Auto industry contribution to the economy threatened by power crisis

The automotive industry’s significant contribution to the economy is in serious danger of being significantly dented. This is due to the major disruptions caused to its operations by the persistently high levels of load shedding.

Automotive business council Naamsa CEO Mikel Mabasa said on Tuesday there is no doubt the industry’s contribution to the economy in 2023 will drop quite significantly if its production capacity drops.

Read all our Eskom and load shedding coverage here.

The industry contributed 4.3% to South Africa’s GDP and accounted for 17.3% of its manufacturing output in 2021. The value of its exports equated to 12.5% of total exports from the country.

Mabasa said the 2023 Automotive Industry Export Manual will be released towards the end of the first quarter and “will certainly report a very good 2022 compared to the previous year”.

“However, we did not have a good start to 2023 and if we are going to have Stage 6 load shedding … we are definitely up for a very challenging 2023 and are likely to go backwards,” he said.

Mabasa said this level of load shedding is very disruptive; component suppliers are not able to deliver the components that are required on time – which is a very big challenge for vehicle manufacturers.

“We are trying to address that in the best way we can and to support them also as much as we possibly can to mitigate that challenge,” he said.

Major hubs ‘already severely affected’

National Association of Automotive Component and Allied Manufacturers (Naacam) executive director Renai Moothilal said component manufacturers across all the major automotive hubs in the country have been severely affected by the load shedding situation, especially when Eskom moved to Stage 6.

Moothilal said many component manufacturers are highly intensive users of electricity, with processes and technologies that simply cannot be switched on and off at frequent intervals.

He said these include categories of components that are produced through forging or furnace-based casting.

The start-up and shut-down of those plants often requires at least a day before they get to optimum production, and they cannot operate on power generated by generators, said Moothilal.

“So the short notification time as Eskom moved into the intensive Stage 6 implementation created a significant amount of hardship.”

Moothilal said he is aware of component manufacturers that have impacted original equipment manufacturer (OEM) supply lines, and others with significant export commitments to global OEMs that have struggled to meet those requirements and have had to implement shutdowns and labour short time because of load shedding.

“In doing so, they were unable to meet some of their export commitments.

“There is a big danger that they could lose these contracts, and in the automotive world, once a contract is lost, it is lost for the entire model life cycle.”

He said this situation is extremely negative for component manufacturers.

“We are aware that OEM plants typically have some sort of special arrangement with municipalities because of the size of OEM plants, but that means nothing if their domestic suppliers don’t also have that level of stable electricity supply,” said Moothilal.

Catch-22

Mabasa said the industry’s biggest challenge is that government has been pushing it quite firmly to support localisation of components.

This means it should largely be using companies that are producing components in South Africa to create job opportunities and so on.

“Unfortunately we find ourselves in a Catch-22 [situation] because, as much as we would want to support localisation, if the companies we are relying on to provide us with the services we need are not able to do that on time, that is obviously compromising our capacity to be able to firmly and without equivocation support government’s request that we should prioritise localisation,” he said.

Mabasa said the industry is also concerned that it will be unable to meet the targets agreed to with government in terms of the SA Automotive Masterplan 2035.

“We have firmly committed ourselves as an industry to achieving a 60% threshold for localisation and we certainly believe that, under the current circumstances, we are not able to even move the needle towards the collective achievement of that goal,” he said.

Other objectives of the masterplan:

• Achieving 1% of global production, which is projected to be 1.4 million units by 2035;
• Doubling industry employment to 224 000 people;
• Improving manufacturing competitiveness to the same levels as leading competitor countries; and
• Deepening value addition, particularly for supply to regional markets.

Mabasa said many of the OEM plants currently have a hybrid energy system where they get power from solar panels but also get a certain amount of power from the grid, because there are machines that are capital intensive and pull a lot of power.

Alternative energy sources

Toyota South Africa Motors (TSAM) spokesperson Mzo Witbooi said TSAM manages production at its Prospecton plant in Durban during load shedding as an internal matter, but is constantly looking into various alternative sources of energies and has already invested in solar power in parts of its operations in Johannesburg and Durban.

“TSAM also believes in the creation of a full portfolio of carbon-reducing initiatives, including our production process, as well as the entire value chain system … In fact, Toyota has committed to reducing carbon emissions – from both vehicles and operations – and achieving carbon neutrality by 2050.”

Ford Motor Company of Southern Africa spokesperson Minesh Bhagaloo said the company’s Silverton plant in Pretoria is protected and does not get load shedding, but its engine plant in Port Elizabeth is affected.

Bhagaloo said the big problem being experienced by Ford is with its suppliers.

“Suppliers are affected by load shedding and this does affect the supply of everything we need to build cars.

“We are battling from a supply point of view because our suppliers can’t manufacture and it disrupts our production.”