1. NAAMSA and NAACAM 5 Year Automotive Sector Business Plan

2. Presentation overview
South African automotive industry status quo
Five year sector strategy and plan
Priority interventions to support business plan realisation
Please note:
Presentation is supplemented by word document and A3 summary
Data compiled from:
Individual firm inputs
Previous industry research
3 x industry engagement sessions

3. 1. South African automotive industry status quo

4. Contribution – last four years
Factoring in its considerable multipliers and spillover effects, the South African automotive industry makes a substantial contribution to South African GDP – manufacturing and extended value chain
Indicators
Contribution – last four years
2014
2015
2016
2017
South Africa’s GDP in Billions (current prices)
R3 796,5
R3 991,0
R4 350,3
R4 651,8
Broader automotive industry contribution to GDP
7,2%
7,5%
7,4%*
6,9%
Vehicle, component and associated production as % of South Africa’s manufacturing output
30,2%
33,5%
33,0%
30,1%
Automotive Industry Export Council, Automotive Export Manuals,

5. South African component production (2017)
South African automotive component production also dominated by exports (R million), whether directly or via OEM assembly
Component category
2013
2014
2015
2016
2017
Catalytic Converters
17 641
19 493
20 326
21 892
18 702
Engine parts
3189
3732
3941
3901
3773
Tyres
1842
2206
2193
2527
2516
Engines
263
364
1448
2110
2447
Radiators/parts
1117
1172
1190
1378
1525
Other
18 124
18 715
20 584
21 233
21 312
Total
42 176
45 682
49, 682
53 041
50 275
South African component production (2017)
Source: Automotive Export Manual, 2018

6. Domestic automotive industry is dominated by multinational owned firms that are committed to South Africa. Evident from export contracts secured, extent of investment, and initiation of transformation journey
South African auto industry investment levels,
All OEMs compliant on BBBEE scorecard – improved average score from 59.6 in 2016 to 62.3 in 2017
9% of component manufacturers Level 1or 2 on BBBEE scorecard in versus 4.5% in 2017
Dealership BBBEE status and ownership mapped
Establishment of OEM Transformation Fund to drive Black industrialist participation in portions of value chain open to national capital – Tier 2-3 of manufacturing value chain, dealerships and authorised repair facilities
Unit
2014
2015
2016
2017
SA vehicle assemblers
R – million
6,917
6,603
6,415
8,171
% of Sales*
5.50%
4.96%
4.44%
5.07%
SA component manufacturers
No data
2,684
3,035
2,962
3.62%
3.75%
3.58%
Source: NAAMSA (for OEMs); South African Automotive Benchmarking Club (for component manufacturers)
* Capital spend (NAAMSA) as a % of Motor Vehicles sales (Stats SA)

7. South African vehicle market has struggled for extended period
South African vehicle market has struggled for extended period. Consumption represents balance of imported and locally produced units. Latent demand of 2.2 million units annually
Increasing tax burden crippling to South African market demand, especially at entry level
South Africa slipped in global market rankings: 22nd in 2014 to 24th in 2017
Source: NAAMSA; * NAAMSA projections (July 2018)

8. South Africa’s automotive trade balance has improved on the basis of increased vehicle exports, and reduced domestic consumption. Increased localisation presents a major opportunity, provided supply chain competitiveness improves
Industry trade position has shown continuous improvement and moved to a net surplus of R10.3 billion in 2017
Source: Automotive Export Manual, 2018

9. Status quo summary
The South African vehicle assembly industry has grown its output, increased its local content, and expanded employment within its supply chain, despite:
A declining, excessively taxed domestic market; and
A dormant regional market, dominated by pre-owned vehicle imports
Recent production performance has been underpinned by export growth into distant, developed economy markets, placing substantial competitiveness pressure on the industry, especially in light of South African cost movements, labour instability and transformation imperatives that strategically challenge the industry’s position within Global Value Chains
The Automotive Production Development Programme (APDP) has supported the industry in the face of domestic challenges

10. 2. Five-year Sector Strategy and Plan
The South African automotive industry has worked with the Department of Trade and Industry to develop a South African Automotive Masterplan to Its five year business plan is therefore located within this aspirational plan

11. Estimated impact on SA auto industry
The South African Automotive Masterplan’s 2035 vision, objectives, and strategic implementation pillars
Objective
Estimated impact on SA auto industry
1. SA vehicle production to 1% of global output
CBU production to 1.39m units annually (129% higher than 2015 levels)
Increase vehicle production value to R314bn
2. Increase local content in SA assembled vehicles to 60%
Increase local content R135bn on 2015 levels
55% more local content per assembled vehicle
3. Double employment in the auto value chain
Aggregate employment to 224,000
4. Improve industry competitiveness to leading international competitors
Comparative price and non-price competitiveness
Sustained export competitiveness
5. Transformation of the South African automotive value chain
25% Black-owned involvement at T2/3 component levels, and in dealerships and authorised repair facilities
Amplified skills development
Enhanced employment equity at senior management and technical professional levels
6. Deepen value addition within SA auto value chains
Growth of auto component exports and production for the aftermarket at the same rate as CBU local content increases
Growth in R&D/other innovation metrics within the SA auto value chain
South African Automotive Industry Masterplan, 2017

12. NAAMSA 5-year business plan to 2023 versus SAAM 2023 target
Vehicle production to grow to 800,000 units
Exports compensating for poorly performing domestic market:
Plans to 2020 per individual OEM forecasts
Strong local market recovery from required – 5% annually
Annual export growth of 7.5% for to 2023
SAAM targets for 2023 to be missed by only 30,000 units:
Domestic market – 24,000 units
Exports – 6,000 units – African underperformance
Local content to increase from 39.19% to 42% versus SAAM target of 43% - competitiveness, domestic supplier capability improvements, but FDI concerns and government administered prices remain major issues

