It has been a tough year for South Africa’s largest manufacturing sector, as automakers struggle to compete against less expensive Chinese and India-sourced vehicles in a shrinking market.

The latest figures from the National Automobile Association of South Africa (Naamsa) are not positive. Total domestic vehicle production year-to-date to the end of October was 18.8% lower at 422 668 compared with the same time last year.

November may have represented the second consecutive increase in monthly new vehicle sales this year and might signal the start of a long-awaited upward trend in the market, but total domestic sales, year-to-date to the end of November, was down 3.47% to 474 469 units, versus the same period last year.

Exports, which provide economies of scale to the local manufacturers so that their vehicles are competitively priced overseas, were down 23.9% to 283 455 year-to-date, to the end of November compared with the same period in 2023.

For many reasons, the parents of many of the local manufacturers also face tough market conditions, with for instance, Volkswagen announced plans to shut three vehicle assembly plants in Germany this year.

In the face of this declining local market, local manufacturers have to compete with increasing numbers of Chinese and India imported vehicles that are lower priced compared with the locally produced and more established brands.

As of August 2024, 13 Chinese manufacturers were offering 34 different vehicle models in South Africa, including hatchbacks, sedans, crossovers, bakkies, and SUVs.

JSE-listed vehicle distributor Combined Motor Holdings (CMH) highlighted the problem in its interim results: “Tough competition, particularly in respect of new Chinese entrants to an already saturated local market, has created intense trading margin pressure. The traditional brands, with local manufacturing investment, are struggling to compete against the flood of cheaper import alternatives.”

“The weak currency exposed the fact that vehicles manufactured in Japan and Europe have become increasingly unaffordable in this country and other emerging markets…Already, more than 50% of vehicles sold in South Africa are sourced from these two countries,” CMH noted in its annual report.

This has placed strain on local manufacturers because their production is too expensive for the majority of local buyers. The increased interest rates have caused an affordability crisis for customers, and pricing compounds the issue,” CMH’s directors said.

The problem was also starkly enunciated by Toyota South Africa Motors CEO Andrew Kirby, who warned in October that South Africa is seeing the first signs of the de-industrialisation of its automotive industry, as the number of vehicle imports was rising while the production of local content for vehicles is falling.

The future of the local vehicle manufacturer has also been shaken by the fast uptake of electric vehicles (EV) in many developed markets. China has taken on an early lead in this market globally, while in South Africa, we are still unfortunately debating an industrial policy to manufacture EVs.

China produced 30.2 million units, nearly one third of global vehicle production and more than were produced in the EU and the US combined, in 2023. A Naamsa document states that more than half of the electric cars on the road worldwide are now found in China, along with 68% production of the world’s EV batteries.

Admittedly, Chinese firms have stated an intention to also invest in local automobile manufacture. Companies like BYD are in talks with the South African government about potential investments in the EV sector.

The Industrial Development Corporation (IDC) and China's Beijing Automotive Group (BAIC) have a multi-billion rand joint-venture agreement in a car manufacturing plant in the Coega Industrial Development Zone outside Port Elizabeth - the plant opened in 2018.

Other Chinese vehicle brands to have established a presence in the South African market are Great Wall Motors (GWM), Chery, Foton and JAC Motors. China’s Leapmotor is expected to launch into the local market next year, starting with the electric C10. GWM also sells its EV, Ora, in South Africa.

And the lowest priced EV on the local market is the two-seater urban commuter, Eleksa CityBug, which is manufactured by Shandong Gaia New Energy Company of China, and which was introduced to the local market in 2021 and according to a BR online search, sells for around R230 000.

From the South African automotive perspective, it would seem to make sense to seek collaborative opportunities in vehicle manufacturing and technology, sharing with Asian vehicle manufacturers. But the major local manufacturers are all part of the global manufacturing chains of their parent companies, so the future of the local operations is likely to be decided in boardrooms in the US, Europe and Japan.

So far, the automotive industry is regarded as an industrial policy success story of South Africa’s democratic era, and is the bedrock of the country’s manufacturing sector. Between 1995 and 2023, more than 6.04 million vehicles, generating export revenue of R1.75 trillion, along with automotive components with an export value of R959.5 billion, were exported to more than 150 markets.

This was catapulted by major investments in assets and equipment, skills upgrading, productivity gains and upgrading of the whole automotive value chain.

A step change is needed by the local industry and policy-makers to meet the looming crisis.

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