Categories: Business NewsNews
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2023-11-28 8:48 AM

Volkswagen CEO Urges South Africa’s EV Manufacturing Acceleration

  • South Africa's Declining Appeal for Car Manufacturing: Volkswagen's CEO, Thomas Schaefer, highlighted the country's diminishing attractiveness for automobile production due to challenges like load-shedding, rising labor costs, and issues with infrastructure and governance.
  • Need for Urgent Transition to Electric Vehicle (EV) Production: Schaefer emphasized the necessity for swift government action in implementing incentives and resolving taxation disparities to encourage Electric Vehicle manufacturing, essential for remaining competitive in the global automotive market.
  • Risk of Losing Export Markets and Employment Impact: With the global shift towards EVs, South Africa faces the risk of losing significant export markets if it fails to swiftly transition to EV production. The automotive sector's transition poses a threat to employment and industrial development, requiring immediate support and strategic planning from both industry and government sectors.
By Miriam Matoma

Volkswagen (VW) Passenger Cars’ CEO, Thomas Schaefer, recently voiced growing concerns about South Africa’s viability as a manufacturing hub for automobiles. Specifically, amid the global shift towards Electric Vehicles (EVs), Schaefer highlighted issues like load-shedding, rising labor costs, and challenges with Transnet, making the country an increasingly unattractive destination for automotive production.

For decades, VW has operated in South Africa, producing models like the Polo and PoloVivo at its plant in Kariega, Eastern Cape, catering to over 38 international markets. Employing more than 3,500 individuals, VW South Africa (VWSA) stands as the largest private employer in the Nelson Mandela Bay metro.

However, speaking with Reuters, Schaefer stressed that while South Africa once held a competitive advantage due to lower labor costs, governance issues and slow regulatory reforms are swiftly eroding this edge. He pinpointed electricity challenges linked to Eskom, railway and port issues related to Transnet, and the rise in wages as factors diminishing the country’s appeal for manufacturing.

Expressing concern, Schaefer emphasized, “We’re not in the business of charity,” urging the government to address these concerns to maintain a conducive manufacturing environment.

One of the significant hurdles identified by Schaefer was the government’s sluggishness in implementing incentives for Electric Vehicle (EV) manufacturing and adoption. Currently, EVs and their components face a 7% higher tax compared to traditional petrol and diesel vehicles, inflating production costs and retail prices, making EVs less accessible to South African consumers and deterring investment.

Schaefer underlined that unless addressed, this pricing imbalance would continue to make the country unattractive for EV manufacturing, especially considering its distance from primary markets.

Volkswagen’s strategic vision involves launching ten new EV models by 2026, investing nearly $200 billion over the next five years to boost production. However, with the European Union and the United Kingdom contemplating bans on new internal combustion vehicle sales by approximately 2035, VW South Africa risks losing its export markets unless it expeditiously transitions to EV production.

In response to the imminent EV transition, the South African government announced plans to introduce tax and expenditure measures to support the automotive sector’s shift to a low-carbon economy by 2024.

Finance Minister Enoch Godongwana highlighted the significance of this transition, acknowledging its potential impact on vehicle production—a sector critical for employment and export. He emphasized the need to balance domestic market demand, establish renewable energy-based charging infrastructure, and provide production support.

Godongwana affirmed that further details would be outlined in the 2024 Budget Review, aiming to ensure the automotive sector remains a substantial contributor to South Africa’s industrial development.

This critical juncture necessitates collaborative efforts between industry stakeholders and the government to swiftly address impediments and facilitate a smooth transition towards EV manufacturing, ensuring South Africa’s sustained relevance in the global automotive landscape.

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Miriam Matoma

Miriam is a freelance writer, she covers economics and government news for Rateweb. You can contact her on: Email: Twitter: @MatomaMiriam