Johannesburg — South Africa is stepping up efforts to keep its automotive industry competitive as global automakers decide where to build the next generation of electric vehicles, but industry executives warn that tax incentives alone may not be enough to secure future investment.

President Cyril Ramaphosa has signed into law a 150% tax deduction for qualifying investments in electric and hydrogen-powered vehicle production, effective from March 2026.

The incentive comes as South Africa faces increasing competition from lower-cost manufacturing hubs in Asia and South America.

A major export industry at a crossroads

South Africa’s automotive sector contributed 23.8% of manufacturing output in 2025, directly employed about 113,000 people and supported another 498,000 jobs.

The industry is heavily dependent on exports, with about 67% of locally manufactured vehicles shipped abroad. The European Union and United Kingdom account for around 63% of those exports, making the region’s transition toward lower-emission vehicles particularly important for South African manufacturers.

Ford Motor Company Africa President Neale Hill warned that the rapid global shift toward electric vehicles could leave South Africa behind if investment conditions do not remain competitive.

Tax incentive welcomed, but wider reforms needed

The new policy allows automakers to deduct 150% of qualifying spending on buildings, machinery and equipment used to manufacture electric and hydrogen-powered vehicles.

However, executives say investors are looking beyond tax treatment when deciding where to allocate future production.

Factors Include:

Reliable electricity supply

Efficient ports and railways

Charging infrastructure

Labour and production costs

Supplier networks and localisation

Market access and trade agreements

Exchange-rate risks

Long-term policy certainty

South Africa’s domestic new-energy vehicle market remains relatively small, accounting for 2.8% of new vehicle sales, although cheaper electric and plug-in hybrid models are beginning to increase adoption.

Consumer demand remains a challenge

Unlike some markets, South Africa currently provides no direct incentives for consumers purchasing EVs.

Industry executives have argued that production incentives should be accompanied by measures supporting consumers, while also calling for changes to taxes that can push total import duties on electric vehicles to as much as 30%, depending on vehicle value.

Ford’s Hill said countries competing for automotive investment need both production-side and consumer-side policies to accelerate EV adoption.

Asia puts pressure on South Africa

South Africa’s traditional cost advantages have weakened, according to Toyota South Africa CEO Andrew Kirby.

Energy, labour, taxes and logistics costs have all increased, while infrastructure problems and pressure on local suppliers are adding to the industry’s challenges.

Toyota selected Thailand rather than South Africa as the production base for the electric version of its Hilux pickup. Nissan has also exited local vehicle manufacturing after production operated below capacity.

At the same time, China’s strong position across the EV supply chain is helping attract both Chinese and Western automakers toward lower-cost production platforms in Asia.

The clock is ticking

Automakers are urging the government to complete its review of the Automotive Production and Development Programme 2 (APDP2), South Africa’s main automotive manufacturing incentive framework.

The decisions being made now could influence vehicle production programmes extending into the next decade.

The government has pointed to improvements in electricity supply and reforms at state-owned logistics company Transnet as part of efforts to restore competitiveness.

While no automaker has yet announced an EV manufacturing investment directly linked to the new 150% incentive, existing automotive support has helped attract billions of rand in investment.

China’s Chery plans to begin local production next year, adding to the changing competitive landscape.

“The risk is not that existing production disappears overnight,” Investec Sustainable Solutions’ De Wet Taljaard told Reuters. “The risk is that the next generation of vehicle platforms, technologies and manufacturing investments goes elsewhere.”

Source: Reuters
Reporting: Nqobile Dludla
Editing: Bate Felix and Louise Heavens