Motoring sector finally gets 150% rebate on investment in new electric vehicles, but only in 2026

The sale of electric vehicles each year in South Africa since 2017. (National Association of Automobile Manufacturers of SA via Outlier Insights)

By Georgina Crouth

21 Feb 2024

The Finance Ministry wants to support the Department of Trade, Industry and Competition in promoting South Africa as an NEV production hub.

The motoring sector has finally been given an incentive to invest in hydrogen-powered and electric vehicles (EVs), but the promised rebate is only expected in the 2026 financial year – when the country’s first EVs are expected to roll off the production floor.

The 150% rebate on qualifying investment spending is estimated to cost the government R500-million. When asked how Treasury arrived at that percentage, the department said the country needed to be able to compete with peer Developing World markets such as Morocco and Thailand.

Finance Minister Enoch Godongwana said today the South African economy is desperately in need of growth, with growth projected to average at 1.6% between 2024 and 2026 – supported by an expected easing of power cuts and lower inflation.

Threatening that growth are the persistent crisis in electricity supply, freight rail and ports and a high sovereign credit risk.

Quoting economists Alberto Alesina and Dani Rodrik, whose 1994 paper titled “Distributive Politics and Economic Growth” defines the difference between economics and politics as the former being concerned with expanding the pie while politics is about distributing it, Godongwana said: “Our challenge, honourable members, is that the size of the pie is not growing fast enough to meet our developmental needs.”

The long-awaited Electric Vehicles White Paper, published in December 2023, outlines a comprehensive electric vehicle roadmap for the country and the structure of policy interventions to support the automotive industry. It aims to chart a course for the automotive industry to transition from producing internal combustion engine (ICE) vehicles to a dual platform that includes EVs in the production and consumption mix, by 2035.

South Africa’s key export markets, the UK and Europe, are phasing out sales of ICE vehicles by 2035.

The electrification of transport is central to South Africa’s Just Energy Transition plan for a low-carbon and climate-resilient economy.

To encourage the production of electric vehicles in South Africa, the government will introduce an allowance for new investments from 1 March 2026.

A graph of electric vehicle sales in South Africa The sale of electric vehicles each year in South Africa since 2017. (National Association of Automobile Manufacturers of SA via Outlier Insights)

Godongwana said this will allow producers to claim 150% of qualifying investment spending on electric and hydrogen-powered vehicles in the first year, adding that the incentive will be implemented in addition to the existing support under the Automotive Production Development Programme, a production incentive scheme aimed at promoting production volumes.

The Department of Trade, Industry and Competition has also reprioritised R964-million over the next three years to support the transition to electric vehicles, in line with the white paper, as well as R600-million for the global business incentive for offshore business processing. The government has allocated a further R16.4-billion for business incentives through the department over the medium term.

The carbon tax has also been increased from R159 to R190 per tonne of carbon dioxide equivalent as of 1 January 2024.

From 3 April 2024, the carbon fuel levy will increase to 11 cents per litre for petrol and 14 cents per litre for diesel.

A discussion paper outlining proposals for the second phase of the carbon tax will be published for public comment later in the year.

On 1 November, during the mini-budget, Godongwana stalled, saying the government had plans to implement tax and expenditure measures to support the automotive sector in its transition to a greener economy, but that those would be announced in February’s Budget statement.

At the time, National Association of Automobile Manufacturers of South Africa (Naamsa) CEO Mikel Mabasa said while they were disappointed that the minister had decided to kick the NEV policy announcement can to February next year, Naamsa was pleased to hear Treasury had plans to implement tax and expenditure measures for the transition to NEVs.

“Government understands our challenges as a vehicle-producing country with bigger ambitions to grow our global influence as we move to NEVs.

“Effectively, the minister has bought himself more time to announce details for NEV policy, which will now be during the 2024 Budget Review, with considerations to domestic market demand stimulus measures, establishment of renewable energy-based charging infrastructure, and production support,” Mabasa said. DM

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