South Africa’s Position Continues to Grow within the Vehicle Production Industry.

Recent years have represented a difficult period for car production worldwide because pandemic forced manufacturers to stop indefinitely, and yet that was not all. The market also had to go through a strong crisis due to the microchips shortage, the international recession and the war between Russia and Ukraine. 

Nevertheless, countries' production has been gradually progressing. According to the reports published by the International Organization of Motor Vehicle Manufacturers (known by its French acronym, OICA), 85 million units were produced in 2022, a 6% increase compared to 2021, when there were produced slightly over 80 million units. 

Obviously, these numbers also surpassed those of 2020, with fewer than 78 million units recorded. However, there is still a long way to go to reach the world car production record of 97 million vehicles achieved in 2017. 

As shown by this annual report, China led the automotive production, followed by the United States and Japan. Meanwhile, South Africa ranked 22nd, standing out with the production of 555,889 units, an 11.38% increase compared to the 499,087 vehicles manufactured in 2021. 

The OICA information also shows that, out of the total vehicles produced in South Africa, 55.66% (309,423 units) were passenger cars, while 44.34% of them (246,466 units) were commercial vehicles. In this context, in 2021 Germany, the United States, Belgium, Japan, and Australia were South Africa's main export destinations for cars as it arises from a BACI database’s statement. 

In addition, Germany, the United States and Russia reported surprising increases at vehicle acquisitions from our nation. Meanwhile, Austria, Japan, and Turkey saw a decline in trade with the South African market. 

Notwithstanding the above, the goal of Volkswagen's headquarters in South Africa is still to explore new markets for both gasoline and diesel vehicles, aiming at reaching, as initial options, countries in Latin America and Asia. 

Currently, three-quarters of the cars produced by the country's automotive industry, which represents around 5% of the Gross Domestic Product and responsible for over 100,000 jobs, are mostly exported to countries in the Old Continent. 

Yet, the problem lies in the fact that the European Union and the United Kingdom are transitioning to electromobility, meaning that the sale of combustion engine vehicles eventually will be prohibited, a decision that also puts the South African automotive industry at risk. 

In response, Martina Biene, Volkswagen South Africa’s Chairperson and Managing Director, stated in an interview with Reuters that the company's manufacturing facilities do not plan an immediate shift towards the production of electric vehicles, as some had expected. Instead, they would partner with the Indian and Brazilian manufacturing centers to reach new destinations that will likely be left behind by the electric vehicle boom.

 “That is clearly our current strategy. I estimate that by 2035, there will be electric vehicle production in África, but in the meantime, we will probably export less units to Europe than to other countries” explained Biene.  She also highlighted that, in 2021, Volkswagen South Africa produced over 129,000 vehicles, along with more than 58,000 engines, primarily for export. 

African automotive market 

On a more broader level, it is important to note that, in 2021, the African automotive market was valued at $30.44 billion, it is expected to reach $42.06 billion by 2027 and with a 5.5% predicted compound annual growth rate during the period 2022-2027. 

The growth prospects in this continent are the highest in the world, and each vehicle multinational manufacturer -established in South Africa, Angola, Ethiopia, Ghana, Kenya, Namibia, Nigeria, Rwanda, among others- is working hard to boost the automotive industry's development in the region. This is, for instance, the case of South Africa, Egypt, Morocco, or Algeria, which are recognized for having their own assembly and car manufacturing sectors.  

In the same vein, contract production represents another significant factor that contributes to the growth in these countries, especially considering those companies that own manufacturing franchises for Original Equipment Manufacturers (OEMs). 

Kenya Vehicle Manufacturers is a good case in point, as the government has agreements with Mercedes-Benz, Volkswagen, and Chrysler. Meanwhile, AVA assembles medium and heavy commercial vehicles for Mitsubishi and Fuso, as well as Scania, Toyota, Hino, and Tata. 

Additionally, African governments and regulatory bodies in the region are increasingly taking measures to strengthen the import and export of safer and cleaner vehicles. One of the implemented proposals was, for instance, the creation of the African Association of Automotive Manufacturers, an organization that succeeded in, among other things, granting 10 years of tax exemptions for any automotive company with a local assembly plant in Nigeria, Kenya, and Ghana.  

To understand the importance of the global automotive production market, it’s good to know that, out of the 195 countries recognized by the United Nations, only 49 produce cars. Yet, over the years, more nations are entering into the industry as the number of suppliers is still limited to face the global demand.  

The fact is that no matter where you are, whether it's South Africa or any other place, owning a vehicle will always be a dream for many, not to mention how the industry also contributes to the economic growth of each country through employment and investment. 

SOURCE: Alejandro G. Trecco – CEO Quotes Advisor