Quarterly Review Of Business Conditions Report For Quarter 4 Of 2023

Industry vehicle sales, export, and import statistics for 2015 through 2023, together with current  projections for 2024 and 2025, are reflected on the attachment to the submission.  

KEY FEATURES: FOURTH QUARTER 2023 

▪ Aggregate new vehicle sales during the fourth quarter 2023 recorded a decline of 5,4% compared  to the corresponding quarter 2022 and a decline of 3,5% compared to the third quarter 2023; 

▪ New energy vehicle [NEV] sales by 19 industry brands increased by 59,9% from 1,582 units in the  fourth quarter 2022 to 2,529 units in the fourth quarter 2023; 

▪ Fourth quarter 2023 aggregate industry employment as at 31^st December 2023 totalled 33,379 reflecting a decline of 241 jobs compared to the 33,620 industry head count as at the end of  September 2023; 

▪ Average industry capacity utilisation levels during the fourth quarter 2023 reflected the supply chain  disruptions caused by port congestion and container backlogs on vehicle production while the  ongoing global semi-conductor shortage impacted OEMs differently.

▪ Aggregate capital expenditure by the major light vehicle manufacturers in 2023 amounted to R5,2 billion, linked to new generation model investments and associated model cycles; 

▪ Vehicle exports increased by a sound 24,9% from the fourth quarter 2022 to the fourth quarter  2023, contributing to the record 399,594 units exported in 2023; ▪ The naamsa CEOs Confidence Index, as an in-house leading business confidence indicator of  current and future developments in the domestic automotive industry, reflects the sentiment  expressed by the naamsa CEOs for the fourth quarter 2023 compared to the fourth quarter 2022  as well as automotive business conditions and the country’s economy in general for the next 6  months.

1. EMPLOYMENT LEVELS AND TRENDS 

The number of persons employed by the South African new vehicle manufacturing industry – comprising the major new vehicle manufacturers and specialist commercial vehicle and bus  manufacturers – during the fourth quarter of 2023 may be set out as follows: 

Industry employment levels and trends reflect employees on the payroll of vehicle manufacturers.  Aggregate industry employment as at 31^st December 2023 totalled 33,379 reflecting a decline of  241 jobs compared to the 33,620 industry head count as at the end of September 2023.  

The average monthly vehicle manufacturing industry employment number for 2023 was 33,509 compared to the 33,321 in 2022. Employment in the vehicle manufacturing industry is generally  linked to production and the increase in employment in 2023 was in line with the steady recovery  in vehicle production to pre-pandemic levels as well as supported by the launch of new generation  models by some OEMs for the period under review.  

An addition to the quarterly review of business conditions is employment levels on the payroll of  the independent vehicle importers, at their head offices and dedicated dealerships. 

Aggregate independent vehicle importers employment as at 31^st December 2023 totalled a head  count of 7,517 reflecting an increase of 14 jobs, compared to the head count of 7,503 as at the end  of September 2023.  

An addition to the quarterly review of business conditions is capital expenditure on an annual basis by the independent vehicle importers, at their head offices and dedicated dealerships. 

The employment and capital expenditure data collection serve as important reference points,  mainly to discern trends in the independent vehicle importers’ landscape.

2. NUMBER OF SHIFTS 

In line with the steady recovery in vehicle production to pre-pandemic levels, various vehicle  manufacturers have returned to operations on a three-shift basis as well as multi-shifts in selected  areas such as machining, press shops, paint shop operations and body shops. During the quarter,  two vehicle manufacturers operated on a three-shift basis, two vehicle manufacturers operated on  a combined single, double and three-shift basis, one manufacturer operated on a combined single 

and double-shift basis, and two manufacturers on a single-shift basis. 

3. AVAILABILITY AND PRICE TRENDS OF COMPONENTS AND RAW MATERIALS 3.1. Imported components and raw materials 

The availability and price trends of imported components were affected by the ongoing global  shortage of semi-conductors affecting some OEMs and in particular by the port delays and  container backlogs affecting vehicle production during the quarter. Prices of imported  components and raw materials remained subject to exchange rate movements and the global  price index. 

3.2. Local components and raw materials 

Port delays and container backlogs, the ongoing global semi-conductor shortage, as well as  the announcement by ArcelorMittal South Africa of the closure of its long-steel mills in  Newcastle and Vereeniging, which will affect OE supply and jeopardies domestic value  addition, caused disruptions and increased costs in the domestic supply chain. Raw material  pricing trends remain a function of exchange rate movements and the global price index. 

