THE domestic automotive industry is celebrating the centenary of vehicle manufacturing in the country in 2024. In the Automotive Business Council (naamsa) Q1 2024 review, CEO Mikel Mabasa commented that the development of the automotive industry has been a remarkable story of innovation, entrepreneurship, and economic growth in South Africa and the industry is keen for 2024 to turn out to be another memorable year.
He said the new vehicle market at present is performing in line with expectations of a year of two halves consisting of a taxing first half, but with brighter economic prospects expected during the second half of the year. Nearly all new vehicle market performance indicators tilted into negative territory during the first quarter 2024, underscoring the constrained economic environment in the country, amplified by weak consumer and business demand.
Despite an easing in loadshedding and port delays during the quarter, near-term domestic economic activity remains weak amid subdued household spending. The country continues to face the challenges of persistent inflation and a stagnant economy. Inflation data suggests that the path back to the central bank mid-point target of 4,5% has slowed and become more uncertain, which in turn impacts the timing of the commencement of the interest rate cutting cycle. The South African Reserve Bank still forecasts real GDP to expand by 1,2% in 2024 and 1,4% in 2025, with growth to remain low due to inadequate energy supply, deteriorating logistics capacity along with low business and household confidence.
NEV market
Following the release of the DTIC’s EV White Paper in December 2023, the announcement in the February 2024 Budget Speech of an introduction of an investment allowance for new EV nvestments, set to commence in March 2026, to claim 150% of qualifying investment spending in the first year, is a crucial step in attracting investments, fostering innovation, and enhancing the growth of the automotive sector within South Africa, Mabasa said.
Following a record export performance in 2023, vehicle exports lost momentum during the first quarter 2024. Sluggish global growth, a persistent bullish inflationary environment and soaring geopolitical tensions remain persistent factors impeding vehicle exports. However, an easing in global inflation could see a softening in interest rates in the second half of the year which would support the South African automotive industry’s export performance.
Mabasa noted that record vehicle exports ensured that the automotive industry outperformed the rest of the manufacturing sector as the value of vehicle and automotive components to 148 countries once again set a new record, reaching R270,8 billion in 2023, comprising a substantial 14,7% of total South African exports.
Key features of Q1 2024 include
- First quarter 2024 aggregate industry employment as of 31 March 2024 totalled 33,374 reflecting a decline of 5 jobs compared to the 33,379 industry headcount as of the end of December 2023;
- Aggregate new vehicle sales during the first quarter 2024 recorded a decline of 5,6% compared to the corresponding quarter 2023 and a marginal increase of 0,2% compared to the fourth quarter 2023;
- New energy vehicle (NEV) sales by 15 industry brands increased by 82,7% from 1,665 units in the first quarter 2023 to 3,042 units in the first quarter 2024;
- Average industry capacity utilisation levels during the first quarter 2024 reflected the ongoing supply chain disruptions caused by port congestion and delays on vehicle production while the ongoing global semi-conductor shortage impacted OEMs differently;
- Aggregate capital expenditure by the major light vehicle manufacturers in 2023 amounted to R5,2 billion, linked to new generation model investments;
- South African vehicle production market share increased from 0,65% in 2022 to 0,67% in 2023, but its global vehicle production ranking remained at 22nd.
- First quarter 2024 domestic vehicle production reflected a decline of 2,2% compared to the corresponding quarter 2023 linked to a constraint domestic new vehicle market along with lower vehicle exports;
- Vehicle exports lost momentum and declined by 3,7% from the first quarter 2023 to the first quarter 2024, following the record export performance of 399,594 vehicles exported in 2023.
European market
South Africa’s bilateral trade arrangements continue to generate significant gains for the domestic automotive industry.
Europe continued to dominate as a region and accounted for a substantial 75,5%, or three out of every four vehicles exported in 2023, with 50,3% of light vehicle production destined for the region.
The legislation to ban the sales of new internal combustion engine (ICE) vehicles in the EU and the UK by 2035 in favour of EVs, limits a slow transition approach, given the high export exposure of the domestic automotive industry and the required timeframe to respond. The transition to NEVs is therefore not merely a strategic option but a necessity and an urgent imperative, Mabasa noted in the review.