Legislation signed into law by President Cyril Ramaphosa in late December introduces a 150% investment allowance for any capital investment made to enable the production of electric and hydrogen vehicles in South Africa.

This means vehicle manufacturers will be able to claim 150% of their qualifying investment spend on new production capacity for electric and hydrogen‐powered vehicles in the year the investment assets are brought into use.

Any vehicle manufacturer investing in new and unused buildings, machinery, plant, implements, utensils and articles to be used for the production of electric or hydrogen vehicles will qualify for the incentive.

All of the assets must be brought into use for the first time on or after March 1, 2026, and before March 1, 2036.

The good news, says naamsa | The Automotive Business Council CEO Mikel Mabasa, is that hybrid and plug-in-hybrid vehicle (PHEV) production will be included, and not just battery electric vehicles (BEVs).

Toyota, BMW and Mercedes-Benz produce hybrids and PHEVs in South Africa, with Ford set to join this year. However, no manufacturer currently produces BEVs in the country.

New-vehicle exports from South Africa to Europe – the domestic auto industry’s biggest export market – started to dwindle last year, owing to poor economic growth in the EU and legislation that will ban internal combustion engine sales in the EU by 2035.

While naamsa welcomes the incentive, Mabasa says the industry body believes more can be done to support South Africa’s largest manufacturing industry as it transitions to new vehicle technologies. This includes cutting the ad valorem tax on imported BEVs, and providing consumers with incentives to buy BEVs, which should boost local demand.

Mabasa adds that the new investment allowance should encourage existing vehicle manufacturers to retain or expand their plants in South Africa. It could also help South Africa attract new vehicle production facilities, including those from the world’s biggest EV producer – China.

Equally important is securing EV component production in South Africa, as well as domestic beneficiation of the metals and minerals required in the electric vehicle (EV) value-chain.

Mabasa says that naamsa is assisting a number of Chinese vehicle manufacturers in building their business cases to potentially set up local assembly plants.

“As naamsa, we are aware of three Chinese vehicle manufacturers doing work on the ground to potentially set up shop in South Africa.”

He adds that South Africa has seen around eight Chinese vehicle brands entering the local new-vehicle market over the last five years, all as importers.

“We certainly want to see some of them manufacture here as well.”