4. UTILISATION OF PRODUCTION CAPACITY: 2020 – 2023 Q4 

Average motor vehicle manufacturing industry capacity utilisation levels, by sector and for the  years/quarters indicated, may be illustrated as follows: 

Average industry capacity utilisation levels during the fourth quarter 2023 reflected the supply chain  disruptions caused by port congestion and container backlogs on vehicle production while the  ongoing global semi-conductor shortage impacted OEMs differently. Overall, production capacity  levels have steadily improved in all segments since 2021 in line with the industry’s recovery to pre 

pandemic levels.

5. VEHICLE MANUFACTURING INDUSTRY CAPITAL EXPENDITURE: 2017 – 2023 naamsa reports the industry’s aggregate capital expenditure on an annual basis. The aggregated  data is based on capital expenditure details supplied by the major vehicle manufacturers. Details of  actual industry CAPEX for 2017 through 2023, in Rand millions, are as follows: 

Capital expenditure amounted to R5,2 billion in 2023. The continued high levels in capital  expenditure over recent years are due to investment projects by manufacturers in terms of the  Automotive Production Development Programme [APDP] and APDP2, which are normally spread  over multiple years and linked to new generation model investments, associated model cycles and 

higher levels of production for export markets.  

6. INDUSTRY TRANSFORMATION – ROYAL ACADEMY OF ENGINEERING FUNDS A PIONEERING ELECTRIC DRIVE TRAIN ENGINEERING CURRICULUM IN SOUTH AFRICA In a significant leap towards advancing electric vehicle [EV] technology and engineering education  in South Africa, naamsa working in collaboration with three prominent academic institutions – Tshwane University of Technology [TUT], Durban University of Technology [DUT], and Cape  Peninsula University of Technology [CPUT] – have secured funding from the prestigious Royal  Academy of Engineering for the 2024 academic year. 

The collaboration aims to develop a cutting-edge Battery Electric Drive Train Engineering  Curriculum, fostering innovation and expertise in electric vehicle technologies. This development  comes at an opportune time, with the announcement strategically timed just a month after the  publication of the Policy White Paper for Electric Vehicles by the Department of Trade, Industry,  and Competition [the dtic].

6.1. BACKGROUND 

The Royal Academy of Engineering, renowned for its commitment to promoting excellence  in engineering, has allocated funding to support this ground-breaking initiative. The  partnership between industry leaders and academic institutions underscores the importance  of preparing the workforce for the evolving landscape of electric mobility. 

6.2. OBJECTIVE 

The primary goal of this initiative is to design and implement a curriculum that equips  engineering students with the skills and knowledge required to excel in the field of electric  drive train technology. With the burgeoning interest and demand for electric vehicles globally,  South Africa aims to position itself as a leader in sustainable transportation and innovation 

especially given the production capacity within the country to manufacture BEV units. 

6.3. SIGNIFICANCE OF THE CURRICULUM 

The curriculum will cover a range of topics, including battery technology, electric motor  systems, power electronics, and vehicle control systems. This comprehensive approach  ensures that graduates possess the expertise needed to contribute to the development,  maintenance, and advancement of electric vehicles. 

6.4. COLLABORATIVE EFFORT 

The collaboration between naamsa | The Automotive Business Council, and the academic  institutions demonstrates a commitment to bridging the gap between industry needs and  academic offerings. By aligning educational programmes with the evolving requirements of  the automotive sector, the initiative aims to produce a skilled workforce ready to tackle the  challenges and opportunities presented by the electric vehicle revolution. 

6.5. STRATEGIC TIMING 

The announcement strategically coincides with the publication of the Policy White Paper for  Electric Vehicles by the dtic. This synchronicity is reflective of an alignment from lagging  processes that have left South Africa behind in the evolution to NEVs. Thus as industry gears  itself toward NEV production, national systems are being mobilised in preparing its workforce  and infrastructure for the inevitable shift towards electric mobility. 

6.6. FUTURE PROSPECTS 

As electric vehicles become increasingly prevalent globally, South Africa’s investment in  specialised education aligns with the country’s ambitions to be at the forefront of sustainable  technology. The curriculum development initiative is expected to have a lasting impact,  contributing to the growth of the electric vehicle industry and positioning South Africa as a  hub for electric drive train engineering expertise.

In conclusion, the funding from the Royal Academy of Engineering marks a pivotal moment for  South Africa’s automotive and academic sectors. The collaborative effort to develop a Battery  Electric Drive Train Engineering Curriculum reflects a forward-thinking approach to address the  challenges and opportunities presented by the electric vehicle era. 

7. BUSINESS CONDITIONS, PERFORMANCE INDICATORS AND COMMENT  Business Conditions: Fourth Quarter: 2023 

2023 Fourth quarter aggregate industry new passenger car sales at 86,709 units recorded a decline  of 6,440 units, or a fall of 6,9% compared to the 93,149 new passenger cars sold during the  corresponding quarter of 2022. Aggregate industry commercial vehicle sales during the fourth quarter of 2023, at 43,931 units, recorded a decline of 972 units, or a loss of 2,2% compared to the  44,903 units sold during the fourth quarter of 2022. 

