The automotive industry was in big trouble before with a slump in new vehicle sales and this has now intensified with the introduction of the US tariffs.
The US tariffs and a slump in new vehicle sales caused 12 companies to close and 4 000 people lose their jobs over the past two years. The erosion of the industrial value of the automotive indsutry is emphasised by recent suspensions at Mercedes-Benz and other Original Equipment Manufacturers.
Minister of Trade, Industry and Competition Parks Tau shared this grim news with people who attended the annual National Association of Automotive Component and Allied Manufacturers (NAACAM) show on Thursday.
He pointed out that the automotive sector is the cornerstone of South Africa’s manufacturing economy, contributing 5.2% to gross domestic product (GDP) and 22.6% of industrial output.
“This industry faces intersecting challenges that demand urgent collaboration but within these challenges lie transformative opportunities to redefine and leverage our global competitiveness.”
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Automotive industry faces stark reality
The automotive industry employs 115 000 South Africans directly, with over 80 000 in component manufacturing alone. However, Tau says, we confront a stark reality that domestic sales of locally produced vehicles plummeted to 515 850 units in 2024, far below the South Africa Automotive Masterplan 2035 target of 784 509.
He said it is also important to remember that 64% of vehicles sold in South Africa are imports, eroding local production scales. “Compounding this, local content remains stagnant at 39%, well short of the 60% target, while US tariffs now significantly affect our R28.7 billion automotive exports. These pressures triggered 12 company closures and over 4 000 job losses in two years.”
According to Tau, localisation is not merely policy compliance, but existential.
“A 5% increase in local content would unlock R30 billion in new procurement, dwarfing the R4.4 billion US export market. To achieve this, we must act collectively to address some of the bottlenecks to growth.
“Therefore, we are reviewing the Automotive Production Development Programme (APDP) as a comprehensive way of responding to the challenges the sector face, but also to ensure that we see regular growth in the sector to meet the goals of the Automotive Masterplan.
“Some of these reforms include the incentive structure and shifting duty credits to reward manufacturing instead of assembly credits.
“Our critical minerals and metals strategy will prioritise beneficiating platinum group metals (PGMs), copper and manganese for high-value new energy vehicles components such as fuel cells and batteries. Isondo Precious Metals’ fuel cell plant in the OR Tambo SEZ proves this viability.”
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Is innovation the answer for automotive industry?
Turning to innovation, Tau said global competitiveness hinges on embracing disruption. “We have been on a path of developing a new industrial policy which focuses on decarbonisation, digitisation and diversification and we follow the example of players in the auto sector.
“In the area of digitisation, Eastern Cape pioneers like S4 and Jendamark demonstrate how AI and automation can future-proof operations.”
In decarbonisation, Tau said Borbet SA’s 20-year solar energy commitment and Malben Engineering’s green steel pilot project align with global carbon rules reshaping trade. As NAACAM notes, carbon has become “part of the cost of doing business – and increasingly, part of the value too”.
Turning to diversification, Tau said catalytic converter exports, historically our lead sub-sector, are declining due to EV shifts and Chinese competition. “We must scale new products, such as e-axles and thermal systems as well as markets, particularly under the Africa Continental Free Trade Agreement (AfCFTA).”
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Transformation in the automotive industry
“We walked a long journey with the automotive sector on transformation. Therefore, it goes without saying that inclusion drives growth. The South Africa Automotive Masterplan 2035’s target of 130 new black-owned manufacturers is advancing, with 26 black-owned MSMEs exhibiting, supported by the Automotive Industry Transformation Fund and OEM partnerships such as Toyota-Isuzu’s supplier development programme.
“As you would agree, the pace does need to be hastened. Therefore, we are hopeful that the industry will support the endeavour of the Transformation Fund that we are pursuing at the dtic with the view to enhance overall transformation through enterprise and supplier development (ESD) funds.”
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Tau emphasised that South Africa must accelerate skills development to ensure that we prepare our labour force for the dramatic changes that artificial intelligence will bring into the sector. “It is therefore critical that we partner with institutions in the country to address this urgently.
“Entrenching supply chain equity through initiatives like linking equity investments to procurement from black-owned tier 2/3 suppliers will create symbiotic growth. As government, we are also working hard to eliminate compliance burdens and reduce red tape which inhibits investment in our country’s automotive sector.
“Our policy response is accelerating and we plan on introducing an Omnibus (general laws amendment) Bill to fast-track high-impact investments and projects within 90 days. This is but one of the ambitious plans we have for the medium-term.
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ITAC to look into impact of exports on automotive industry
“We will also, through the International Trade Administration Commission (ITAC), look at the impact of imports into the country and the impact they have on local production. We want to grow the sector and therefore our first option must not be to wield a stick but rather offer a carrot to these companies to attract more investment into the country, increasing the value-add of particularly our component manufacturers.”
Tau pointed out that the Eastern Cape produces 46% of South Africa’s vehicles and 54% of its exports, epitomising our potential. Therefore, he said, everyone has the responsibility to reignite the collective ambition that drives NAACAM’s advocacy.
“With South Africa chairing the G20, our automotive sector can model African industrial resilience rooted in localisation, powered by innovation and fortified by equity.”