Things in Motor Manufacturing World SA are beginning to shift and move rapidly now. I’m worried though that the facts will not change.
By way of example. I am driving my last daily ICE vehicle. The next one will be electric. It is not a discussion of options – it is simple plain fact. If you are not in the same state of mind it is simply because you have not yet driven an electric vehicle – and trust me, once you have the blinkers will come off faster than a politician’s integrity after the votes are counted.
What my new EV will look like and when it will come about still remains to be seen. Pricing is of course going to be an issue and it is just about the only factor in the ‘when’ part of my adoption process.
I am not alone. This is what is going to happen in South Africa at a scale that will amaze everyone. Sub R400k and I think EVs will dominate – because, and here’s the thing, the cost to refuel them will run you at around 1/8th to 1/10th of what petrol will cost you according to my chat with GridCars. And do you know the best thing about that? No tax to be squandered in your name by what passes for ‘legitimate government’ these days. No doubt they will come up with some way to plunder the hapless motorist but that is another story for a different day.
In every two car household one will be EV and the other will possibly be a hybrid so that you can go on those long trips to the coast. That said Mecedes Benz already offers you 800km in range on their S Class model. GridCars reckon you can get to Cape Town in an electric Mini tomorrow if you so choose. I’m game to try it if Mini have a spare EV floating around (they don’t – there is a waiting list).
So we are talking big changes and let’s get onto that. A good start to take at the Chinese. I see that News24 picked up on a Reuter’s report showing that electric is fast becoming dominant in Chinese sales. Not growing. Becoming dominant. ICE sales dropped 20% in a single quarter. EV and hybrids grew 68% in the same time frame.
Try that on for size.
These are seismic changes and those familiar with the S curve theory of change will recognise what is happening. I used Google to find this pic.
The S curve shows us that the bulk of the change takes place extremely rapidly and given that we’re already well down the road of NEV adoption, the steep part of the S curve is where we are at and reflected in the big changes being reported in China.
This is Important with a capital I.
It gets rammed home when the Daily Maverick reports that the investment community is placing pressure on manufacturers going to NEV sooner rather than later. They quote Tesla as being valued at $580B and Ford at $50B.
Ford! Less than one tenth of the value of Tesla. Ford! For whom a 200,000 vehicle advance order for a new model before production has even begun is normal.
Ford sold 4.2M cars last year (5.9M in 2018 pre Covid). Tesla sold 500k in 2020, 930k in 2021 and 1.3M in 2022.
Tesla has more than ten times the value of Ford. Ten times! And I’m really not sure Tesla’s cars are better quality than Ford’s (I haven’t driven a Tesla in all fairness but I have driven the new Fords and they are amazing).
And so the Chinese auto manufacturers are going EV faster than you can say ‘bye bye SA auto manufacturing’. Take a look at what they are already doing to our local markets in, just over a year with their ICE offerings. They are here with new vehicles that are stuffed to the gills with tech and toys and features that are so far on the other side of sumptuous that by the time you realise that the price is far below the equivalent in other brands you’ve already handed over your cash.
OK, I will concede that yes, some of the tech maybe doesn’t quite have the sophistication of it’s European counterparts. But that is just a matter of time because compared to what was on offer in 2018 the vast improvements spell what is now etched on the wall.
But this is about us, here in little old SA. Where do our OEMs find themselves in all of this?
Up the creek and with a broken paddle I think. Come 2035 our exports to Europe disappear because we only make ICE here.
And why do we only make ICE here? What are our OEMs missing that the rest of the world appears not to be.
As it happens, not a lot. We have some very frustrated CEOs because what we do have is the laggiest NEV policy framework in the world. We don’t even have a white paper (actual policy) in place yet. Our auto industry didn’t get a single word in the budget speech. Not one. And it’s 5% of our GDP. R200B of actual cash coming INTO the country annually that is going to go away. And not a mention.
I think the OEMs are putting on a brave face. But the reality is this. We have NEVs being made elsewhere in the world already. Those investments were planned years ago, executed and brought to fruition and are ramping up. Their supply chains are sorted. These factories have electricity and a functioning railway distribution system. And they have policy, complex trade agreements and all manner of paperwork already sorted. The same things in other words, that we put in place some 3 decades ago but haven’t refreshed in the last ten years.
It doesn’t simply cost a few dollars to switch from ICE to NEV. You don’t just toggle a switch and turn it on. You have to plan it. The investment is measured in billions of dollars to make the changes. We didn’t grow our OEM industry to 7 participants in a few weeks. It took years of planning and whilst ICE was the normal standard in cars, we managed to grow and export lots of cars to Europe and elsewhere. Because we’re good at it.
But now we have to change and change into a world where the NEV transitions have already been made. Now we are on the backfoot trying to play catch up and what is our government doing? it is doing what it does best. Nothing.
Nothing at all.
