Major employer in South Africa sends a warning to Ramaphosa

 ·27 Nov 2023

The CEO of Volkswagen (VW) Passenger Cars, Thomas Schaefer, has stated that South Africa is becoming an undesirable location for manufacturing cars – especially amid the global shift toward EVs – due to issues such as load-shedding, rising labour costs, and problems with Transnet.

VW has been in South Africa for several decades, manufacturing models such as the Polo and PoloVivo for exports to over 38 markets from its plant in Kariega, Eastern Cape.

With just over 3,500 employees, VWSA is the largest private employer in the Nelson Mandela Bay metro, where it is located.

However, speaking to Reuters, Schafer said South Africa was a competitive player in global car manufacturing due to its low labour costs, but it is now losing this edge rapidly due to poor governance and sluggish regulatory reforms.

He noted electricity challenges related to Eskom, railway and port problems related to Transnet, and higher salaries have changed the country’s attractiveness. He added that Volkswagen had to ask why it was building cars in South Africa, especially as it is far away from where the cars are sold.

I’m very worried about it. We’re not in the business of charity,” he said. He urged the government to take action to resolve the problems,” said Schafer.

Schaefer praised VWSA’s team for overcoming the various challenges unique to South Africa but emphasised the need for the government to play a part in addressing the problems.

The main headache is the government’s sluggishness in introducing electric vehicle (EV) manufacturing and purchasing incentives.

At present, electric vehicles (EVs) and their components imported from Europe are subject to a 7% higher tax than petrol- and diesel-powered vehicles and their parts. This leads to increased production costs and higher prices for the EVs, which in turn, affects their sales and hampers investment potential.

This means South African consumers cannot afford an electric vehicle and, therefore, it is not an attractive location to build these cars, said Schaefer.

The German carmaker plans to launch ten new electric vehicles by 2026 and is investing nearly $200 billion over the next five years to ramp production.

With the European Union and United Kingdom planning to ban the sale of new internal combustion vehicles from around 2035, VW South Africa risks losing the bulk of its export markets over the next decade if it doesn’t pivot to EV production sooner rather than later.

The South African government only announced its plans to implement tax and expenditure measures to support the automotive sector in the transition to a low-carbon economy for 2024.

“In automotives, a major exporter and source of employment, the transition to New Energy Vehicles (NEVs) poses an existential threat to South African vehicle production.”

“This transition will require balancing domestic market demand, establishing renewable energy-based charging infrastructure, and supporting production.”

“The goal is to make sure the sector remains a major contributor to the industrial development of the domestic economy,” said Finance Minister of Finance Enoch Godongwana during the Medium Term Budget Policy Statement.

He added details will be provided in the 2024 Budget Review.

Read: Ramaphosa: Hands off the Reserve Bank – for now

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