South Africa’s new tax incentives aimed at fostering electric vehicle (EV) and hydrogen-powered vehicle production have sparked interest among Chinese automakers, positioning the country as a potential hub for green automotive innovation. Meanwhile, China’s proposed export controls on EV battery technologies signal a strategic maneuver that could reshape global supply chains in the burgeoning EV industry.

South Africa’s Push for EV Manufacturing

President Cyril Ramaphosa signed into law a landmark tax amendment on December 24, 2024, allowing a 150% tax deduction for investments in new-energy vehicle production. The policy marks South Africa’s most significant effort yet to transition its automotive industry toward sustainable mobility. With this move, the government aims to attract international investment, boost local manufacturing, and solidify its role as a key player in the global EV ecosystem.

Chinese Automakers Eye South Africa

Mikel Mabasa, CEO of the Automotive Business Council, confirmed that three Chinese automakers have signed non-disclosure agreements (NDAs) to explore potential investments in South Africa’s automotive sector. Among the interested players are Chery Automobile and Great Wall Motor, both of which have been expanding their footprint in the region.

These companies join established local manufacturers like Toyota Motor and Volkswagen, which have historically dominated South Africa’s automotive market. However, the entry of Chinese automakers, leveraging South Africa’s favorable tax environment, could introduce new competition and innovation to the industry.

Navigating Export Challenges

While the tax incentive has been warmly welcomed, it comes amid mounting challenges for South Africa’s automotive sector, particularly its export-focused manufacturers. The European Union’s timeline to phase out petrol and diesel vehicles by 2035 is accelerating the need for manufacturers to shift production toward battery electric vehicles (BEVs) and hybrid models.

Major automakers like Ford and BMW already produce hybrid vehicles in South Africa, but no firm commitments have been made for BEV production. Stellantis has expressed interest in manufacturing electric vehicles in the country, contingent upon a stable and favorable operating environment.

South Africa’s Strategic Mineral Advantage

South Africa’s bid to become an EV production hub is bolstered by its rich mineral resources. The country is the world’s largest producer of manganese and platinum, both critical to EV technologies. Manganese is essential for cathode materials in lithium-ion batteries, while platinum plays a key role in hydrogen fuel cells, an alternative technology gaining traction alongside BEVs.

Industry experts believe South Africa’s mineral wealth positions it as a vital player in the global automotive transition. However, tapping into this potential will require significant investment in mining infrastructure, value-added processing, and environmental sustainability initiatives.

China’s Proposed EV Tech Export Controls

Adding complexity to the global EV landscape, China has proposed new export restrictions on EV-related technologies. Beijing’s Commerce Ministry is currently reviewing measures to limit the export of critical battery cathode technologies and mineral extraction techniques essential to EV production.

Context and Implications

China’s announcement follows recent restrictions on the export of gallium, germanium, and antimony—materials vital for semiconductors and other advanced technologies. These measures are seen as part of escalating trade tensions between China and the United States, with analysts suggesting that the proposed EV-related curbs may serve as a bargaining chip in ongoing negotiations.

China dominates the global lithium processing market, controlling approximately 70% of the supply. The country also leads in battery production, with Contemporary Amperex Technology Co. Ltd. (CATL) holding a 40% global market share. Restricting the export of key technologies could further consolidate China’s position in the EV supply chain while creating significant ripple effects for Western automakers reliant on Chinese materials and expertise.

Impacts on South Africa and the Global Market

South Africa’s mineral resources could gain greater importance as global automakers look to diversify supply chains in light of China’s proposed restrictions. This trend could drive more investment in South African mining and processing capabilities, though it would require substantial infrastructure development and policy support.

China’s proposed measures also highlight the need for countries to secure alternative sources of critical minerals. Nations such as Australia, Canada, and the United States are ramping up efforts to develop domestic mining and processing facilities, aiming to reduce dependence on Chinese suppliers.

Broader Industry Trends

Growth Projections

The global market for EVs and lithium-ion batteries is projected to expand rapidly in the coming decade. McKinsey forecasts passenger EV sales to grow from 4.5 million in 2021 to 28 million by 2030. This exponential growth underscores the urgency for automakers and governments to secure stable and sustainable supply chains for EV production.

China’s Global Influence

Chinese EV manufacturers like BYD have been aggressively expanding their international presence, capitalizing on their home market’s advanced battery technology and economies of scale. BYD has recently entered several new markets, including Europe, Latin America, and Africa, showcasing its ambition to compete with legacy automakers globally.

At the same time, China’s dominance in lithium-ion battery technology gives it significant leverage in shaping the future of the EV industry. Export restrictions on battery materials and technologies could force automakers to either adapt their supply chains or explore alternative battery chemistries, such as sodium-ion or solid-state batteries.

Policy and Industry Responses

South Africa’s Next Steps

To fully capitalize on its new tax incentive, the South African government plans to engage with industry stakeholders to identify additional measures for supporting the transition to EV production. Potential initiatives include infrastructure investments for charging networks, workforce training programs, and partnerships with global technology providers.

Additionally, South Africa must address its energy challenges, as frequent power outages and an over-reliance on coal-fired plants remain significant obstacles to attracting foreign investment in energy-intensive industries like EV manufacturing. Transitioning to renewable energy sources will be critical to achieving long-term sustainability in the sector.

Global Implications

Automakers and governments worldwide will closely monitor developments in China’s export policies, recognizing the potential disruptions to EV supply chains. Meanwhile, countries rich in critical minerals, such as South Africa, Australia, and Chile, are likely to see increased interest from global investors.

Collaboration between nations and private-sector players will be essential for navigating the challenges of a rapidly evolving industry. For instance, joint ventures between automakers and battery manufacturers could help mitigate supply risks and drive innovation in alternative technologies.

Conclusion: A Shifting Global Landscape

South Africa’s proactive measures to attract EV investment, combined with its rich mineral resources, position it as a promising hub for green automotive manufacturing. However, the success of these initiatives will depend on the government’s ability to address structural challenges and create a conducive environment for long-term investment.

At the same time, China’s proposed export restrictions underscore the strategic importance of EV-related technologies in global trade dynamics. As the race for EV dominance intensifies, countries and companies alike must adapt to a complex and interconnected landscape, balancing innovation, sustainability, and geopolitical considerations.

The coming years will likely see heightened competition, deeper collaborations, and continued innovation as the world transitions toward a greener and more electrified future.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

7^th January, 2024