VW and Ford ‘absolutely right’ to criticise SA crises – Patel

Minister of Trade, Industry and Competition Ebrahim Patel has admitted that Volkswagen and Ford executives were “absolutely right” in their criticism of the load shedding, the transport logistics crises in South Africa, and the erosion of the domestic automotive industry’s global competitiveness.

“It’s fundamental. The reason why companies locate in South Africa is a combination of market demand. We buy 500 000 cars a year, so there is a market here.

“But linked to that is we are able to produce vehicles and move them to markets … [which] requires energy and transport logistics.

“There are thousands of components that make up a vehicle. When components are stuck in a port, then that undermines the ability to cost effectively produce vehicles.

“And then, of course, the finished cars should not be sitting in factory warehouses. They have got to get to the market,” he said this week during a briefing on the release of the government’s Electric Vehicle White Paper.

Read: EVs: SA to focus on production and exports before domestic sales

‘Very worried’

Patel’s comments follow news wire service Reuters reporting that Volkswagen passenger car brand CEO Thomas Schaefer was “very worried” about the future of the company’s operations in South Africa, which is fighting persistent power cuts and logistics challenges.

Schaefer said Volkswagen has been in South Africa for almost 80 years, and factors like competitive labour costs once placed it among the company’s higher-ranking bases globally, but the costs of mitigating power outages, rising labour costs and logjams on railways and at ports have eroded that advantage.

Listen: What’s in store for VW in South Africa?

“Eventually, you have to say, why are we building cars in a less competitive factory somewhere far away from the real market where the consumption is?

“I’m very worried about it … We’re not in the business of charity,” Reuters quoted Schaefer as saying.

This was followed by reports of Ford Motor Company of Southern Africa president Neale Hill saying that Ford South Africa – which is celebrating 100 years in the country this year – and other manufacturers are experiencing “a slow poison” of their operations.

“I think the bigger risk we face is the slow poison that we are feeling because it’s getting harder and harder to convince our principals that South Africa is worthwhile doing business in,” says Hill.

“We have to fly parts in versus using the sea because we can’t get stuff through the ports. We are actually moving into a position where it’s actually more expensive to produce a vehicle in South Africa as opposed to Thailand.

“My fear is that the investment decisions taken now are not going in our direction. But we are not going to feel that now, but in five years’ time,” he reportedly said.

Challenges ‘need to be addressed’

Patel said Schaefer and Hill are “quite right” to point out these quite fundamental challenges, which have been incorporated into the Electric Vehicle White Paper “as a critical element”.

“It needs to be addressed even if we did not have an electric vehicle transition.

“In the context of enhancing South Africa’s value proposition, there is an even greater urgency and need to do it,” he said.

Patel said he expects electricity grid stability to happen “in a relatively short time”.

He added that the recent announcement by Finance Minister Enoch Godongwana, for example, of the support that the National Treasury will be making available to Transnet “points to how determined we are that we have to resolve the transport logistics matter”.

This is a reference to the announcement by Godongwana on 1 December that government has, with immediate effect, issued Transnet with a R47 billion guarantee facility in support of its recovery plan, including meeting its immediate debt obligations.

Read:
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Patel said the government is working very actively, including with the automotive industry and more broadly, to fix the rail lines at the ports and dramatically improve their performance.

Second corridor

He highlighted the need for a modern and efficient rail line from Gauteng to the Eastern Cape.

“At the moment, we send most of our Gauteng-based vehicles along the N3 road and rail corridor to the Durban port. There is a very high risk in that.

“We want to de-risk that by creating a second corridor between the port of Ngqura, the port next to the Coega SEZ (Special Economic Zone) and Gauteng,” he said.

Patel said this corridor is not only for the export of vehicles but also for those producers, such as Volkswagen, Isuzu and Mercedes-Benz, which are based at the coast and can use that rail line to move these vehicles to South Africa’s biggest consumer market, which is located in Gauteng.

Moneyweb reported in October that Transnet Freight Rail is making progress with its more than R1 billion plan to upgrade and develop the high-capacity southern rail corridor to Gqeberha, formerly Port Elizabeth, which is vital to the automotive industry and other sectors.

Read: Transnet southern rail corridor upgrade taking shape

Transnet said a feasibility study on the southern rail corridor was completed in December 2021, and it went out to market on a request for proposals (RFP) in May 2023 to solicit the services of a turnkey engineering, procurement and construction (EPC) contractor to implement the project.

Transnet said the tenders closed on 29 September 2023, and it anticipates awarding the contract for the execution of the rail work early in 2024, subject to the funding being secured.

No evidence of disinvestment yet

Patel added that Schaefer had indicated that Volkswagen “is here to stay in the long term”.

“But of course, every OEM [original equipment manufacturer] needs a functioning ecosystem, so we do need to solve the energy and transport logistics issues absolutely urgently,” he said.

Mikel Mabasa, chief executive of automotive business council Naamsa, said on Wednesday that there is no evidence currently that any OEMs are considering disinvesting from South Africa.

Mabasa said the opposite is, in fact, the case, with many of the OEMs in the country announcing major investments.

These include:

• Ford SA announced last month that it is investing R5.2 billion in its Silverton assembly plant to produce the first-ever Ranger plug-in hybrid electric vehicle;
• BMW South Africa announced in June that it will be investing R4.2 billion over five years to prepare its manufacturing plant in Rosslyn, Pretoria, for the electro-mobility era and the production of the next-generation BMW X3 as a plug-in hybrid; and
• Multinational automotive group Stellantis, whose brands include Fiat, Alfa Romeo, Citroën, Opel and Peugeot, confirmed in September its intention to invest R3 billion in South Africa to establish a state-of-the-art greenfields automotive plant in Coega in the Eastern Cape.

Mabasa said these investments are a very strong vote of confidence by these OEMs in South Africa and that they want to stay and help the government resolve the country’s challenges.

“This also underscores the fact that if you do have companies that are looking at South Africa as an attractive investment destination, it means government will absolutely have to do something to make sure that those companies do come through and set up in the country because we need those jobs,” he said.

Read:
Ford to invest billions more in SA
BMW to invest R4.2bn in SA
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Auto component companies to invest almost R5bn in SA