Although South Africa remains a major exporter of automobiles, its current business model will soon have to change. Automotive giants are increasingly shifting their production toward electric vehicles, while countries in Asia and South America are competing with Africa for new investors. Without adapting quickly to these new realities, South Africa risks losing a part of its future production to more attractive locations.
The scale of the potential problem is significant, as the automotive sector accounts for an increasingly larger share of the country’s economy each year. According to official data from NAAMSA (National Association of Automobile Manufacturers of South Africa), in 2025 the country exported a record 414,271 vehicles, and the value of car and component exports reached 291 billion rand. The automotive sector accounted for 23.8% of the value added by South Africa’s manufacturing industry, and cars and components were exported to 109 countries.
The electrification of the automotive industry could therefore pose a challenge for South Africa in terms of industrial policy and export competitiveness.
A 150% tax deduction is just the beginning
The government is attempting to respond to technological change with a very specific financial incentive. Starting March 1, 2026, manufacturers investing in facilities, machinery, and equipment for the production of electric and hydrogen vehicles will be eligible for a 150 percent tax deduction on qualifying investments. The program is scheduled to run for ten years, and the budget cap for the 2026/27 tax year has been set at 500 million rand.
This is an important signal for investors, but the tax incentive alone does not solve the problem, because – as reported by Reuters – industry representatives also point to the reliability of energy supplies, charging infrastructure, consumer demand, regulatory stability, and export competitiveness.
Importantly, the energy situation in South Africa has begun to improve. According to statements from the public energy supplier, its power plants are currently operating more reliably than they have in six years. As a result, residents and businesses no longer have to contend with power outages, which for years were one of the biggest problems facing South Africa’s economy. This does not mean, however, that the energy issue has ceased to be important factor for an automaker, what matters is not only the absence of outages, but also cost, predictability, and the ability to increase capacity as the factory expands.
Exports are the greatest opportunity — but also the greatest risk
The South African automotive industry is export-driven. In 2025, as much as 70.5% of light vehicle production was exported, with the European Union and the United Kingdom accounting for 62.8% of the value of automotive exports.
The energy transition is a challenge precisely in the context of car exports to Europe. Countries such as the United Kingdom and Germany are speeding accelerating the phase-out of internal combustion engine vehicles, and South African factories must be capable of producing models that meet future demand. South Africa’s Department of Trade and Industry identifies the global transition to electric vehicles as one of the main challenges facing the domestic automotive industry.
However, South Africa has important advantages in this race—extensive supply chains, manufacturing experience, access to ports and export markets, and the presence of global manufacturers. The official Automotive Master Plan 2035 calls for, among other things, for increasing the share of local components to 60% and boosting the country’s share of global automobile production.
Investments will be key to competing in the market
Automakers will make decisions regarding electric vehicle production not with the next few months in mind, but with the coming decades in view.
The transition to new-energy vehicles could create new opportunities for South African component manufacturers—including in the areas of fuel cells, thermal management systems, e-axles, the processing of minerals used in batteries, and battery assembly.
The government is also developing programs related to the hydrogen economy and batteries .and Official documents emphasize the need to expand charging infrastructure along major transportation routes and in cities.
The tax incentive is a smart move by the South African government that could attract capital. However, whether that investment ultimately takes root will depend on a much broader set of factors: products, energy costs, logistics, local suppliers, infrastructure, and access to export markets.
If the transition succeeds, the current industrial base could become the foundation for a new generation of the African automotive industry. If not, the record-breaking export figures from 2025 may turn out to be the peak of a previous epoch.
