NAAMSA and NAACAM

5 Year Automotive Sector Business Plan

 Presentation overview

1. South African automotive industry Please note:

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

Contribution – last four years

Indicators
2014 2015 2016 2017

South Africa’s GDP in Billions (current

R3 796,5 R3 991,0 R4 350,3 R4 651,8
prices)

Broader automotive industry contribution

7,2% 7,5% 7,4%* 6,9%
to GDP

Vehicle, component and associated

production as % of South Africa’s 30,2% 33,5% 33,0% 30,1%
manufacturing output

Automotive Industry Export Council, Automotive Export Manuals, 2015- 2018

4
 South African automotive component production also dominated by exports (R
million), whether directly or via OEM assembly

South African component production

Component category 2013 2014 2015 2016 2017 (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 Component production for vehicle assembly
Component production for domestic aftermarket
Component production for ex

Source: Automotive Export Manual, 2018

5
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, 2014-2017 • All OEMs compliant on BBBEE scorecard –
improved average score from 59.6 in 2016 to
Unit 2014 2015 2016 2017 62.3 in 2017
R– • 9% of component manufacturers Level 1or 2
6,917 6,603 6,415 8,171 on BBBEE scorecard in 2018 versus 4.5% in
SA vehicle million
assemblers 2017
% of
5.50% 4.96% 4.44% 5.07% • Dealership BBBEE status and ownership
Sales*
mapped
R–
No data 2,684 3,035 2,962 • Establishment of OEM Transformation Fund to
million
SA component drive Black industrialist participation in
manufacturers % of portions of value chain open to national capital
No data 3.62% 3.75% 3.58% – Tier 2-3 of manufacturing value chain,
Sales*
dealerships and authorised repair facilities
Source: NAAMSA (for OEMs); South African Automotive Benchmarking Club (for component manufacturers)

* Capital spend (NAAMSA) as a % of Motor Vehicles sales (Stats SA)

6
 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

Cost breakdown of vehicle range sold in South Africa (5

models ranging from R174k to R923k)

15%
1%
0% Cost breakdown
Price (ex-taxes)
11%
Duty
Ad valorem
58% Tyre levy
CO2 levy
15%
VAT - 15%

South Africa slipped in global market rankings: 22 nd in 2014 to 24th in 2017

Source: NAAMSA; * NAAMSA projections (July 2018)
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 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
200

Rand billions
Industry
150 trade
position has shown
continuous
100

improvement and
moved50
to a net
surplus of R10.3
0
billion in 20172013 2014 2015 2016 2017

-50

-100

-150

-200

Source: Automotive Export Manual, 2018

8
 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

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 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
2035. Its five year business plan is therefore
located within this aspirational plan
 The South African Automotive Masterplan’s 2035 vision, objectives, and strategic implementation pillars
Objective
1. SA vehicle production to 1%
of global output
2. Increase local content in SA
assembled vehicles to 60%
3. Double employment in the
auto value chain
4. Improve industry
competitiveness to leading
international competitors
5. Transformation of the South
African automotive value chain
6. Deepen value addition within
SA auto value chains
South African Automotive Industry Masterplan, 2017
Estimated impact on SA auto industry
• CBU production to 1.39m units annually (129% higher
than 2015 levels)
• Increase vehicle production value to R314bn
• Increase local content R135bn on 2015 levels
• 55% more local content per assembled vehicle
• Aggregate employment to 224,000
• Comparative price and non-price competitiveness
• Sustained export competitiveness
• 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
• 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
 NAAMSA 5-year business plan to 2023 versus SAAM 2023 target
• Vehicle production to grow to 800,000 units
900,000 • Exports compensating for poorly performing
800,000
800 000 domestic market:
700,000
 Plans to 2020 per individual OEM forecasts
628 000  Strong local market recovery from 2021 required
600,000
– 5% annually
500,000
 Annual export growth of 7.5% for 2021 to 2023
Units

400,000
• SAAM targets for 2023 to be missed by only
300,000
30,000 units:
200,000  Domestic market – 24,000 units
100,000  Exports – 6,000 units – African
- underperformance
2018 2019 2020 2021 2022 2023 SAAM Tgt

