Auto Industry's Rocky Road to Recovery

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A key milestone for South Africans in 2022 was the lifting of the country’s lockdown restrictions and returning to life before the pandemic.

 

 

However, as the year unfolded, several adverse events, internally and externally, caused serious downside risks for the global economy, domestic economy and the automotive industry. Although the domestic automotive industry’s recovery to pre-pandemic levels continued in 2022, it was at a slower pace than in 2021 and many key performance indicators still remained below the pre-pandemic levels. On the trade side, however, the industry reflected a sound performance as again highlighted in the 2023 Automotive Export Manual publication released by the Automotive Industry Export Council [AIEC]. 

The export value of vehicles and automotive components increased by R19,8 billion, or 9,5%, from the R207,5 billion in 2021 to a record R227,3 billion in 2022, comprising 12,4% of total South African exports. Vehicle exports increased by 53 765 units to 351 785 units in 2022, up from 298 020 units exported in 2021, while the vehicle export value increased by R18,7 billion from the R138,3 billion in 2021 to R157,0 billion in 2022, the highest vehicle export value on record. Automotive component exports reflected an increase of R1,1 billion from R69,2 billion in 2021 to a record R70,3 billion in 2022. The number of domestic automotive industry export destinations in 2022 comprised 152 countries, similar to 2021, with the export value more than doubling in the case of 29 of these countries from 2021 to 2022. 

As the largest manufacturing sector in the country’s economy, a substantial 21,7% of value addition within the domestic manufacturing output was derived from vehicle and automotive component manufacturing in 2022, while the broader automotive industry’s contribution to the GDP comprised 4,9% (2,9% manufacturing and 2,0% retail). South African automotive trade under the APDP2, amounting to R435,0 billion in 2022, comprised 16,5% of South Africa’s total trade GDP, up from 15,8% in 2021.

The trading environment in South Africa is extremely competitive compared to global standards, and in 2022 there were no less than 43 passenger car brands and 2 513 model derivatives, the greatest selection of market-size ratio found globally. Similarly, in the bakkie segment, for the same period, there were 22 brands, with 498 model derivatives to choose from. Total new vehicle revenue, based on the available list price, amounted to R255,7 billion in 2022. Out of the top 10 selling models in 2022, seven were South African manufactured models of which four bakkies and three passenger cars. NEV sales reflected a significant year-on-year increase of 421,7% from 896 units in 2021 to 4 674 units by 15 brands in 2022. Sales of battery electric vehicles breached the 500 units per year mark in South Africa for the first time ever, with sales of 502 units in 2022. However, despite the massive increase, NEV sales still only comprised a fraction of a percent at 0,88% of the total new vehicle market in 2022. 

South African vehicle exports continued their upward momentum in 2022, despite a less supportive global economic environment. Vehicle exports registered a sound increase of 53 765 units, or 18,0%, to 351 785 units in 2022, from the 298 020 units exported in 2021. The 351 785 left- and right-hand drive vehicles were exported to 110 countries around the world in 2022. A significant 66,9% of light vehicle production was exported in 2022. There is a strong relationship between imports and exports in the South African automotive industry. Successful exporters have also been likely to import a significant portion of their inputs under the APDP and APDP2. In 2022, imports of light vehicles increased by a substantial 61 519 units, or 23,5%, from the 262 281 units in 2021 to 323 800 units and originated from 23 countries. The top country of origin for passenger cars and bakkies imported into South Africa in 2022 was India, with 165 910 vehicles, accounting for 51,2% of the total light vehicles imported, while China moved into second place accounting for 10,8%, as Chinese brands continued to gain traction.

Globally the automotive industry remained under pressure in 2022 owing to the ongoing semi-conductor shortage as well as further shocks due to the geopolitical conflict between Russia and the Ukraine. Predications were that global vehicle production would decrease by at least one million vehicles in 2022 due to the conflict. Furthermore, the global semi-conductor shortage resulted in about 4,2 million fewer vehicles produced in 2022, following a loss of about 7 million units globally in 2021. 

