that supports localisation and black industrialisation. South Africa’s development is not directly comparable to that of China because of its aim to include as many local suppliers as possible.

“It is for that reason that establishments such as the AIDC (Automotive Industry Development Centre) and TASEZ can thrive based on the fact that if we solve how we can improve local content in our vehicles, we can then create more room for local players to come into the market, for second tier suppliers to enter into our industry.

“Localisation is a must win in South Africa, because we aim to become the best market in the world that can develop and manufacture cars at 60% local content,” Litheko said.

He also spoke of the knock-on effect of such an approach. If our goal is to produce a vehicle that is South African produced, that meets global standards, and it has local content that means there is development required that can be supported by the education system which would have to understand the needs of the industry in order to support the changing requirements.

South Africa is positioned to have the best of both worlds – both internal combustion engine vehicles and NEVs.

In summary, CEO of the AIDC, Andile Africa, noted the key talking points of the charging infrastructure required for NEVs; the different manufacturing methods for internal combustion engine vehicles and NEVs; and the importance of protecting and building an industry that has been in South Africa for 100 years, while working on creating a clean energy environment.