South Africa’s automotive industry is set to receive a major boost following the signing of a tax break law by President Cyril Ramaphosa. This new legislation aims to encourage the production of new-energy vehicles, particularly electric and hydrogen-powered cars, and could pave the way for significant Chinese investment in the country’s $27 billion automotive sector.
Already, three Chinese automakers have signed non-disclosure agreements with the Automotive Business Council, according to Chief Executive Officer Mikel Mabasa. While Mabasa did not disclose the names of the companies, he emphasized the potential impact of favorable government policies on attracting new investment and retaining existing stakeholders. “With good government policies, we will attract new investment, we will increase and retain investment,” he stated during an interview.
The newly enacted tax break allows for a 150% deduction on investments in the production of electric and hydrogen-powered vehicles. This move comes as Chinese automakers like Chery Automobile Co. and Great Wall Motor Co. make inroads into South Africa, competing with established local manufacturers such as Toyota Motor Corp. and Volkswagen AG.
In December, Wu Peng, the Chinese ambassador to South Africa, voiced support for this growing trend, stating that the Chinese government is actively encouraging automakers to invest in the country. However, while the new tax incentive has been welcomed, it comes amid longstanding concerns that South Africa’s car manufacturing sector—considered the crown jewel of its industrial base—could face risks from the European Union’s legislative push to phase out internal-combustion engines.
The tax break was initially proposed in the national budget back in February 2024, but it wasn’t officially enacted until December 24, 2024. Although companies like Ford Motor Co. and BMW AG already manufacture or plan to produce hybrid vehicles in South Africa, there have been no major announcements yet regarding battery-electric vehicle (EV) production in the country.
Executives from Volkswagen and Isuzu Motors Ltd. have expressed skepticism about their companies producing EVs in South Africa anytime soon. Meanwhile, Stellantis NV has indicated that it will consider doing so once the operating environment is more conducive.
Mikel Mabasa of the Automotive Business Council acknowledged that while electric vehicle uptake has been slower than expected in developed markets like the EU and US, South Africa must begin producing EVs to maintain its place in the global automotive industry.
Mike Whitfield, head of Stellantis Sub-Saharan Africa, stressed that additional investments are needed to build charging infrastructure, create a supply chain that leverages southern Africa’s mineral wealth, and reduce taxes on car sales. “The tax amendment cannot and will not on its own be sufficient,” he said. He emphasized that further actions are necessary to ensure that investment decisions are made in favor of the country.
South Africa holds a strategic position in the global EV supply chain, as it is the world’s largest producer of manganese and also mines nickel and rare earths—key components for EV batteries. Additionally, the country is the biggest producer of platinum, which is used in hydrogen fuel cells. Despite these advantages, local sales remain a critical revenue stream for automakers, but import duties on electric vehicles, combined with an ad-valorem tax designed for luxury cars, have not been revised in years.
Mabasa noted that these levies are currently higher than those in other emerging markets, and that the ad-valorem tax should either be adjusted for inflation or scrapped altogether. “We’ve shot our first warning bullet at government,” he remarked, adding that South Africa’s automotive industry could face severe challenges if the government does not offer stronger support. “If government is not supportive, the industry will die.”
While South Africa continues to be a prime destination for automotive investment on the African continent due to its strong infrastructure and relatively affluent consumer base, Mabasa stressed that the sector requires continued governmental backing to thrive in an increasingly competitive global market.
