Volkswagen ‘very worried’ about its future in South Africa

Volkswagen Passenger Cars CEO Thomas Schafer said load-shedding, rising labour costs, and Transnet’s problems make South Africa unattractive to continue building its cars.

Schafer’s warning comes amidst Volkswagen’s drive to save costs, improve profitability, and remain competitive in its move to electric cars.

Reuters reported that South Africa used to be highly competitive in the global car manufacturing market because of its labour costs.

However, electricity challenges related to Eskom, railway and port problems related to Transnet, and higher salaries have changed the country’s attractiveness.

Schaefer said Volkswagen eventually have to ask why it is building cars in South Africa, especially as it is far away from where the cars are sold.

“I’m very worried about it. We’re not in the business of charity,” he said. He urged the government to take action to resolve the problems.

A particular concern is that Volkswagen has no plans to start building electric vehicles in South Africa, cutting it out of this lucrative future sector.

The German carmaker plans to launch ten new electric vehicles by 2026 and is investing nearly $200 billion over the next five years to ramp production.

However, because most South African consumers cannot afford an electric vehicle, it is not an attractive location to build these cars.

Volkswagen South Africa’s head of passenger cars, Steffen Knapp, said they would need to achieve high sales volumes of over 500 units annually to justify bringing an EV into the market.

To put that into perspective, just 502 passenger EVs were sold across all brands in South Africa in 2022.

“We are a volume brand and perceive ourselves as the most aspirational volume brand in South Africa, and to sell 3, 5 or 10 cars a month, that’s not the scale,” Knapp said.

National Association of Automobile Manufacturers of South Africa (Naamsa) CEO Mikel Mabasa also warned about the country’s car manufacturing sector.

Mabasa said the government’s slow development of new energy vehicle (NEV) policies endangers the local automotive manufacturing industry.

He explained that the production of vehicles was no longer about a fight between the car manufacturers.

It had become a battle between countries due to the high contribution of this industry to economic growth and job creation.

“The world is not waiting. Other markets have been clear about what their policies are going to be,” Mabasa said.

He warned that the global headquarters of car manufacturing firms urgently needed to decide whether their next production lines would be in South Africa or elsewhere.

“For them to do so, they need to be able to posture based on whether governments in the countries where they are operating can give them some policy certainty,” Mabasa said.

“If the South African government remains silent, as it has been for the longest time, it puts a lot of pressure on our local manufacturers.”