Although global vehicle production increased by 6,0% to reach 85,02 million vehicles in 2022, up from the 80,21 million units produced in 2021, it was still 7,7% below the pre-pandemic level of 92,12 million vehicles in 2019. South African vehicle production increased by 11,8%, from 499 087 units produced in 2021 to 555 889 units produced in 2022, exceeding the global year-on-year increase in global vehicle production of 6,0% in 2022. The country’s global vehicle production market share thus increased to 0,65%, but its global vehicle production ranking declined from 21st to 22nd, as Malaysia, ranked at number 20, surpassed South Africa in the global rankings. In terms of global bakkie production, South Africa was ranked 16th with a market share of 1,1%. South Africa remained the dominant market on the African continent, and accounted for 555 889 vehicles, or 54,4% of the total African vehicle production of 1 022 783 vehicles in 2022.

In 2022, global new vehicle sales declined by 1,4% to 81,6 million units and were also still 10,6% below the pre-pandemic level of 2019. China remained by far the largest single-country new vehicle market in the world by selling almost as many vehicles as in the European and US markets combined. New vehicle sales in China grew by 2,1% year-on-year in 2022 to 26,86 million units. ICE vehicle sales continued to decline but NEV sales accelerated in major markets, reaching a further record in 2022 with 10,5 million vehicles sold, an increase of 55% compared to 2021. As the race to full electrification continues, China, Europe and the US accounted for about 95% of the global electric vehicle sales. 

The European Union (EU) and the UK, as a bloc, remained South Africa’s largest export region in 2022, accounting for R133,2 billion, or 58,6%, of total automotive exports of R227,3 billion in 2022. Both the UK and the EU have announced a ban on the sale of new ICE vehicles from 2030 and 2035, respectively. Considering that 45,4% of the total automotive component export value, and three out of every four vehicles exported were destined for the EU and the UK in 2022, developments in the region have a measurable and direct impact on the South African automotive industry. Africa represented the domestic automotive industry’s second largest export region with exports amounting to R34,9 billion, of which 86,2% comprised exports to neighbouring countries in SADC, which is a free trade area.

The reach with respect to the number of destinations of vehicles and automotive component exports from South Africa remains high. In 2022, the top export destinations for domestically manufactured vehicles and automotive components remained markets in the Eurozone, as well as the US. However, diversification into new emerging markets is a continuing trend and underlines the automotive industry’s competitiveness drive and the continuous widening of the country’s traditional trading base. Major markets such as Brazil, Singapore, Philippines and Indonesia counted under the 29 countries to which the automotive export values more than doubled on a year-on-year basis in 2022. 

In 2022, automotive component exports increased by 1,6% to a record R70,3 billion, up from R69,2 billion in 2021. Catalytic converters remained the top automotive component exported from South Africa and comprised 48,3% of total automotive component exports, followed by engine parts, tyres and radiators and parts. Germany and other developed markets have remained the South African automotive industry’s top export destinations for component exports over the past three decades. 

Original equipment (OE) components by the seven OEMs in South Africa increased by R9,5 billion, or 8,6%, to R119,6 billion in 2022, from the R110,1 billion in 2021, in line with the 11,4% year-on-year vehicle production increase in 2022, as well as in accommodating launches of new domestically manufactured models. In 2022, the import of replacement parts increased by a substantial R10,88 billion, or 15,9%, to R79,19 billion, up from the R68,31 billion in 2021. The proliferation of light vehicle aftermarket parts is driven by factors such as the growth of vehicle imports, increasing vehicle age, advancing vehicle technology, and economic pressures on consumers. 

The global automotive industry at present is at an important crossroad. OEMs will need to accelerate the development of a new NEV business, while simultaneously running the legacy ICE vehicle business. To achieve this business-model duality, OEMs, as well as their component suppliers, will need to make dramatic changes and fundamentally reshape their business models. The imminent demand for eco-friendly vehicles in traditional markets means that the transition to NEVs is inevitable for the export-oriented domestic automotive industry, and it will need to commence with making significant investments in innovation and NEV technology. NEVs represent a huge ecosystem and with the transition to eco-friendly vehicles, the domestic automotive industry’s collective success has never been so closely tied to engagement with other sectors of the economy and across government. The future of the industry depends on all stakeholders, policy makers, businesses and consumers advancing to the same destination and thereby changing the way the world drives.

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