Local market Exports Total

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
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 Production and local content growth to 2023 driven by substantial
additional investment by vehicle assemblers

R 10.0 • Key to amplified investment is

R 9.0
5 Year forecast growth in the domestic and
Rand billions

R 8.6
R 8.2
R 8.0 R 7.5
R 7.9 regional markets as the industry is
R 7.0 R 6.8
R 7.2 overly dependent on exports to
distant markets
R 6.0

R 5.0

R 4.0 Australia Africa

7% 6%
R 3.0
N America
13%
R 2.0
S America
R 1.0 Europe
Asia
16% [PERCEN
R 0.0 TAGE]
2018 2019 2020 2021 2022 2023

• 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
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 Employment within value chain to increase to 135 000 in 2023, 80 900 of
whom will be youth and 33,500 female
• Major productivity gains modelled to
140,000
2023 – 5% annually at OEMs and 3% at
component manufacturers – key to
120,000
export competitiveness
• Employment within value chain to still
100,000
grow 14% (>16,000) - primarily on back
of CBU export volumes and local
80,000
content growth
Employees

• Youth employment to grow from 55% to

60,000
60% of total
40,000 • Female employment to grow from 20%
to 25% of total
20,000 • Labour relations stability major concern
to realisation of employment objectives
-
2018 2019 2020 2021 2022 2023

Note: Total employment youth and female proportion based on OEM survey data only
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 AUTO’S - TRANSFORMATION SCOPE

Component OEM’s Dealers & Retail

manufacturers Automotive Transformation
Fund
Black Black
Ownership/Leadership Ownership/Leadership
 Preferential Procurement
 Enterprise Development Informal sector growth &
Localization Township Revitalization
 Skills Development
 INVESTMENT PRIORITIES

Investment (R Billion) R 39.4 Billion

DEVELOPMENT OF THE TOTAL R9.0
R8.6
AUTOMOTIVE VALUE CHAIN R8.5 R8.2
R8.0 R7.9
R7.5
R7.5 R7.2
R7.0
R6.5
2019 2020 2021 2022 2023

Component OEM’s Dealers & Retail

Manufacturers
AL

OEM
W

OEM
E
NO

ID

Tier 1

Tier 1
Tier 2/3
Tier 2/3
Advanced manufacturing Upliftment of informal
Develop tier 2/3 suppliers technology sector
 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
 Five-year business plan imperatives
Potential to 2023 identified
• Vehicle production to 800 000
units (62% exported)
• Investment R40b
• Local content to >R94 billion
(42% per unit)
• Employment to 135 000, 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
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Auto Sector’s 7 priority requests to support the industry’s
5year plan
1. Local market stimulation (1)
2. Establishment of a regional automotive pact that develops
regional value chains and a growing, sustainable African
market (2)
3. Fuel quality to international standards (6)
4. Uncompetitive port and rail efficiencies, reliability and cost (4)
5. Investment support for new, advanced technologies (6)
6. Improved industrial relations legislation (foundational)
7. 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
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 Recommended action plans to support the industry’s 5year
plan
1. Domestic vehicle affordability

• Workshop with DTI and National Treasury on demand stimulation

• Examination of ad valorem duties on demand stimulation and Treasury revenue

2. Fuel quality to international standards

• Clean fuel summit with major public and private stakeholders

• Urgent resolution and agreement on clean fuel implementation timeline

3. Improved industrial relations legislation

• National review of labour relations act in support of job creation and industrialisation

• Resolution of strike legislation and consultation processes

4. Investment support for new, advanced technologies

• Confirmation of SAAM position on New Technology AIS

• Tailored incentives to attract new technology investment in auto’s

5. Establishment of a regional automotive pact

• Joint DTI and AAAM initiative in place – broader government support required

6. Uncompetitive port and rail efficiencies, reliability and cost

• Continuity of constructive engagement with port and rail authorities

7. Coordinate supply chain skills development in value chain

• Creation of a consolidated auto components chamber at MerSeta 20