South Africa has taken a significant step towards attracting Chinese investment in its automotive sector by enacting a tax break for the production of new-energy vehicles (NEVs). This move comes as Chinese automakers are increasingly gaining market share in the country, challenging established players like Toyota and Volkswagen.
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The new legislation, which offers a 150% tax deduction on investments in electric and hydrogen-powered vehicle production, was signed into law by President Cyril Ramaphosa on December 24th. This move addresses concerns about the future of South Africa’s automotive industry, which faces challenges from the European Union’s phase-out of internal combustion engines and increasing competition from Chinese manufacturers.
While the tax incentive is a crucial step, industry leaders emphasize the need for further support. Mikel Mabasa, CEO of the Automotive Business Council, stressed the importance of creating a conducive environment for investment, including improvements to charging infrastructure, development of a local supply chain utilizing the country’s abundant mineral resources (such as manganese, nickel, and platinum), and adjustments to import levies on electric vehicles.
The current automotive landscape in South Africa presents a complex picture. While the country boasts a strong manufacturing base and a relatively affluent consumer market, it faces challenges from high import taxes and limited support for the transition to electric vehicles.
The arrival of Chinese automakers like Chery and Great Wall Motor has intensified competition within the South African market. While some established manufacturers, such as Stellantis, have expressed plans to invest in EV production, others, including Volkswagen and Isuzu, have indicated that such investments are not currently feasible within the current operating environment.
The successful implementation of this tax incentive and the creation of a supportive ecosystem for EV manufacturing will be crucial for South Africa to maintain its position as a key player in the global automotive industry and capitalize on the growing demand for electric vehicles.
