Can South Africa lead Africa’s EV race? New tax laws could decide

South Africa’s automotive industry is set to receive a major boost following the introduction of a 150% tax deduction for investments in electric and hydrogen-powered vehicle production.

The move, signed into law by President Cyril Ramaphosa on December 24, is expected to attract billions in foreign investment and ensure the country remains competitive in the global automotive market.

Three Chinese automakers have already entered into confidential agreements with the Automotive Business Council, signaling growing interest in Africa’s largest car market. Industry experts say the tax amendment could position South Africa as a hub for electric vehicle (EV) manufacturing on the continent.

The law allows for a 150% tax deduction on investments in electric and hydrogen-powered vehicle production. Industry experts believe this move will bolster South Africa’s $27-billion (R505-billion) automotive sector and keep it competitive on the global stage.

“This tax policy is a game-changer for our industry,” said Mikel Mabasa, CEO of the Automotive Business Council. “With supportive government policies, we can attract, retain, and grow investments in South Africa.”

While the identities of the three Chinese automakers remain undisclosed, Chinese brands such as Chery and Great Wall Motor (GWM) are gaining significant traction in the local market, competing with established players like Toyota and Volkswagen.

A Race Against Time

The initiative comes as the European Union phases out internal-combustion engines, threatening South Africa’s car exports. President Cyril Ramaphosa signed the tax amendment into law on December 24, 2024, after years of industry warnings about the urgent need to adapt.

Mike Whitfield, Stellantis’ head for sub-Saharan Africa, emphasized the need for further action. “This amendment alone won’t secure investments. We need to develop EV supply chains, build charging infrastructure, and lower import taxes on EVs,” he said.

Leveraging Mineral Wealth

South Africa’s rich mineral resources are a critical advantage. The country is the world’s largest producer of manganese, a key component in EV batteries, and a major source of platinum, essential for hydrogen fuel cells. These assets could position South Africa as a leader in the global EV supply chain.

However, local challenges persist. High import duties and outdated ad-valorem taxes make EVs significantly more expensive. “We’ve fired a warning shot,” Mabasa said, calling for these levies to be aligned with inflation or eliminated altogether.

The Future of Automotive Investment

South Africa’s infrastructure and consumer market remain attractive to automakers, but questions linger about its readiness for EV production. While brands like Ford and BMW have introduced hybrid models, most manufacturers, including  Volkswagen and Isuzu, remain hesitant to commit to fully electric vehicles.

“If the government doesn’t step up its support, the industry could falter,” Mabasa warned. Despite this, Chinese automakers are poised to inject new energy into Africa’s largest car market, marking a pivotal moment for South Africa’s automotive future.

Read more on China’s EV sales set to overtake traditional cars, surpassing Western rivals