13. Production and local content growth to 2023 driven by substantial additional investment by vehicle assemblers
Key to amplified investment is growth in the domestic and regional markets as the industry is overly dependent on exports to distant markets
5 Year forecast
Planned OEM investment to 2023 is over R40 billion for 2019 to 2023; should unlock >R20 billion in auto component investments; create space for Black industrialist participation at Tier 2 and 3 of value chain

14. Employment within value chain to increase to in 2023, of whom will be youth and 33,500 female
Major productivity gains modelled to 2023 – 5% annually at OEMs and 3% at component manufacturers – key to export competitiveness
Employment within value chain to still grow 14% (>16,000) - primarily on back of CBU export volumes and local content growth
Youth employment to grow from 55% to 60% of total
Female employment to grow from 20% to 25% of total
Labour relations stability major concern to realisation of employment objectives
Note: Total employment youth and female proportion based on OEM survey data only

15. AUTO’S - TRANSFORMATION SCOPE
Component manufacturers
OEM’s
Dealers & Retail
Automotive Transformation Fund
Black Ownership/Leadership
Transformation at OEM level will be driven by the newly proposed OEM Transformation Fund. This will support Upstream and Downstream value chain transformation through ownership and leadership. Several initiatives such as Localization, Preferential Procurement, Enterprise Development, Skills Development, Informal Sector Growth and Township Revitalization will be used as enablers.
Black Ownership/Leadership
Preferential Procurement
Enterprise Development
Skills Development
Informal sector growth & Township Revitalization
Localization

16. INVESTMENT PRIORITIES
R 39.4 Billion
DEVELOPMENT OF THE TOTAL AUTOMOTIVE VALUE CHAIN
So far we have identifies three investment priorities in the value chain.
Our top priority is in the upstream side of the value chain with the development of tier 2 and 3 suppliers. Compared to Thailand for example we have a well established tier 1 base but a weak tier 2 and 3 base which is impacting on our ability to be globally competitive and to further localize more components. Addressing this would improve a forex hedge, improve our cost structure and provide opportunities for more black owned industrialists. 
Our second priority is to invest in advanced manufacturing technology. With the global disruptors of electrification, autonomous vehicle and connected services we need to accelerate our investment in new technology if we are our production from 600k to over 1m units p.a.
The third priory in in the dealer network were we want to find ways of incorporating and uplifting the informal service sector and assisting with the revitalization of townships. This will also make a significant contribution to job creation. Where the biggest job multiplier is in the retail sector.
This plan would result in investment of around R40bn over the next 5 years which is an increase of xx %
Component Manufacturers
OEM’s
Dealers & Retail
NOW
IDEAL
OEM
OEM
Tier 1
Tier 1
Tier 2/3
Advanced manufacturing technology
Upliftment of informal sector
Tier 2/3
Develop tier 2/3 suppliers

17. 3. Priority interventions to support business plan realisation
Based on a survey of NAAMSA members and industry engagement sessions involving senior industry leaders committed to the realisation of the five year plan

18. Five-year business plan imperatives
Potential to identified
Vehicle production to units (62% exported)
Investment R40b
Local content to >R94 billion (42% per unit)
Employment to , of which 60% youth and 25% female
Black industrialist participation at Tier 2 and 3 of supply chain
Demand-side imperatives
Excessive taxes on vehicles crippling to domestic market development – market potential and associated multipliers being undermined
Market access and establishment of a regional automotive pact critical to the development of regional value chains – South Africa to emerge as SKD supply node for emerging African vehicle assembly base
Maintenance of preferential access to US, UK, and EU markets key to exports
Supply-side imperatives
Resolution of fuel quality and port and rail cost issues key to sustainable exports
Improved labour market stability and associated labour relations
Insufficient investment support, especially for new, advanced technologies
Supplier development key to localisation
Resolution of political instability key to future FDI

19. Auto Sector’s 7 priority requests to support the industry’s 5year plan
Local market stimulation (1)
Establishment of a regional automotive pact that develops regional value chains and a growing, sustainable African market (2)
Fuel quality to international standards (6)
Uncompetitive port and rail efficiencies, reliability and cost (4)
Investment support for new, advanced technologies (6)
Improved industrial relations legislation (foundational)
Coordinate supply chain skills development in value chain (6)
Other major priorities to 2023 can be driven by OEMs and automotive component manufacturers – investment, supplier development, localisation, transformation, employment – but need substantial progress in the above priorities

20. Recommended action plans to support the industry’s 5year plan
Domestic vehicle affordability
Workshop with DTI and National Treasury on demand stimulation
Examination of ad valorem duties on demand stimulation and Treasury revenue
Fuel quality to international standards
Clean fuel summit with major public and private stakeholders
Urgent resolution and agreement on clean fuel implementation timeline
Improved industrial relations legislation
National review of labour relations act in support of job creation and industrialisation
Resolution of strike legislation and consultation processes
Investment support for new, advanced technologies
Confirmation of SAAM position on New Technology AIS
Tailored incentives to attract new technology investment in auto’s
Establishment of a regional automotive pact
Joint DTI and AAAM initiative in place – broader government support required
Uncompetitive port and rail efficiencies, reliability and cost
Continuity of constructive engagement with port and rail authorities
Coordinate supply chain skills development in value chain
Creation of a consolidated auto components chamber at MerSeta