Published on 26 Jan 2025

Chinese investments in South African EV sector to accelerate

SA offers 150% tax deduction for electric and hydrogen vehicle manufacturers

South Africa's automotive sector is set to attract more Chinese investment following the introduction of a tax incentive aimed at boosting the production of new-energy vehicles (NEVs). The legislation, recently signed into law, allows vehicle manufacturers to deduct 150% of the cost of buildings and equipment used primarily for producing electric or hydrogen-powered vehicles. The incentives come into force in Mar 2026 and will apply for qualifying assets for over a decade.

The Automotive Business Council of South Africa has revealed that three Chinese automakers have already signed non-disclosure agreements to explore potential investments. Earlier in December, Wu Peng, China’s ambassador to South Africa, also urged Chinese manufacturers to consider establishing assembly lines in the country. Several Chinese EV brands have already made inroads into South Africa. BYD entered the market in 2023 and has introduced three models. Great Wall Motors (GWM) has launched electric and hybrid options under its Ora and Haval brands, while Chery plans to roll out new NEV models in 2025, complementing its existing portfolio of internal combustion engine (ICE) vehicles. Additionally, Dongfeng unveiled its fully electric Box model in South Africa at the end of 2024.

Despite these developments, EV adoption among South African consumers remains limited due to several challenges. A 25% import duty on EVs, compared to an 18% duty on ICE vehicles, makes EVs less competitive. Tesla CEO Elon Musk highlighted this issue in an X post in early 2024, describing South Africa's import duties as "super high" and not conducive for Tesla’s entry into the market. An underdeveloped charging infrastructure network is another obstacle. And although scheduled power cuts have significantly decreased, the country’s history of load-shedding has raised concerns about the feasibility of using EVs.

In the first three quarters of 2024, 1,079 new EVs were purchased in South Africa, up from 720 during the same period in 2023, according to the latest available data. Hybrid vehicle sales were higher, with 9,447 units recorded, more than double the 4,274 sold the previous year.

South Africa’s automotive industry remains heavily reliant on ICE vehicle exports, with major brands like BMW, Ford, Mercedes-Benz, and Toyota producing vehicles locally for international markets. In 2023, vehicle exports generated over R271bn (US$14.3bn) in revenue. However, with three out of five locally manufactured vehicles exported to the European Union, South Africa faces mounting pressure to transition to NEV production. The EU plans to ban the sale of new ICE vehicles by 2035, making NEV production essential for maintaining and growing South Africa's share in this key export market.

Africa is emerging as a new market for Chinese electric vehicle (EV) brands amid growing trade tensions between Beijing and Western markets such as Europe, the US, and Canada. Western governments are imposing tariff and non-tariff barriers on Chinese EVs that are often cheaper and technologically advanced than their competitors.

References

'A shift in the market: The rise of Chinese automakers in South Africa', Bizcommunity 05 Jul 2024

'Chinese EV brands target Africa amid rising trade barriers in Europe, North America', Mail & Guardian, 15 September 2024

'In the fast lane: Chinese car imports grow in South Africa', Voice of America, 03 October 2024

'Can BYD drive electric vehicles in South Africa forward?', Mail & Guardian, 07 October 2024

'EV shift critical to South Africa’s car manufacturing industry', TechCentral, 22 October 2024

'China is urging EV firms to invest in South Africa, official says', Engineering News, 12 December 2024

'Latest Chinese carmaker hits SA: Will Dongfeng's Box be the cheapest EV yet?', News24, 16 December 2024

''Crucial' 150% incentive for SA electric vehicle producers signed into law', News24, 03 January 2025

'South Africa launches tax break, helping to lure China EV makers', BNN Bloomberg, 03 January 2025

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