Global automotive industry transformation and the impact on the South African market

Major car businesses like VW and Stellantis (Peugeot, Fiat, Jeep) are investing record amounts to change to EV businesses in order to preserve value and remain relevant. Here are a few examples:

And there is a very good reason for this. Manufacturers are chasing profitability. Looking at the following graphs[i], Tesla and BYD, the two biggest pureplay EV manufacturers, have more profitable business models, hence their higher market capitalisations.

SOURCE: PSG Wealth

Manufacturers are behaving like the capitalists they are – pursuing profits. The CEO of Stellantis said that they want to have the same market cap in 2030 as Tesla (which means it is intended to increase from $30 billion to over $600 billion.) To do so, they are radically re-engineering their business.

In addition, it is clear from Tesla and BYD’s growth, that if they stand still, they could lose dramatic market shares, which they have been building for the last 100 years, that they will never get back.

As a result, they are investing heavily in electrification and because they can’t do both, are essentially giving up on the conventional ICE business, by essentially not developing new models.

Here are examples of manufacturers ceasing conventional car production by announced dates and the impact on their development plans:

It is clear that manufacturers are having success in transforming their businesses. VW announced[i] on 15 November 2022 that they sold 500 000 EVs, a year ahead of schedule. And they have 135 000 on order.

Given the global nature of the automobile industry, these realisations are going to have a dramatic impact on SA sales as the manufacturers change their ENTIRE businesses to electric propulsion.

It is clear from NAAMSA’s own predictions that they foresee a meaningful shift to EVs over time.

TABLE 4[I]: NAAMSA’S PROJECTED ROLLOUT OF EVS
(NAAMSA IS THE NATIONAL ASSOCIATION FOR AUTOMOBILE MANUFACTURERS IN SA)

The bottom line is that the whole development drive of these manufacturers has moved to electric cars etc. It is the textbook example of an inflection point. The net effect has been an effective cessation of the development of conventional (ICE) cars in favour of faster-growing and more profitable electric cars.

This follows exactly the same trend as when the renewable energy change hit electricity utilities: the dominant German utility E.ON split its business into a conventional and a renewable power business, and the entire top management team went to the renewable business.

It is maybe conceivable that this drive to electric cars will pass by countries like SA, India and Brazil and that somehow we will make do with increasingly older model ranges and maybe inferior cars made in India or Brazil, but car marketing for over 100 years has positioned cars as aspirational and projections of personal success.

A global economy

A bigger problem with that narrative is that automotive manufacturing is a globally integrated business with enormous economy of scale consequences, and the steady decimation of an autonomous car manufacturing industry in Australia with unique local models is proof of that. It works on the basis that cars are developed in certain countries and then sold over the largest possible base to ensure profitability.

The adaptation to the scarcity and cost of rare minerals is already starting: in China[i], where 60% of all EVs will be sold this year, there is a trend to cheaper Lithium-ion phosphate batteries that contain no cobalt or nickel. Manufacturers will have a laser focus on producing more affordable cars and they will find a way.

Consumer demand

It is more likely to be like the diesel revolution when diesel cars became faster and cheaper to run than petrol cars (but more expensive to purchase) due to the focus on developing refined and high-performing turbo diesel engines, and diesel cars worldwide became best sellers.  Oil refineries had to adapt ­– including SA with its ‘dirty diesel’. Ultimately, like smartphones, broadband and WiFi, consumer demand will drive change. Consumers will demand electric cars and a standard of living like the rest of the world has. And that will be the cars that the international automotive industry supplies.

It may sound like a good idea to offer cheap Nokias and Blackberries, but if the consumers want iPhones, the global supply chain is going to find a way to supply them.

The co-CEO[ii] of Mercedes-Benz SA recently predicted that half the cars they sell in 2026 will be electric cars. The marketing director of VWSA[iii] said last week that they expect the market to go for fully electric vehicles and that they will arrive in 2024 and 2025.

It is therefore far more likely that if current manufacturers sit on their hands, that they will be completely vulnerable to big market share changes as more nimble peers or lower cost Chinese EV manufacturers take over big swaths of the market that they will never give back, or companies like Tesla, Ampere, Polestar taking away a big part of the high end. Not to forget about new mobility businesses such as battery swapping (a feature of NIO cars, for example) which could make EVs and long-term car rental business models far more affordable.

Charging infrastructure

There are in the order 10 million registered vehicles in SA. Annual sales of passenger and light commercial vehicles exceed 400,000 per year. These vehicles consume R500 billion of fuel a year, all of which are imported to SA. That is a massive potential market for charging. Charging companies will be set up in SA and that fact will greatly accelerate the advent of electric cars.

Current international sales figures for electric cars are 13% of new car sales (International Energy Agency). In many European countries it is already higher than that. For example, in the first quarter of 2022, electric cars outsold petrol cars in France[iv]. It is widely considered that 5% of new car sales is a tipping point, which has been far exceeded.

It is not going to take a lot of market share for electric cars to make charging networks viable. It is a far superior option for the car industry to actively support the development of charging stations, and it is completely aligned with where the industry is going.

Ultra-fast charging is key to the customer experience

The following tables show how ultra-fast charging is key to the customer experience  – tracking the difference in time between slower and faster charging speeds:

TABLE 5: MINUTES TO CHARGE 10% TO 80%