Industry leaders note that South Africa's car exports are under threat due to the global shift towards electric vehicles (EVs). Despite the introduction of a new government tax incentive aimed at attracting investment, there is a risk that future production capacity may move to Asian competitors as global automakers determine locations for the next generation of electric vehicles.
The industry, which exports about two-thirds of its output, aims to secure its place in global EV supply chains, while competitors in Asia and South America attract investments. President Cyril Ramaphosa signed a law providing a 150% tax deduction to stimulate the production of electric and hydrogen vehicles, which came into effect in March 2026.
However, leaders and analysts emphasize that the sector's future depends on factors that this incentive cannot directly resolve, such as energy supply reliability, charging infrastructure development, consumer demand, policy stability, and export competitiveness.
The automotive industry is a cornerstone of the South African economy, accounting for 23.8% of production volume in 2025, directly employing about 113,000 people and supporting another 498,000 jobs. Approximately 67% of locally produced cars are exported, with the EU and the UK making up 63% of these shipments. Both markets are actively tightening emission standards and accelerating the transition to low-emission models.
Industry leaders warn that the country risks losing future model quotas and investments if it cannot secure a place in global EV supply chains. Neil Hill, President of Ford Motor Company Africa, stated: 'We must be very careful that South Africa does not get left behind, as the global structure is moving so fast.'
How the incentive works
This incentive allows car manufacturers to deduct 150% of qualified investments in buildings, equipment, and machinery used for producing electric and hydrogen vehicles. The New Energy Vehicle (NEV) market in South Africa remains small, accounting for only 2.8% of new car sales, although the emergence of more affordable electric and plug-in hybrid models has contributed to growth.
De Wet Taljaard, technical consultant at Investec Sustainable Solutions, called this measure one of the strongest incentives for EV production in South Africa but cautioned that tax breaks alone rarely determine where Original Equipment Manufacturers (OEMs) invest. He noted that OEMs consider a range of factors, including market access, production costs, logistics efficiency, power reliability, workforce skills, localization potential, currency risks, trade agreements, and regulatory certainty.
Automakers welcomed the incentive but stated that long-term political stability and consumer support will also be crucial. Ford South Africa, which produces the plug-in hybrid Ranger, viewed the tax deduction as a positive first step but stressed that supply-side support is insufficient to accelerate EV adoption. Hill added that a combination of production and consumer incentives is necessary to advance EVs.
South Africa lacks incentives for EV buyers, while the industry calls for the removal of luxury taxes that could increase overall import duties on electric vehicles by up to 30% depending on their value. Hill emphasized that political stability is critical amid countries competing for investment, as the competition for capital distribution within Ford Motor Company depends on the cost and competitiveness of the manufacturing base relative to others globally.
Carla Terblanche, Head of Tax at Ford, added that grants might be more effective than tax incentives because benefits are realized faster: 'Money comes immediately and helps fund your business.'
Andrew Kirby, CEO of Toyota South Africa, pointed out that the industry's problem goes beyond electrification, mentioning rising import competition and the decline of South Africa's traditional cost advantages.
Shift towards Asia
Kirby noted that the industry previously relied on low energy costs, available labor, taxes, and logistics, all of which have significantly increased over the last decade. Leaders argue that infrastructure failures and a weakening supplier base undermine South Africa's competitiveness as global automakers decide where to direct future production capacity. Kirby stated: 'Production allocation is moving towards Asia. We need to compare it with their price competitiveness.'
China's dominance in key segments of the EV value chain has helped attract investment from both Chinese and Western automakers seeking lower-cost production platforms. Toyota, South Africa's largest automaker, chose Thailand rather than South Africa as the production base for the electric version of its Hilux pickup, while Nissan ceased local production this year after local output fell below planned capacity.
Isuzu Motors South Africa stated that infrastructure will remain central to the industry's transition, requiring reliable power supply, network capacity, and gas infrastructure to support various technologies. Leaders believe that completing the review of the main South African automotive production program, Phase Two of the Automotive Production and Development Programme (APDP2), is becoming increasingly urgent as automakers make decisions about production programs for the next decade.
Ramaphosa stated in August that the government intends to complete reviews 'as a priority,' and the government pointed to improvements in power supply and reforms in the state logistics group Transnet. Although no automaker has announced EV production investments linked to the new incentive, existing APDP support has attracted billions of rand in investment from established manufacturers and new entrants like Chinese BAIC and Chery, which plans to start local production next year. Taljaard concluded: 'The risk is not that existing production will disappear overnight. The risk is that the next generation of platforms, technologies, and production investments will go elsewhere.'