Aggregate new vehicle sales during the fourth quarter 2023 recorded a decline of 5,4% compared  to the corresponding quarter 2022 and a decline of 3,5% compared to the third quarter 2023.  Amidst a depressed economy, elevated cost of living increases as well as lower seasonal sales to  the car rental industry, new vehicle sales also yielded to the pressure of the major logistical  challenges at the country’s ports during the quarter. Year-on-year, the extra heavy commercial  vehicle sector continued to benefit from the reliance on road transport due to rail inefficiencies.  

New energy vehicle [NEV] sales by 19 industry brands increased by 59,9% from 1,582 units in the  fourth quarter 2022 to 2,529 units in the fourth quarter 2023. Following a significant year-on-year  increase of 421,7% from 896 units in 2021 to 4,674 units in 2022, NEV sales registered a further  year-on-year increase of 64,6% to 7,693 units in 2023. NEV sales breached the 1% share of the  new vehicle market for the first time in 2023 comprising 1,45% of total new vehicle sales, compared  to 0,88% in 2022.

The following table reveals the diversity of drivetrain sales in the South African NEV landscape from  2019 through to 2023 Q4. 

The long-awaited EV White Paper was unveiled by the dtic in December 2023 and signals the  government’s commitment to the widespread adoption of electric vehicles and other eco-friendly  modes of transport. The policy supports investments in the development and expansion of new and  existing manufacturing plants to support the production of electric vehicles in the country. The  details for this policy would only be announced in the 2024 Budget Speech with considerations to  domestic market demand stimulus measures, establishment of renewable energy-based charging  infrastructure, and production support. Part of the broader strategy includes collaborating with  other African countries to develop battery production capacity on the continent, by pooling the  critical-mineral resource base that Africa was endowed with. 

naamsa maintains that driving a meaningful NEV transition in South Africa will require a careful  balance between incentivising a sustained shift in domestic market demand to NEVs; establishing  an appropriately aligned, renewable energy-based charging infrastructure; and supporting a shift  in South African vehicle production, away from ICE vehicles to a mix of hybrid electric vehicles  [HEVs], plug-in hybrid electric vehicles [PHEVs], and battery electric vehicles [BEVs]. The naamsa 

NEV Thought Leadership Paper can be accessed at naamsa.net/nevs-thought-leadership discussion.  

South African Automotive Industry’s Performance in a Global Context: 2016 – 2022  production data. 

Although global vehicle production increased by 6,0% to reach 85,02 million vehicles in 2022, up  from the 80,21 million units produced in 2021, it was still 7,7% below the pre-pandemic level of  92,12 million vehicles in 2019. For the first nine months of 2023, vehicle production totalled 66,9 million units, 9,9% ahead of the same period 2022, but was still 0,5% below the pre-pandemic level  of 2019.

The following table reflects South Africa’s share of global vehicle production for 2017 to 2022 [in  millions]. 

South African vehicle production increased by 11,4%, from 499,087 units produced in 2021 to  555,885 units produced in 2022, exceeding the global year-on-year increase in global vehicle  production of 6,0% in 2022. The country’s global vehicle production market share thus increased  to 0,65%, but its global vehicle production ranking declined to 22^nd as Malaysia, ranked at number  20, surpassed South Africa’s in the global rankings. In terms of global LCV [bakkie] production,  South Africa was ranked 16th with a market share of 1,1%. South Africa remained the dominant  market on the African continent and accounted for 54,4% of Africa’s total vehicle production while  Morocco, with 464 864 units, accounted for 45,5% of the total. 

Fourth quarter 2023 domestic vehicle production reflected an increase of 15,4% compared to the  corresponding quarter 2022 on the back of higher export sales during the quarter. Total vehicle  production of 632,972 units in 2023 exceeded the pre-pandemic level of 631,921 units of 2019,  after three years, which could mainly be attributed to the strong performance in the light commercial  vehicle segment due to new model introductions as well as the extra heavy commercial vehicle  segment due to the higher reliance on road transport as a result of rail transport inefficiencies. The  passenger car segment was still lagging the pre-pandemic 2019 vehicle production level in 2023.

The following table reflects South Africa’s domestic vehicle production for 2019 to 2023 Q4. 

South Africa had a vehicle parc [number of registered vehicles] of 13,0 million at the end of 2022,  of which 7,7 million, or 59,2%, comprised passenger cars.  

Vehicle exports, a crucial element of the domestic OEMs’ financial viability and sustainability remained robust and continued their upward momentum in 2023, despite slowing global growth owing to geo-political tensions, supply chain disruptions, inflationary pressures and multi-year high interest rates in major export markets. A significant 66,6% of domestic light vehicle production was  

exported in 2023. 