Doing something would involve actual work, stuff that they are allergic to. Kicking the can down the road is their only skill, perhaps surpassed only by their ability to pretend that the problem doesn’t exist at all. Patel reminds me of the ravenous Bugblatter Beast of Traal – a creature so daft that it assumes that if you can’t see it, it can’t see you. Daft as a brush, but extremely ravenous. In this case, for your tax money.
Offhand, I cannot recall a single effort made by government that hasn’t been forced, fought for, begged for or dragged out of them. Leading? You have to be joking.
Performance from them is simply not good enough and now, it’s quite possibly too late to do anything about. Watch this space – soon they will be blaming someone else for the situation.
OK enough of my cynicism for a moment. Let us do a thought experiment and run through my logic here.
Consider yourself as an OEM. A big daddy. The big Kahuna. The mother ship. You get the idea.
There no South African owned OEMs (the irony of Tesla is not lost on me).
And let’s say as an OEM you currently own an operation in South Africa that is both successful and profitable in making ICE engined vehicles. You export these to existing markets in Europe and elsewhere that pay top dollar for these vehicles and you export more than you sell into the local market. Which is where we are today in SA. Make local. Sell local. Export excess and make wads of cash. A success story.
But now you have to switch to NEVs or lose 40% of your market. You have till 2035. Tick tock. Tick tock.
What do you do?
You either make NEVs or you find other markets for your ICE based vehicles. Quite simple.
The problem I have is that if you had a market for more ICE vehicles wouldn’t you already be supplying it? But let us gloss over this quickly…
Because this is a thought experiment :- let us now wave the magic wand from our Unicorn Land of Rainbows and Rose Tinted Spectacles that muppets like our minister Patel thinks we all live in, and taaa daaa! We magic up a white paper together with all the complicated tax arrangements and the complicated trade agreements and have them inked into permanency immediately. Such is the power of magic. That should clear the runway of red tape completely and more or less take government out of the way.
Let’s go one better. Let’s say BugBlatter Beast Patel also sorts out the over taxation on local markets where NEVs are taxed at higher rates than ICE, again with a flourish of his dinky pinky little wand.
Now, a shiny new pink NEV that poops spookasem (candy floss for my non Afrikaans fluent readers) is yours, dear reader, at the same price as an ICE equivalent – you know, kind of like the rest of the world is going to / already arrived at.
Happy days! All our problems are solved right?
The teeny wrinkle is that we only need 3 to 5 years to make it happen – planning, upgrading,and dropping a few billion dollars in the process.
What do you think is going to happen in the meantime, when the Chinese start dropping NEVs locally? Or for that matter your own factory already in production elsewhere? Will it be be simpler, easier and cheaper to import a coupla NEVs to fill the relatively small local market? Without a policy in place, who knows? And when you have a ‘who knows’ question, you have risk. And when you have risk, how often do you get investment unless the return on that risk is staggeringly good?
Imagine sitting in front of your board having to please explain why your production costs are higher than expected because the railway you were promised was a lie? And that the power you were promised can be cut off at the whim of an enthusiastic scrapper armed with an angle grinder?
So, just in case I am not being clear.
You can argue and bicker about the future of ICE. But it is gone. It might still exist for third world backwaters that cannot deliver electricity reliably to their citizens, and who have no choice but to rely on ICE to get anywhere. For how long is anyone’s guess but mine is that the sales of the kind of luxury vehicles we currently make to this market is not going to be sufficient to offset what we lose in sales to Europe. Rather such ICE markets that are left post 2035 are likely to be dominated by lowest cost competition and the Patel Trabbie is going to be the one model (in one of two exciting colour, either drab grey or grey) that you get to buy in these markets.
And that will probably be made in Tanzania.
Our local OEMs will wind down their ICE operations from where they are now to about the square root of nil in about ten years time. They will disappear as the export markets that we can no longer supply competitively disappear. It is that simple. As ICE winds down the surplus capacity of the world to produce ICE is going to increase, a case of surplus capacity chasing smaller and smaller markets as the global ICE market share goes down and NEV goes up.
Who or what is going to replace our OEMs?
The sad thing is that we have great people fighting tooth and nail to try and keep the car manufacturing industry going. People who understand the longer term imperatives and just what this export market means to our economy and consequently all of us. But they cannot fight politics. They cannot fight Eskom and Transnet. All they can do is point out the inevitability of the consequences of inaction and ignorance by our blessed leaders.
So the question now remaining is this. Do we have time to salvage the situation? We undoubtedly have the people. We have an industry that has a brilliant track record. We have elections coming up which might present an opportunity to exert pressure over an out of touch out of shape bloated maladministration that passes for government. Ironically it is time that will tell how it all ends.
What that end is I don’t know – this is happily way above my pay grade. All I can tell you is that I am not sleeping. And if something is not done soon the trouble we are in now will continue in a slow and agonising death by a thousand cuts over the next decade. If we have that long.