South Africa Secures Major Chinese and Indian Investment Commitments to Revitalize Domestic Automotive Manufacturing

In a significant boost to the nation’s struggling automotive sector, South Africa has secured firm commitments from major Chinese and Indian automobile manufacturers to upgrade their current semi-knocked-down (SKD) vehicle assembly operations to comprehensive full-scale manufacturing facilities, Trade Minister Parks Tau announced Thursday at the country’s annual automotive industry conference.

The announcement comes at a critical juncture for South Africa’s automotive industry, which has dominated vehicle production on the African continent for the past century but now faces unprecedented challenges from declining production volumes, intensifying competition from Chinese imports, tariff uncertainties, and the capital-intensive transition to electric vehicles.

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Government Engages Global Automakers on Industry Future

The South African government has intensified discussions with multinational carmakers operating domestic factories—including industry giants Toyota and Ford, along with their extensive supplier networks—to develop comprehensive strategies for safeguarding the industry’s long-term viability and competitiveness in an increasingly challenging global market.

Speaking to delegates following recent high-level engagements with industry stakeholders in China and India, Minister Tau revealed the breakthrough commitments: “In both those markets, the companies that currently have SKD operations in South Africa have committed to transition to CKD (complete knocked down) manufacturing.”

This represents a substantial upgrade in manufacturing sophistication and local value creation. The SKD manufacturing technique involves assembling partially completed vehicle kits into finished automobiles, essentially the final stages of production. In contrast, CKD assembly puts together complete vehicles from individual component parts delivered to the manufacturing site, requiring more extensive facilities, greater technical expertise, and significantly higher levels of local content and employment.

Chinese and Indian Manufacturers Lead Investment Wave

Among the companies making commitments is Chinese automotive brand Beijing Auto Industrial Corporation (BAIC), which currently operates an SKD assembly line for its Beijing X55 crossover model in the port city of Gqeberha. The coastal city, formerly known as Port Elizabeth, is home to major manufacturing operations by Isuzu and Volkswagen, making it one of South Africa’s key automotive manufacturing hubs.

BAIC’s existing plant was strategically designed with the flexibility to eventually transition to full CKD assembly capabilities, and the company has now committed to making that upgrade a reality. This expansion will require substantial capital investment in production equipment, training programs for local workers, and expanded supplier relationships with South African component manufacturers.

Meanwhile, India’s Mahindra & Mahindra, one of the world’s largest tractor manufacturers and a major player in the utility vehicle segment, currently assembles semi-knocked-down pick-up trucks at its facility in Durban, South Africa’s busiest port city and a critical logistics hub for the automotive industry.

Earlier this year, Mahindra took a significant step toward deeper South African investment by partnering with the Industrial Development Corporation, the country’s state-owned development finance institution, to launch a comprehensive feasibility study into constructing a full-scale manufacturing plant in South Africa. The study is examining potential sites, infrastructure requirements, supplier ecosystem development, and market demand projections for various vehicle segments.

Government Pledges Support for Manufacturing Upgrades

Minister Tau emphasized that the national government stands ready to provide comprehensive support to help these international automotive companies achieve full production capability on South African soil. “The government’s role would be to support these companies in reaching full production capability, which would not only strengthen South Africa’s industrial base but also position the country as a manufacturing hub for the continent,” he stated.

This support could take various forms, including financial incentives through the government’s Automotive Production and Development Programme (APDP), infrastructure development assistance, expedited regulatory approvals, skills development programs, and facilitation of connections with local component suppliers.

The minister further revealed that discussions with additional potential investors in both China and India have generated significant interest in the South African automotive market. Some companies are exploring partnerships with existing car manufacturers to utilize excess production capacity at established facilities, while others are considering building entirely new manufacturing plants from the ground up.

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Industry Warns of De-Industrialization Risk

The investment announcements come against the backdrop of stark warnings from automotive industry leaders about the existential threats facing South Africa’s vehicle manufacturing sector. At Wednesday’s conference sessions, executives cautioned that without decisive action to protect the domestic industry from the flood of imported vehicles, South Africa risks accelerating de-industrialization that would devastate employment and erode the country’s industrial capabilities.

The statistics paint a concerning picture. Over the past 19 years, the percentage of CKD vehicles sold in the South African market has declined precipitously from 56% to just 33% as of August 2025, according to Andrew Kirby, CEO of Toyota South Africa Motors.

“What this means is that we are flooding the market with imports,” Kirby explained. “Sustaining CKD volumes is critical to preserving the domestic auto industry, local value creation and economic benefits.” The shift toward imported vehicles rather than locally manufactured ones has direct implications for employment, skills development, supplier networks, and South Africa’s trade balance.

