Can South Africa’s Car Industry Survive the Perfect Storm?

(4 Minutes Read)

South Africa’s automotive sector, a vital contributor to GDP and employment, is facing challenges due to a sharp 22.8% drop in exports in 2024, compounded by the threat of increased US tariffs and uncertainty over AGOA renewal. While major players like Toyota, Volkswagen, and Ford drive production and exports—especially to Europe, the US, and UK—the industry is under pressure to adapt through local value addition, cost reduction, diversification of export markets, and a shift to clean-energy vehicles. Experts recommend strategic responses including regional manufacturing hubs, negotiations with the US, and a possible free trade agreement to safeguard growth and sustain jobs.

The automotive sector contributes 4.3%to South Africa’s GDP, taking together manufacturing and retail. Manufacturing’s share is 2.3% and that of retail is pegged at 2% as of 2024. The industry employs 110,000 people directly and a few times more indirectly. Exports from the sector is also significant at USD12.6 billion as of 2024. Another important fact is the automobile exports during the year worked out to 64% of the exports to US under AGOA (African Growth and Opportunity Act).

In 2024, South Africa’s automotive exports saw a significant decline, dropping by 22.8%. Total exports fell from 399,594 units to 308,380 units. Passenger car exports decreased by 25.4%, while bakkie exports (light commercial vehicles) were down 18%. Despite this overall decline, some companies like Ford experienced growth in specific areas.

Many experts are trying to assess the prospects of the automobile sector in South Africa from three perspectives. One, the impact of the US proposed tariff regime, which singled out the country for imposing more tariffs than other countries. Two, if the AGOA is not getting rolled over or dropping a few countries like South Africa from its ambit, and three, the impact of energy transition to have environment-friendly vehicles running on clean energy.

Before getting to the details, it is important to see who are the major players of the automobile sector in South Africa.

Major Car Producers in South Africa:

• Toyota: A leading manufacturer in South Africa, consistently among the top sellers and exporters.
• Volkswagen: Another major player with a strong presence in both production and sales.
• Mercedes-Benz: A significant exporter, particularly of the C-Class, with a plant in East London.
• BMW: Known for its high-end vehicles and exports, including the 3 Series and X3.
• Ford: The Ford Ranger is a popular model, both domestically and for export.
• Nissan: A long-standing manufacturer with a diverse range of vehicles.
• Isuzu: Also produces vehicles for the local market and export.
• Hyundai: A growing presence in the market and a significant exporter to other African countries.
•  Suzuki: Another significant manufacturer with a growing presence in the market.

China’s Presence

Though not as much as Mercedes, BMW or Nissan, Chinese automotive companies do have vehicle production in South Africa. Specifically, BAIC has a manufacturing plant in Gqeberha (Port Elizabeth), according to Engineering News. Additionally, other Chinese brands are considering establishing local assembly facilities in South Africa, say People’s Daily Online.

Here’s a more detailed breakdown:

• BAIC’s presence:

BAIC South Africa, in partnership with South Africa’s Industrial Development Corporation, established a manufacturing plant in Gqeberha (Port Elizabeth).

• Other brands considering local production:

Companies like BYD and Chery are also reportedly in discussions about setting up local assembly facilities.

Impact of Increased Tariff by the US

The US is a significant market for South African automotive exports, with a large number of vehicles and parts shipped there annually. The tariff will likely make these exports less competitive, potentially leading to a decline in sales and revenue for South African manufacturers.

The automotive sector is a major employer in South Africa, and the tariffs could lead to significant job losses across the industry, from manufacturing to related industries. The uncertainty created by the tariffs could deter future investments in South Africa’s automotive sector, further hindering its growth and development. Many towns and communities in South Africa are heavily reliant on the automotive industry for employment, and the tariffs could have a devastating impact. Also, many automobile companies have started local manufacturing of spare parts and other inputs that go into the vehicles, promoting ancillarisation and local sourcing.

The increased tariff is particularly concerning for South Africa, which has benefited from preferential trade status with the US through the African Growth and Opportunity Act (AGOA), allowing duty-free access for many products, including vehicles. The tariff could lead to reduced exports to the US, decreased domestic production, factory closures, and job losses.

The combined effect of higher tariffs and withdrawal of AGOA can also lead to a jolt in the implementation of energy transition, for which South Africa is focusing in recent days. Here, the energy transition is specifically in the domain of the automobile sector, wherein increased production of vehicles run on clean energy is stressed. To meet the increased demand for such vehicles, several automobile companies are contemplating producing more electric vehicles, cutting down production of conventional vehicles

Exports

In 2024, South Africa exported cars worth USD 12.6 billion, with Germany (USD 3.8 billion) being the largest importer, followed by the US (USD 1.6 billion) and the UK (USD 974 million). Europe is a major destination region for light vehicles exported from South Africa, accounting for 72.7% in 2022.  The Mercedes-Benz C-Class, Volkswagen Polo, and Ford Ranger are among the top exported vehicles. Germany, the United States, and the United Kingdom are key export markets for South African-built vehicles.

Way Forward

South Africa cannot depend on the US market for its exports, since the trade policies are impacted by geopolitics and unexpected shifts. The country has to open up alternative markets for exports other than the traditional ones. To be price competitive despite the increased tariff, companies should seriously look into cutting down the production cost so as to meet the likely competition from other parts of the world having lower tariff rates.  Also, production bases can be set up in other Sub-Saharan and North African countries for assembling or part production and exports from there to avoid the penal rate of imposition of tariffs.

Some experts advocate the need for creating production bases in the US, at least for value addition and creating local jobs, which can be a prime consideration for the Trump administration in the coming days.

SA should have a dialogue with U.S. Administration to overcome the present milieu. It can negotiate for increased investments and imports in other sectors, which the Trump Administration may be interested.  For instance, the US will be interested in importing from there fruits and vegetables and dairy products.

Last but not least, South Africa should strive for a free trade agreement with the US, marking the commodities that may not impede its economy, as a broadening of its present trade and investment treaty. This can be in line with the similar agreement it has with the European Union.