Investment allowance proposed to encourage EV production in SA

The government is proposing to introduce an investment allowance to encourage the production of electric vehicles (EVs) in South Africa.

Minister of Finance Enoch Godogwana said on Wednesday during his budget speech that the investment allowance on new investments will commence on 1 March 2026.

“This will allow producers to claim 150% of qualifying investment spending on electric and hydrogen-powered vehicles in the first year,” he said.

Godongwana said the incentive will be implemented in addition to the existing support under the Automotive Production Development Programme (APDP).

Government has also reprioritised R964 million over the medium term to support the transition to electric vehicles, he said.

Godongwana added that the Electric Vehicles White Paper outlines government’s strategy to transition towards a broader new energy vehicle (NEV) production and consumption in South Africa, starting with electric vehicles.

He said it aims to transition the automotive industry from primarily producing internal combustion engine vehicles to a dual platform that includes EVs by 2035.

Relief for motorists

In a relief to motorists, no increase in the general fuel levy for 2024/25 is proposed in the budget.

“We are mindful of the already high cost of living and the impact fuel prices have on food and transport costs.

“In this regard, we are proposing no increases to the general fuel levy for 2024/25.

“This will result in tax relief of around R4 billion. This is money back in the pockets of consumers,” he said.

However, this was a bittersweet moment because Godongwana also announced that the carbon fuel levy will increase to 11 cents per litre for petrol and 14 cents per litre for diesel effective from 3 April 2024.

“A discussion paper outlining proposals for the second phase of the carbon tax will be published for public comment later in the year,” he added.

Industry will be pleased

The EV investment allowance announcement by Godongwana will be welcomed by South Africa’s automotive industry, which has expressed the urgent need for the government to finalise and announce its NEV policy because of the stated plan by the European Union (EU) and the UK to ban the importation of internal combustion engine (ICE) vehicles by 2035, which poses a serious risk to South African vehicle exports.

The domestic automotive industry was also pushing the government to introduce demand-side measures to stimulate sales of electric and NEVs in South Africa.

However, Minister of Trade, Industry and Competition Ebrahim Patel said in December that South Africa’s electricity challenges have contributed to the government focusing on a two-phased policy approach to the transition to electric vehicles, with the focus firstly being on the production and export of EVs rather than on stimulating domestic demand and sales.

Speaking at a briefing that coincided with the release of the government’s Electric Vehicle White Paper, Patel said the initial focus of the transition to electric vehicles will be to encourage investment in production into export markets where regulatory provisions will constrain ICE vehicles.

Patel said the white paper recognises that South Africa will need to make the transition at a consumer level, but this happen in a second phase.

He said the pace of South Africa’s transport transition to EVs will be influenced by several factors, including that:

• South Africa’s current energy shortage and power availability lead to load shedding, which will impact the domestic adoption of EVs in the short term due to the need to avoid a sharp rise in energy demand on the grid from EVs while the grid capacity is being built; and
• The charging infrastructure rollout is still in its early stages, and there is a need to ensure the interoperability of the privately funded charging systems.

Patel said it is anticipated the phasing between the production and export phase and the consumption and market development phase will be over a period of seven to eight years.