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South Africa’s automotive industry, valued at approximately USD 27 billion, is set to receive a significant boost following the enactment of a tax incentive to promote the production of new-energy vehicles (NEVs), including electric and hydrogen-powered cars. President Cyril Ramaphosa signed the tax amendment into law on 24 December 2024, enabling manufacturers to claim a 150% tax deduction on investments in NEV production facilities, effective from 1 March 2026.
This legislative move has garnered attention from Chinese automakers, with reports indicating that three companies have entered into non-disclosure agreements with the Automotive Business Council, also known as NAAMSA. The identities of these firms remain confidential, with these good policies, South Africa will attract new investments.
The Chinese government has also shown support for this initiative. In December 2024, Wu Peng, China’s ambassador to South Africa, encouraged Chinese electric vehicle (EV) manufacturers to consider establishing operations in the country. He encouraged the Chinese companies to consider moving some of their assembly lines or value-added in South Africa.
Despite the promising outlook, several challenges persist. The tax incentive, though welcomed, is scheduled to take effect in 2026, which some industry stakeholders believe may delay the necessary transition. Mikel Mabasa noted that while the incentive is a crucial step, additional measures are required to expedite the industry’s shift towards NEVs. Furthermore, the lack of detailed implementation guidelines has raised concerns among manufacturers. The industry advocates for comprehensive policies, including investment in charging infrastructure and adjustments to import levies on electric cars, to create a conducive environment for NEV production.
South Africa’s abundant natural resources position it favourably in the NEV supply chain. The country is the world’s largest producer of platinum, a critical component in hydrogen fuel cells, and holds significant reserves of manganese and nickel, essential for lithium-ion battery production. Leveraging these resources could enhance the country’s appeal as a hub for NEV manufacturing. However, infrastructural challenges, particularly the country’s electricity supply issues, pose potential obstacles. Frequent power outages, known locally as load high carbon intensity of the national grid could impede the development and adoption of NEVs. Addressing these energy concerns is vital to support the industry’s transition.
The 150% tax deduction for NEV production investments represents a pivotal step towards modernising South Africa’s automotive industry, its success will depend on timely implementation, comprehensive policy support, and addressing infrastructural challenges. Collaboration between the government, industry stakeholders, and international partners, particularly from China, will be essential to navigate the transition and secure the industry’s future in the global NEV market
The global automotive landscape is rapidly evolving, with countries like China leading the charge in NEV production. In 2025, electric vehicle sales in China are expected to surpass traditional vehicle sales for the first time, marking a significant milestone in the clean energy transition. South Africa’s proactive measures, including the recently enacted tax incentive, aim to position the country as a competitive player in this shifting market.
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South Africa’s automotive sector is a cornerstone of its manufacturing industry, contributing over USD 21 billion in exports in 2023. The European Union (EU) and the United Kingdom, which together account for a substantial portion of these exports, have announced plans to phase out internal combustion engine (ICE) vehicles by 2035. This shift underscores the urgency for South Africa to transition towards NEV production to maintain its competitive edge in the global market.
