OVER decades, South Africa has built a formidable automotive industry. Last year, the country exported over 400,000 vehicles to global markets, setting a new record, with an increase of 4,4% over the previous year. It was the continuation of an upward trend since 2021, according to Naamsa.
In the broader South African context, this is not a ‘struggling’ sector. It has maintained global competitiveness amid numerous compounding factors that have hammered South African businesses, including loadshedding, floods, logistics failures, and deteriorating local services. The country’s Original Equipment Manufacturers (OEMs), managed to produce nearly 600,000 units in 2025, which was 15,7% more than the previous year.
Policy adjustments
The automotive industry was one of the first sectors to adopt a Masterplan, an aspirational framework that pulled stakeholders together to articulate a shared vision of growth for the sector. Justin Barnes, director of the Toyota Wessels Institute for Manufacturing Studies, and an associate professor at the Gordon Institute of Business Science at the University of Pretoria, was instrumental in the creation of the South African Automotive Masterplan SAAM) 2035. In an interview with EC Industrial Business News, he says he is disappointed that discussions around the industry seem to have become defensive and lost sight of the aspirational goals set in that plan.
“The automotive industry is a catalyst for industrial growth. Next to the aeronautical industry, it has the greatest technology spillover effect, and globally it has been shown to have the biggest multiplier effect. We should be looking at selling 1,2 million locally-produced vehicles in the local market and have 1,4 million vehicles in production with 60% local content. That would be 225,000 jobs. There’s all this exciting potential that’s not being realised,” Barnes says.
He explains that, while the SAAM 2035 framework proposes ambitious goals and acts as a guide for policy, programmes like the Automotive Production Development Programme (APDP) sit within that broader framework. “Our policy is legislated until the end of 2026, so the APDP is due for review and needs to be changed or extended before the end of the year.”
In presentations to the Portfolio Committee on Trade and Industry on 27 January, the chief director: automotives, at the Department of Trade, Industry and Competition (DTIC), Mkhululi Mlota said a comprehensive South African automotive policy review is currently being carried out to deal with challenges plaguing the sector to revatilise and ensure its rapid growth.
Dr Tebogo Makube, acting deputy director general: sectors branch, told the same session that a suite of proposals aimed at reviving the sector are being considered. These include reviewing the customs tariff structure, developing a battery manufacturing policy, attracting new vehicle manufacturers and reviewing the ad valorem tax on light motor vehicles.
Barnes, who has a large amount of proprietary data that he uses for modelling, says he is not involved in the current policy review and that, in this instance, it is an internal government process.
The APDP
There is much discussion and expectation around how the revised APDP will accommodate new independent importers and a trend towards Semi-Knocked-Down (SKD) assemblies being set up in the country.
In context, the current APDP 2 is an evolution of the previous APDP, MIDP and the government’s local content programmes from 1961 to 1995, which all focused on supporting Completely Knocked-Down (CKD) production in South Africa. “It was never intended to be a policy that encompasses all autos.”
Barnes says the accommodation of SKD assembly in South Africa should “never have happened”.
He points out that a substantial amount of automotive policy sits outside of the APDP. “For example, National Treasury decides how to tax the automotive market. In South Africa, we have a very weird regime that over-taxes at the bottom of the market, charges maximum rates in the middle, and then doesn’t increase taxes any further for vehicles at the top-end of the market. It’s an absurd tax structure that damages volumes in core market segments and is almost ‘anti-poor.”
Policy matters
Addressing the trend of SKD assembly plants being set up in South Africa, Barnes is adamant. “If it were up to me, I would say, no thanks! It’s CKD production that adds value and employment to the economy, whereas there’s minimal investment and very few jobs created in setting up an SKD plant.”
Barnes says we have formidable, world-class CKD production plants in South Africa and it makes no sense to welcome this type of “manufacturing” into the market.
In fact, they pose a number of threats: firstly, they can outcompete CKD plants by limiting their exposure to local duties; secondly, they potentially reduce domestic sales of locally manufactured CKD vehicles and thirdly, they add no employment opportunities or contribution to the country’s Gross Domestic Product.
Reduced duties
Barnes explains that parts imported to build a CKD vehicle are taxed at 20% when they enter the country. “The thousands of parts on a Bill of Material are imported with a single harmonisation code at a straight 20% duty. This saves time and streamlines the process.”
In contrast, SKD parts are imported piecemeal and components like engines, gearboxes and transmissions are brought in duty-free, while others, like air filters come in at just 10%. Barnes says, according to his calculations, SKD assemblers are bringing their own components in and paying, on average, around 8% duty.
Domestic sales
While South Africa’s seven CKD manufacturers exported nearly 70% of the units they produced last year, the 180-200,000 units sold domestically cannot be given up lightly.
Barnes explains that scale and volume of production are more of a factor for monocoque vehicles, which rely on the ‘exoskeleton’ of the vehicle’s welded panels for structural integrity. SUVs like the Corolla Cross and the Polo are monocoques.
In contrast, ladder-chassis vehicles rely on two long, heavy steel rails held together by cross-members for structural strength, and the body is bolted on top. The Hilux and Ranger are examples of ladder-chassis construction.
Monocoque production requires more investment and therefore a need to produce higher volumes. “To make economic sense, a plant needs to produce a minimum of 25,000 units per plant for ladder-chassis models, and about 60,000 units per plant for monocoque vehicles, depending on the model,” Barnes says.
Jobs and value
Illustrating how SKD production is no substitute for CKD production, Barnes quotes some round figures.
“If the CKD producers employ 30,000 people and we estimate that for every one assembly job there are two supplier jobs (at a rate of 40% local content), our total employment adds up to 90,000. In an SKD plant, assembly is very basic, requiring far fewer employees – estimate 1,000 in comparison.
“Setting up a basic assembly plant could cost about R40 million. The most complex part of the work is testing. Whereas a CKD plant costs billions in investment. The VW plant at Kariega is probably worth around R25 billion.
“If our SKD plants replace the CKD plants, you’re looking at 1,000 jobs instead of 90,000 and a R40 million investment instead of R25 billion. It makes no sense to me.”
Chery buys Nissan
On 23 January, Nissan announced that it had sold its land, buildings and associated assets of the Nissan facilities, including its nearby stamping plant at Rosslyn to Chery SA and expected the sale, subject to regulatory approvals to go through in mid-2026.
Nissan said the agreement will see the majority of associated Nissan employees offered employment by Chery SA on substantially similar terms and conditions.
The Minister of Trade, Industry and Competition, Parks Tau, welcomed the ‘investment’ two days later.
The DTIC said the deal also coincides with its ongoing engagements with the industry to revamp the automotive policy and support measures.
“The South African automotive sector remains a key anchor industry for manufacturing and job creation. This acquisition by Chery SA is subject to regulatory approvals; after which details on the investment will be shared with the public,” the DTIC said.
Although he has no inside knowledge of the deal, Barnes says he hopes the government “sticks to its guns”.
“I’m hoping we attract Chinese CKD production in South Africa. The Chinese are going to be standing shoulder-to-shoulder with their Japanese, American, German, and French counterparts, so we want to have the best chance of us being successful. We need a mix of Chinese and Indian OEMs here, definitely. But it shouldn’t be at the expense of existing OEMs, it should be in addition to and complement what we already have here,” Barnes says.
