The government’s plan to discourage local assembly of imported car and bakkie kits may not be as straightforward as it thinks.
Trade, industry & competition minister Parks Tau said on Thursday that existing kit-assembly operations will have to close and that the government will not provide policy support for new ones. Some motor industry executives, however, say such operations can play a valuable role in securing the local industry’s long-term future.
Kit assembly, or semi-knocked-down assembly (SKD), requires limited investment and provides few jobs. Vehicles arrive partially dismantled in crates and are bolted together, with the addition of a few local parts. By comparison, full manufacture, called completely-knocked-down (CKD), requires companies to start from scratch, putting together the 30,000-odd parts that go into each vehicle.
Such companies are called original equipment manufacturers (OEMs). On average, they source just under 40% of components from South African suppliers, create thousands of jobs in their own factories and in the supply chain, and invest billions of rand into their local operations. This year, Toyota completed a R10.4bn investment into a new Hilux bakkie range.
The government’s policy for light vehicles, the automotive production & development programme (APDP), is meant to benefit CKD producers and their suppliers. By incentivising local vehicle and components manufacture, the programme, introduced in 2013 and redesigned in 2021, aims to double the size of the motor industry by 2035. Employment and vehicle production are both meant to double and average local content value in South Africa-made vehicles is meant to grow from 40% to 60%. All this will, in turn, create space for black-owned businesses to enter the industry, say policymakers.
That, at least, is the theory. In fact, production, employment and local content are all years behind schedule and, as of now, in retreat. Tau, though, does not share the general view that the 2035 targets are unachievable. “We do not accept that,” he says. “There are real grounds for renewed hope.”
One problem is that some APDP definitions are ambiguous. Tau says: “We will work to strengthen the legal definitions around what we determine as CKD manufacturing.” SKD operators are meant to be excluded from APDP benefits, but because of what BMW Group South Africa CEO Peter van Binsbergen describes as a policy loophole, OEMs say it is possible to import kits almost duty-free by defining some components, such as engines, as aftermarket parts.
Indian vehicle manufacturer Mahindra and Korean company Hyundai have used SKD to assemble light commercial vehicles (LCVs) in South Africa for some years. Their other products are imported. Both companies were invited to contribute to this article. Early last year, Mahindra South Africa signed a memorandum of understanding with the Industrial Development Corporation (IDC) for a feasibility study on CKD manufacture. No date has been announced for a likely decision, but an IDC insider says the study is “progressing well”.
The IDC is already a shareholder in two intended CKD operations — with Chinese manufacturer BAIC and the multinational Stellantis group, whose local brands include Peugeot, Citroën, Jeep, Fiat, Opel and Alfa Romeo. BAIC says its R11bn Eastern Cape plant, in the Coega special economic zone near Gqeberha, has begun CKD activities after a prolonged period of SKD.
The Stellantis plant, also in Coega, was intended to begin production this year but is now unlikely to do so until at least 2028. Automotive policy uncertainty and the unexpected surge of Chinese and Indian imports have caused the company to reconsider its product strategy and pause the R3bn investment.
Local MD Mike Whitfield has said repeatedly that whatever vehicles it builds, the plant will go immediately into CKD production. Not all companies can be so bullish. Van Binsbergen, who is also president of industry association Naamsa, representing OEMs and importers, says SKD can be a “laboratory” for companies considering full-scale vehicle production in South Africa. It allows them to test the market at relatively low cost before committing to massive investments.
In Thailand, where automotive investment has flourished in recent years, would-be SKD operators are given a time limit before they must upgrade to CKD. If they don’t, they have to disinvest and repay any incentives. Van Binsbergen thinks such a policy could encourage newcomers to consider South Africa for investment.
Chinese company Chery’s purchase this year of the former Nissan South Africa plant, and its stated intention to begin production in 2027, show that there is an appetite to invest. To reach its 2035 APDP annual production target of 1.2-million vehicles (2025: 618,077), the motor industry needs several more newcomers.
In a recent interview with the FM, Renai Moothilal, CEO of the National Association of Automotive Component and Allied Manufacturers, said: “SKD should be allowed some leeway, but it has to be strictly regulated. If companies come in SKD with promises of CKD, I’m supportive. My view is that two or three years is more than enough to transition to CKD.”
Hyundai has been assembling the H-100 LCV since 2015 and Mahindra the Pik-Up range since 2018. Mahindra says it builds over 1,000 each month, but that falls well short of the 50,000 annual minimum required to access the full quota of APDP production incentives. Companies can earn reduced benefits from 10,000.
An IDC proposal for construction of a multibrand assembly plant that would allow several companies to share a 50,000 facility has gained interest but no firm commitments yet.
The SKD announcement was among several potential policy changes identified by Tau after this year’s APDP review by government, industry and labour. They include increased support for local bakkie producers. South Africa is considered a global bakkie manufacturing hub. Ford and Toyota are significant exporters, particularly to the UK and EU, where trade agreements allow South African vehicles to land duty-free.
However, Toyota South Africa Motors president Andrew Kirby says Thailand, one of South Africa’s bakkie-production competitors, is negotiating a similar deal with the EU. Tau says: “We have agreed that the strategic competitiveness of South Africa’s [bakkie] segment warrants formal investigation.” The International Trade Administration Commission of South Africa will be asked to undertake a formal investigation.
Tau, who has not announced a timetable for policy changes, says he is also committed to accelerating the local industry’s transition towards new-energy vehicles, mainly electric, and away from petrol- and diesel-based internal combustion engines (ICE). Most vehicles built in South Africa are exported to the EU and UK, which plan to phase out ICE vehicles by 2035. “If we do not build the vehicles that markets such as Europe and the UK will buy, we will lose those markets, and with them our plants and our jobs,” he says.
