The evolution of South Africa’s automotive industry

The world is constantly changing and evolving, and South Africa is not immune to these shifts. Consumers and businesses alike are looking for convenience, ease of conducting business, reliability and efficiency.

Mobility plays a central role and people want to meet their mobility needs in a seamless and efficient manner. Automotive manufacturers and dealers are constantly looking to improve their products and services for customers, whilst financing in its traditional manner is being challenged.

The entire mobility ecosystem is changing rapidly and only those that keep up or gear towards being future ready will remain within the game. Crucial to this is understanding, appreciating and anticipating customer expectations at all times. Key aspects to consider when thinking about the future of mobility in South Africa include behavioural changes from ownership to rental or usage; the evolving dealership model; the move away from internal combustion engines to electric vehicles; and the future of autonomous vehicles.

Behavioural change from ownership to rental/usage

South Africans are predominantly accustomed to and prefer the ownership model. There remains a sense of pride in aspiring to own a vehicle. The onset of the Covid-19 pandemic and resultant ‘work from home’ models adopted has resulted in us commuting less. Added to this, millennials are considered to have less attachment to ownership. Furthermore, the cost and convenience of e-hailing services is becoming more attractive and the shift towards pay for use is increasing in South Africa. This is resulting in customers looking at mobility from a very different lens.

The evolving business models for OEM’s and dealerships

Consumer behavioural patterns will continue to influence how automotive dealers operate. We have seen a welcomed shift toward the use of digital channels that have been embraced by automotive dealers and relevant stakeholders. At a click of a button on any preferred device, consumers can search for and find information on a variety of vehicles at their own convenience. Some if not most of the South African dealers continue to invest heavily on virtual showrooms with qualified personnel and capabilities of engaging with customers electronically and digitally. Online platforms in South Africa such as Auto-Trader, Cars.co.za, Carfind.co.za, WeBuyCars are just some examples of players that are leading in this space.

The move from internal combustion engines to electric vehicles (EVs)

Globally, the adoption of EVs is projected to ramp up exponentially. Legislation in developed countries is mandating the adoption of EVs. The USA has set a target of 50% EVs by 2030, whilst the UK plans to ban conventional fossil fuel vehicle sales by 2030, and only allow zero-emission vehicles from 2035. It is not a case of if but when South Africa will follow this global trend that intends to mitigate climate change.

Despite a relatively small base, the South African market is seeing a gradual increase in the number of electric vehicle models. Companies are also starting to look at introducing EVs as part of their fleets. Eskom, for instance, is exploring buying a fleet of electrically powered light delivery vehicles.

Although the move to EVs is imminent, we cannot discount the challenges we face as country that are slowing down this process. Prime amongst them is our unreliable power network. We are unable to expedite the growth of charging stations if the South African power supply is not stabilised. Another challenge is that current government regulations on importing of EVs are punitive. The review of exercise duties to make it more palatable from a price perspective is required. In a welcomed development, the Department of Trade, Industry and Competition has released a green paper on the advancement of new EVs and battery-electric vehicles in South Africa earlier this year.
Added to the power network challenges, affordability may also pose a challenge in our market for EV’s. The average finance amount for vehicles currently is R350k and most EV’s are on average R600K. This may result in EVs taking time to settle-in relative to the average affordability is our market.

Globally EVs are being embraced and as a result our exports will need to move with global demand. Vehicle manufactures based in South Africa such as Ford, BMW, Mercedes Benz, Volkswagen and Toyota will need to adapt their strategies. The solution may be to migrate to manufacturing EVs, however given our country power challenges, in the short to medium term, they may need to adopt a hybrid manufacturing model with EVs mainly for exports and internal combustion engines for the local market.

Autonomous vehicles

Autonomous vehicles of the future are being promoted as safer than self-driving vehicles, which has huge implications for a country with a high accident rate such as ours. The South African government is gearing up for smart cities in which the move to autonomous vehicles becomes even more attractive. Consumer behaviour is already evolving, with less of a need to be behind the wheel and the rise of e-hailing services, promoting the belief that self-driving vehicles may be a seamless next step. Autonomous vehicles are already being tested and introduced elsewhere in the world, and it is only a matter of time before this new wave reaches our shores.

The role of financiers

Financial services providers need to move with the changing mobility environment. Non-traditional financiers are entering and participating in the market and traditional players will need to evolve in accordance with these shifts. Notably, the applied credit risk models will need to change to accommodate consumer, business and environmental needs. The traditional Instalment Sale Agreement models may need to be re-evaluated with usage-based models becoming a growing trend. Convenient payment solutions also need to be explored and banks must find new and innovative ways to procure and pay for all mobility solutions.

Standard Bank’s Vehicle & Asset Finance unit strives to be recognised as the leading asset-based finance and mobility solutions provider across Africa, our home. We are also geared toward providing solutions to businesses around their fleet requirements that are backed by data analytics. We constantly apply innovation by taking away the hassle and pain of managing fleets.

Standard Bank Group is accelerating toward our 2025 Ambition of becoming a client-centric, digitally-enabled platform business that can compete and win in a world where competitive lines are constantly redrawn and constant innovation and reinvention is imperative to succeed. We are creating new solutions and new partnerships to serve our clients better and grow our revenues.

As part of this transition to a platform business we have prioritised ten ecosystems, one of which being mobility. This will fundamentally change the way we do business, including the solutions we provide for changing customer mobility needs.

While customer demands will drive changes to the automotive industry, it is critical that these changes are aligned to a greener future. We need to use the technology we have to enable us to place less reliance on fossil fuels. Mobility plays a central role in economic and social activity and will remain a critical aspect of our future. However, in my view the automotive industry must evolve from a global polluter to a sustainable contributor toward responsible development and growth.