The South African automotive sector is undergoing a significant shift, driven by a combination of government incentives and global market pressures.

President Cyril Ramaphosa recently signed legislation offering a substantial 150% tax deduction for investments in electric and hydrogen vehicle production, a move that has swiftly attracted significant interest from Chinese automakers.

The incentive, announced by Finance Minister Enoch Godongwana in his 2024 National Budget and set to take effect from March 1, 2026, aims to attract substantial investments and stimulate local EV production.

This landmark decision comes as the European Union, a major market for South African automotive exports, is phasing out internal combustion engines.

Recognising the urgent need to adapt, the South African government is proactively encouraging the transition to electric vehicles (EVs) to safeguard the country’s automotive industry.

The R500 billion ($27 billion) sector, a cornerstone of South African manufacturing, is now positioned for a surge in Chinese investment. Three Chinese automakers have already expressed strong interest, signing non-disclosure agreements with the Automotive Business Council.

While their identities remain undisclosed, this influx of Chinese investment signals a new era for the South African automotive landscape.

This development comes on the heels of growing competition from Chinese automakers like Chery and Great Wall Motor, who are rapidly gaining market share in South Africa. The presence of established manufacturers like Toyota and Volkswagen adds further life to this evolving market.

The tax incentive, a key driver of this transition, aims to create a more favourable investment climate for EV production. While companies like Ford and BMW are already producing hybrids in South Africa, the focus now shifts towards full-fledged electric vehicle manufacturing.

READ ALSO:

Sanari Capital Set to Drive Mid-Market Expansion with $80M Fund

This move by the South African government is a crucial step towards ensuring the long-term sustainability and competitiveness of its automotive industry.

By embracing electric vehicle technology and attracting significant foreign investment, South Africa is positioning itself to remain a key player in the global automotive market while contributing to a more sustainable future.

A Cautious Approach

Key players like Volkswagen and Isuzu have expressed reservations about producing EVs locally. Stellantis, while acknowledging the long-term potential, emphasises the need for a more conducive environment.

This includes crucial steps like expanding charging infrastructure, developing a robust local supply chain that leverages the country’s mineral wealth (manganese, nickel, platinum, rare earths), and reviewing outdated tax policies on car sales.

The Tax Hurdle

High import levies on EVs and an outdated tax, originally intended for luxury vehicles, significantly impact the industry’s competitiveness.

These levies are considered higher than those in other emerging markets, hindering the adoption of EVs and discouraging investment. While a recent 150% tax deduction for EV manufacturers offers a sense of hope, it won’t be effective until early 2026.

South Africa is taking a significant step towards becoming a major player in the electric vehicle (EV) manufacturing industry with the introduction of a new investment allowance.

Key Details of the Investment Allowance:

1. Qualifying Assets: The allowance applies to qualifying assets brought into use between March 1, 2026, and March 1, 2036.
2. Deduction Rate: Companies can deduct 100% of the cost of these assets in the year they are brought into use.
3. Eligibility: The full deduction is applicable only if the assets are used for electric or hydrogen vehicle production for at least five years.
4. Reduced Deduction: If the assets are not used for EV production for at least five years, the deduction drops to 50% of the asset’s cost.

Government Support and Industry Response:

The government has allocated R964 million over three years to support South Africa’s transition to electric vehicles. This investment, along with the new allowance, is expected to significantly boost the local EV manufacturing sector.

The Automotive Business Council (Naamsa) has been a strong advocate for an EV stimulation policy and views this measure as crucial for attracting investments and fostering growth in the sector.

The Rise of EV Cars in South Africa

South Africa’s electric vehicle (EV) market is gaining momentum, with an increasing number of South Africa EV vehicles for sale. In 2022, the South Africa EV 2022 landscape saw notable advancements, especially with the arrival of high-demand models like the South Africa EV Tesla.

As a result, EV cars are quickly becoming a viable alternative to traditional combustion engine vehicles. Tesla South Africa has been at the forefront of this revolution, introducing cutting-edge electric vehicles to the local market.

READ ALSO:

South Africa Accelerates Crypto Adoption with Approval of 248 Licenses

Meanwhile, other global manufacturers, such as VW South Africa, are also making significant strides in the EV sector, offering environmentally friendly options to South African consumers.

For those looking to make the switch, the South Africa EV price for these vehicles is becoming more competitive, marking a positive shift towards a greener future.

The Road Ahead

South Africa possesses the potential to become a major player in the global EV market. However, realising this potential requires a concerted effort from both the government and the automotive industry.

By creating a more conducive environment for EV production and developing a robust local supply chain, South Africa can capitalise on its mineral wealth and secure its position in the rapidly evolving automotive landscape.