Each locally manufactured vehicle supports multiple jobs beyond the assembly line itself—in component manufacturing, logistics, dealerships, and maintenance services. The automotive sector also drives demand for steel, plastics, electronics, and numerous other inputs, creating multiplier effects throughout the economy.

Continental Leadership Position Under Threat

South Africa has been the undisputed dominant vehicle producer on the African continent for the past century, leveraging its relatively developed infrastructure, skilled workforce, established supplier networks, and preferential trade agreements. However, this long-held position is now under serious threat.

“We are facing the risk of losing this position as the top dog on the continent to Morocco as early as this year,” warned Neale Hill, president of Ford Africa. Morocco has aggressively pursued automotive investment in recent years, attracting major European and Asian manufacturers with competitive incentives, strategic location for exporting to European markets, and modern infrastructure investments.

Renault, PSA Group (now part of Stellantis), and Chinese manufacturers have all established significant operations in Morocco, which has positioned itself as a gateway to both African and European markets. The North African nation’s automotive production has grown rapidly, threatening to surpass South Africa’s output.

Multiple Challenges Facing the Sector

The South African automotive industry faces a perfect storm of challenges that require coordinated responses from government, manufacturers, and labor unions. Beyond import competition, manufacturers must navigate:

Declining Production Volumes: Domestic vehicle sales have been under pressure from economic headwinds, high interest rates, and subdued consumer confidence. Lower volumes make it harder to achieve economies of scale necessary for profitable manufacturing.

Chinese Competition: Chinese automotive brands have dramatically improved quality while maintaining significant cost advantages, making them increasingly competitive in price-sensitive markets like South Africa. Chinese electric vehicle manufacturers, in particular, are capturing growing market share globally.

Tariff Uncertainty: Changes in trade policies, both within Africa through initiatives like the African Continental Free Trade Area and in key export markets like the European Union, create planning challenges for manufacturers making long-term investment decisions.

Electric Vehicle Transition: The global shift toward electric vehicles requires massive capital investments in new production lines, battery technology, charging infrastructure, and workforce retraining. This transition is particularly challenging for developing markets where electricity infrastructure may be less reliable and consumer purchasing power is limited.

Skills Shortages: As vehicles become more technologically sophisticated, particularly with electric drivetrains and advanced driver assistance systems, manufacturers need workers with new skill sets that may be in short supply in the local labor market.

Regional Manufacturing Hub Ambitions

Minister Tau’s vision extends beyond simply maintaining South Africa’s current position. The goal is to transform the country into a true manufacturing hub serving the entire African continent, capitalizing on the market access provided by the African Continental Free Trade Area, which creates a single market of over 1.3 billion people.

By attracting investment in full-scale CKD manufacturing rather than just assembly operations, South Africa can capture more value from each vehicle produced, develop more sophisticated technical capabilities, and create higher-quality employment opportunities. Full manufacturing operations also tend to attract clusters of component suppliers, creating industrial ecosystems that are more resilient and generate additional economic benefits.

The presence of established manufacturers like Toyota, Ford, Volkswagen, Isuzu, BMW, and Mercedes-Benz provides a foundation of infrastructure, skills, and supplier networks that new entrants can leverage. This existing ecosystem is a significant competitive advantage that Morocco and other emerging automotive manufacturing centers lack.

Looking Ahead: Prospects and Challenges

While the commitments from Chinese and Indian manufacturers represent positive momentum, translating these pledges into operational factories will require sustained effort, substantial capital investment, and continued government support. The timeline for upgrading SKD operations to full CKD manufacturing typically spans several years and requires navigating complex regulatory approvals, construction projects, equipment procurement, and workforce development.

Industry observers will be watching closely to see whether the government follows through with the policy support, incentives, and infrastructure investments necessary to make these projects succeed. Questions also remain about how South Africa will balance protecting its domestic industry through trade measures while maintaining its commitments to free trade agreements and avoiding retaliation from trading partners.

The automotive sector remains one of South Africa’s most important manufacturing industries, accounting for a significant portion of manufacturing output, exports, and employment. Its future will have major implications not just for the hundreds of thousands of people directly and indirectly employed in the sector, but for South Africa’s broader industrial strategy and economic development trajectory.

As global automotive production continues evolving rapidly, with electric vehicles, autonomous driving technology, and new mobility business models reshaping the industry, South Africa faces the challenge of not just preserving its current position but adapting quickly enough to remain relevant in the automotive manufacturing landscape of the future.

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By: Montel Kamau

Serrari Financial Analyst

3rd October, 2025