Cagey battery EV industry awaits details on 150% incentive

Policy will determine whether it is enough to encourage investment, says naamsa CEO Mikel MABASA

A 150% incentive for motor companies to build battery-electric vehicles (BEVs) in SA is a good start, but the “nuts and bolts” of policy will determine whether it is enough to encourage investment, says Mikel MABASA, CEO of vehicle manufacturers’ and importers’ association naamsa.

“The devil is in the detail, and we have to push hard to see what that devil is and what are the tools the industry has to work with,” MABASA said on Friday.

He was responding to last week’s budget, in which finance minister Enoch Godongwana declared that from 2026 local producers of BEVs — which rely wholly on plug-in recharging — “will be able to claim [back] 150% of qualifying investment spending on production capacity for electric and hydrogen-powered vehicles in the first year of investment”.

Under the current 2021-35 Automotive Production and Development Programme, the maximum incentive is 30%. This applies to electric vehicles (EVs) as well as those with petrol and diesel internal combustion engines (ICEs). Mabasa said the industry was “comfortable” with the increased BEV-specific figure. Volkswagen SA (VWSA) MD Martina Biene went further: “It’s slightly higher than we thought it would be.”

The incentive will be available from the 2026/27 tax year because that is when the first local company is expected to start building BEVs. Late last year, Godongwana and Ebrahim Patel, minister of trade, industry & competition, held a series of individual meetings with motor companies to learn about their plans.

Godongwana expects to pay out R500m in that first year, meaning a potential first investment of just more than R330m. That is small change in an industry in which motor companies routinely count ICE investments in billions of rand but it’s a start. After years of delay, government appears to be finally getting the EV ball rolling.

However, it is a measure of mixed messaging in the past that hydrogen power is included. Early days of policy discussion referred to new-energy vehicles (NEVs), including electric and hydrogen power. In December, when government published its long-awaited policy white paper, the document dropped references to hydrogen. Now it is back in the picture.

 

No obstacle

MABASA and others hope that policymakers will agree to add hybrid-electric vehicles to the 150% mix. These are vehicles with dual motors — one electric and the other ICE. Some require plug-in charging, while others regenerate as they drive. However, the government has remained firm so far in its insistence that only BEV technology should qualify.

Government officials say the fact that three motor companies are already building hybrids and that others will soon join them, suggests the current 30% Automotive Production and Development Programme incentive is no obstacle to hybrid investment. Renai Moothilal, director of the National Association of Automotive Component and Allied Manufacturers (NAACAM), said hybrid investment was already “coming through the current mechanism”.

Biene said the 150% should be limited to BEVs because of the “big technical jump” and cost of adapting vehicle assembly plants to the new technology.

The government’s preference for BEVs reflects the way much of the world is moving. Last year, two-thirds of SA-built vehicles were exported, most to countries in which sales of new ICE vehicles will be outlawed after 2035. Some markets plan to subsequently outlaw hybrid vehicles, too.

Biene said the government’s priority appeared to be export protection.

The problem with such a strategy is that SA consumers are not yet sold on EVs. While in 2023 more than 10-million BEVs were sold worldwide, SA achieved a not-so-grand EV total of 7,693. That was less than 1.5% of the total new-vehicle market. In developed markets, 20% shares are commonplace. In some, EVs comfortably outsell ICEs.

Price is the main obstacle to EV sales in this country. While in other markets consumer tax breaks have made EVs affordable, SA has steadfastly refused to follow suit. Mabasa, Biene and others still hope the government will relent, but there is little sign of it doing so in the near future. Patel has said consumer incentives were likely to arrive well after manufacturing ones.

 

Switch focus

This is a problem for a company such as VWSA, which is a major exporter but also has a significant local market for its home-made cars, all of them ICEs. Nearly all exports go to the UK and EU, where ICE vehicles will be banned.

VWSA now has no plans to build hybrid cars, but is likely to invest eventually in some BEV production. Until then, it will switch its export focus to the rest of Africa, which, like SA, has very limited EV demand.

Long term, it was unsatisfactory, Biene said. “We have to find ways to grow the local EV market.”

Multinational motor companies are more likely to invest in countries where there is a ready market for their products.

Though the budget referred only to vehicle production, Moothilal hopes some components investments may also qualify for the 150% incentive. “We have asked for clarity, but my sense is that we are not excluded,” he said.

In the 2023 budget, Godongwana allocated R728.8m to the components sector “to support NEV initiatives”. Last week, he stated in the Budget Review that Patel’s department had “reprioritised R964m over the medium term towards the NEV transition”. Moothilal said none of the 2023 allocation had been spent yet while the industry waited for policy clarification. The same applies to the latest R964m.

The 150% incentive is a good — if belated — start, but the industry wants much more detail before it becomes too excited.

“We will engage further with government,” MABASA said. “The 150% is a good number to work from, but we need a lot more clarity before we can plan confidently.”