South Africa Races to Keep Auto Exports Competitive in EV Era

South Africa is trying to strengthen its automotive industry as global carmakers decide where to build the next generation of electric and other new-energy vehicles.

The country’s automotive sector is heavily dependent on exports, making the global shift toward lower-emission vehicles an important industrial and trade issue. Around 67% of vehicles manufactured in South Africa are exported, with the European Union and United Kingdom accounting for about 63% of those shipments, according to Reuters.

The government has introduced a major tax incentive for electric and hydrogen vehicle manufacturing, but industry executives and analysts say investment decisions also depend on electricity reliability, logistics, infrastructure, production costs, market access and policy certainty.

Automotive industry faces a technology shift

South Africa has an established vehicle manufacturing industry involving companies including Toyota, Volkswagen, Ford, BMW, Mercedes-Benz and Isuzu.

The sector contributed 23.8% of South Africa’s manufacturing output in 2025 and directly employed about 113,000 people, while supporting an additional 498,000 jobs, according to figures cited by Reuters.

The industry’s export orientation means changes in major overseas markets can have consequences for South African factories and their suppliers.

European markets are tightening emissions requirements while automakers globally are investing in electric vehicles, hybrids and other lower-emission technologies.

For South Africa, the challenge is therefore not only to sell more electric vehicles domestically but also to secure production allocations for future vehicle models.

Government introduces 150% investment deduction

South Africa introduced a 150% tax deduction for qualifying investments in electric and hydrogen vehicle production from March 2026.

The incentive allows qualifying manufacturers to deduct 150% of certain investments in buildings, machinery and equipment used to produce electric and hydrogen-powered vehicles.

The government’s broader automotive incentive framework is intended to encourage investment, sustain employment and strengthen the domestic automotive value chain.

The Department of Trade, Industry and Competition says the Automotive Investment Scheme is designed to support investment in new or replacement models and components, increase production volumes and sustain employment.

InvestSA also identifies the 150% New Energy Vehicle production investment allowance as part of the country’s strategy to support new-energy vehicle manufacturing.

Tax incentives alone may not determine investment

The new tax deduction addresses one part of the investment equation, but companies also assess the wider cost and operating environment.

Reuters reported that industry executives and analysts identified electricity reliability, charging infrastructure, consumer demand, labour skills, logistics, localisation, exchange-rate risks, trade agreements and regulatory certainty as factors that can influence where automakers allocate production.

This is significant because vehicle manufacturing requires long-term capital commitments.

A manufacturer deciding where to build a new model has to consider not only the tax treatment of its investment but also whether components can be supplied reliably, vehicles can be transported efficiently and exported products can remain competitive in destination markets.

Electricity and logistics remain important

South Africa has made progress on electricity supply and logistics reforms, but infrastructure remains an important consideration for manufacturers.

Automotive companies require reliable electricity for production facilities, while the broader supply chain depends on transport infrastructure and efficient ports and rail systems.

The government has pointed to improvements in electricity availability and reforms involving Transnet as part of efforts to improve the operating environment.

The automotive industry has also called for infrastructure capable of supporting different vehicle technologies as the transition develops.

Domestic electric vehicle demand remains limited

South Africa’s domestic new-energy vehicle market remains relatively small.

Reuters reported that new-energy vehicles accounted for about 2.8% of new vehicle sales, although the arrival of more affordable electric and plug-in hybrid models has helped expand the market.

That creates a separate challenge for manufacturers.

Government incentives directed at production can encourage companies to manufacture vehicles locally, but domestic demand can also influence the scale and commercial viability of investments.

Industry representatives have therefore called for measures that support both vehicle production and consumer adoption.

Import costs can affect EV adoption

The automotive industry has also raised concerns about the cost of importing electric vehicles.

According to Reuters, South Africa currently does not provide incentives for EV buyers, while industry representatives have called for changes to taxes that can contribute to higher costs for imported electric vehicles.

The distinction between production and consumption is important.

A policy that makes local manufacturing more attractive does not automatically make electric vehicles affordable for consumers. Likewise, stronger consumer demand does not by itself guarantee that manufacturers will select South Africa for future production.

Both sides of the market affect the industry’s transition.

Competition from Asian manufacturers

South African manufacturers are also facing stronger competition from Asian automotive producers.

Chinese automakers have expanded internationally, including in South Africa, while China has developed substantial capacity across electric vehicle manufacturing and key components.

Reuters reported that South African industry executives are concerned about the cost competitiveness of production compared with Asian manufacturing locations.

Toyota’s decision to produce the electric version of its Hilux pickup in Thailand rather than South Africa illustrates the competition for future vehicle programmes. Reuters also reported that Nissan ended local vehicle manufacturing in South Africa after production had been running below capacity.

These developments do not mean that South Africa’s existing automotive industry is disappearing. The more immediate issue is where manufacturers choose to place future models and investment.

Existing manufacturers continue to invest

South Africa continues to attract automotive investment despite the challenges.

In July, the South African Cabinet welcomed Toyota South Africa Motors’ R10.4 billion investment in its Prospecton plant in eThekwini for production of the ninth-generation Hilux. The government said the investment supports more than 4,300 direct assembly jobs and nearly 27,000 jobs across the supplier network.

The country has also attracted investment from newer manufacturers.

InvestSA describes the Automotive Industry Master Plan 2035 as a joint government-industry roadmap aimed at increasing production, local content and employment while positioning South Africa within global new-energy vehicle value chains.

APDP2 review is being watched

Another issue is the review of the Automotive Production and Development Programme Phase 2, known as APDP2.

The programme is a central part of South Africa’s automotive incentive structure, and industry executives have called for clarity as manufacturers make decisions about production programmes extending into the next decade.

The timing matters because vehicle platforms and factory investments are planned years ahead.

Policy uncertainty can therefore affect decisions before a new factory or model is formally announced.

South Africa is also targeting local value chains

The transition is not limited to vehicle assembly.

South Africa has significant deposits of minerals used in battery and clean-energy technologies, including platinum-group metals, manganese and other critical minerals.

Government and investment agencies have identified battery manufacturing, component production and related technologies as areas where the country could seek greater local value addition rather than relying only on raw-material exports.

The country’s EV policy framework also includes ambitions for local component manufacturing and skills development.

The issue extends beyond electric cars

South Africa’s automotive transition is not necessarily a choice between battery-electric vehicles and conventional internal-combustion vehicles alone.

The country’s automotive policy framework describes a technology-neutral transition that includes battery-electric vehicles, hybrids, plug-in hybrids and internal-combustion vehicles.

That approach reflects uncertainty over how quickly different markets will adopt particular technologies.

For manufacturers, the ability to produce different vehicle types while maintaining competitive costs can therefore remain important during the transition.

The next investment cycle is critical

South Africa’s existing automotive production base remains significant, but future investment decisions will determine how much of the next generation of vehicle manufacturing takes place in the country.

The central question is therefore not whether South Africa currently has an automotive industry. It does.

The question is whether its manufacturing environment can attract enough new vehicle platforms, components and technology investment to keep the industry integrated into global supply chains as those markets change.

For now, the government is using tax incentives and broader industrial policies to address that challenge, while manufacturers continue to assess South Africa against competing production locations.

The outcome will depend on a combination of investment incentives, infrastructure, energy reliability, logistics, skills, market access, consumer demand and the evolving economics of electric vehicle production.