The trade arrangements enjoyed by South Africa remain essential for the country’s export-oriented  automotive industry as they continue to enhance exports to the EU, the UK, SADC and the US.  Europe continued to dominate as a region and with 301,640 units of the total 399,594 units exported  in 2023 comprised 75,5% of total vehicle exports. 

The legislation to ban the sales of new internal combustion engine [ICE] vehicles in the EU by 2035,  and 2030 in the UK, in favour of new energy vehicles, limit a slow transition approach given the high  export exposure of the domestic automotive industry and the required timeframe to respond.  

The transition to NEVs is therefore not merely a strategic option but a necessity and an urgent  imperative. To maintain and grow South Africa’s production base and secure export markets, the  country must therefore actively participate in the global shift toward cleaner transportation  solutions.

Industry export performance by major region – 2019 to 2023 Q4 

Vehicle exports increased by a sound 24,9% from the fourth quarter 2022 to the fourth quarter  2023, contributing to the record 399,594 units exported in 2023, up by 47,809 units, or 13,6% from  the 351,785 units exported in 2022.  

Sustained pressure from growing global challenges such as weak economic growth, growing  economic divergences, and new protectionism affected the vehicle export performance to the  various regions in 2023.

8. CONFIDENCE INDEX 

The naamsa CEOs Confidence Index is an in-house leading business confidence indicator of  current and future developments in the domestic automotive industry. The naamsa Confidence  Index is built to enhance the quarterly reporting with opinions canvassed anonymously from each  of the naamsa CEOs. The questions focus on views related to automotive business conditions in  particular as well as the country’s economy in general. 

4^th Quarter 2023 vs 4^th Quarter 2022 

The sentiment expressed by the naamsa CEOs reflected unfavourable market conditions and an  overstocked situation by most brands during the quarter under review. The new vehicle market  continued its declining trend as the financial strain on consumers, due to high interest rates and a  sluggish economy, impacted negatively on new vehicle demand, although the upward momentum  in vehicle exports supported vehicle production in the case of some light vehicle OEMs. The supply  chain disruptions caused by the port challenges on vehicle production and sales during the quarter  exacerbated the dampened consumer and business confidence further due to the cost impact on  the economy.  

Next 6-months

The views of the naamsa CEOs generally reflect a negative, cautious and uncertain outlook for all  of the industry’s key performance indicators over the next six months. Influencing factors such as  the upcoming National and Provincial elections in the country, the persistent threat of load-shedding  and logistics constraints, oil prices, and currency fluctuations along with geopolitical conflicts pose  significant risks to the overall economy. A notable improvement in South Africa’s economic growth  outlook is unlikely for 2024, but at a projected 1,2% by the SA Reserve Bank it would still be stronger  than 2023 in line with the expected start of an interest rate cutting cycle, as well as lower inflation  on average. CEOs of selected imported brands as well as some CEOs in the heavy commercial  vehicle segment expressed more upbeat prospects for their companies over the next six months. 

Brief Comment on business conditions and the medium-term outlook  

Economic headwinds continued to shape the new vehicle market’s performance during the quarter,  including highly indebted consumers, the lingering effects of high interest rates, high food and fuel  inflation, load shedding, and port backlogs and delays. Disappointingly, as a result of a weak fourth  quarter 2023 performance, the new vehicle market has not been able to out-perform the 2019 pre 

pandemic levels yet, after three years, despite being on track for most of the year.  

South Africa’s economic weak growth outlook for 2024, at 1,2%, remains a key challenge for the  new vehicle market going forward in view of the close correlation between new vehicle sales and  the GDP growth rate. The year is also marked by elections, not just in South Africa but also in other  major markets, introducing an element of economic uncertainty. A start of an interest rate cutting 

cycle, likely to commence during the second half of the year, accompanied by easing core and food  inflation, and improvements in the country’s energy and logistics infrastructure could provide some relief for consumers and subsequently stir up some momentum in the new vehicle market. 

It is anticipated that the NEV regulatory framework details to be announced in the 2024 National  Budget Speech on February 21, 2024, by the Minister of Finance, would provide a much-needed  injection of confidence for the South African automotive industry to accelerate its inevitable  transition towards electric vehicle and associated component production. 

Vehicle exports ended 2023 at a record high following an exceptional performance during the fourth  quarter 2023. Several global externalities remain persistent, creating an uncertain backdrop for the  year ahead. While headline inflation continues to ease in much of the world, core inflation remains  sticky and high. Both advanced and emerging economies are likely to see modest economic growth  in 2024, which would support the South African automotive industry’s export performance. 

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View the industry vehicle sales rules here.