The implementation of Level 6 load shedding scares us all, but it could put automotive parts suppliers – the lifeblood of South Africa’s advanced car industry – out of business. South Africa’s heavy industry has been forced to innovate by necessity. When your energy needs are so great, Eskom’s inability to meet its mission can cause stress…and action.
With international orders to fulfill, South Africa’s automotive assembly facilities were not indifferent to the off-grid concept. Impressive solar installations and all manner of clever alternative energy sources are integrated by vehicle manufacturers across the country, independent of the reality of Eskom’s outages.
Take a broader view of South Africa’s automotive industry, and the energy crisis doesn’t seem so dire. Automotive assembly, unlike food retail, does not require a demanding cold chain refrigeration commitment. The paint shop’s chemical stabilizers and curing lights are probably your most sensitive energy-killing hazard.
But beyond drinking half-full glasses of Kool-Aid from industry conference optimism and thought leaders, the stakes in local automotive assembly are high. and increasing.
An issue outside the factory door
East London has been deindustrializing for years, with the Mercedes-Benz factory being the only exception. But the solar power plant cannot support everyone.
Think beyond Rosslyn, Prospecton, Silverton, Kariega, Gqberha and Buffalo River to understand why Eskom’s transition to and from Stage 6 could throw the entire automotive assembly industry into crisis. BMW, Nissan, Toyota, Ford, Volkswagen (VW), Isuzu and Mercedes-Benz have core assembly assets with reliable power, the result of engineers and management who realized Eskom was irreparable a decade ago.
But the issue is not at the final assembly stage. It’s in the supplier community. Those small engineering shops and enterprises supply the various components of nearly one-third of the automobile content produced in the country.
The reason South Africa has such a sophisticated and standardized automotive industry is part legacy, part incentive policy. In the year
In the 1990s, as the economy fragmented and the rand weakened, conditions became favorable for outsourcing, which most local vehicle manufacturers struggled with. And government industrial policy regarding the automotive industry is an increasingly volatile area – a good idea, with some very unexpected consequences.
Manufacturers must use a certain percentage of local content to keep the government happy and maintain export credit incentives that make assembling local vehicles viable. And that percentage has been rising over time to nearly 40% by current standards, depending on specific formulas. The future goal is to increase this to 60%. That means local suppliers have to grow to get that 60% number, but Eskom makes that impossible.
It’s not just about alternative energy, it’s also about storage.
These are the true heroes of South Africa’s world-class car industry, small-scale suppliers.
In many of the world’s rich cities, luxury car buyers own cars thanks to the quality of local suppliers, a third of which is engineered in South Africa.
But what happens when Tier 6 load shedding continues and small suppliers begin to run behind schedule without protecting alternative energy sources — or simply go offline for weeks on end? Direct-feed solar is a big advantage, but battery capacity is needed to run late shifts after sunset. And energy storage remains prohibitively expensive, making it prohibitive for many small businesses.
Of course, battery storage is so expensive that there is an overwhelming sense of urgency due to import tariffs. A broadly similar tariff is making it a challenge to sell electric vehicles at competitive prices and stimulate domestic demand.
We have a real-world example of what will happen to a vehicle assembly in South Africa if high-frequency level 6 – and above – load shedding continues. There will be lots of unfulfilled cars and unfulfilled international shipping commitments.
For the past year and a half, there has been a global shortage of new vehicles because one subtype of component is hard to find – the semiconductor (perhaps the smallest and lightest of new cars). The semiconductor crisis showed how vulnerable vehicle production can be due to over-reliance on external suppliers rather than vertical integration.
The semiconductor crisis proved how complex modern cars are. For a component as complex as a semiconductor, switching between suppliers and specifications was simply not an option.
And that theme plays out at a very micro level in South Africa’s domestic automotive supply chain. All the car companies copied from Toyota in previous decades because of the time and place production systems, there are not enough remanufacturers. All of these strategies are about operating within very tight/very tight margins.
Off the grid and running shifts
South African OEMs such as FMCSA have invested in solar. But how many small engineering businesses can do the same?
What is the nightmare scenario for South African automotive manufacturing? Skilled local component suppliers risk losing their business after prolonged power outages. All the good intentions in OEM assembly facilities and solar panels do nothing to protect suppliers from Tier 6 and worse.
It is credible and common sense that BMW, Ford, Isuzu, Nissan, Mercedes-Benz, VW and Toyota have reached a level of relative freedom from the Eskom threat. But they remain at high risk of level 6 and worse. Without specific local uses, there will be no fully assembled vehicles rolling off the production lines and sent offshore to earn those credits.
Supplier vulnerability was not a topic of discussion until the pandemic and the resulting semiconductor crisis highlighted how exposed large auto companies were to external influences. Solutions? During the pandemic panic, there was an understanding that car companies would subsidize select international suppliers. It was a matter of collective survival rather than corporate generosity.
But the epidemic will always be temporary. Eskom’s power crisis, by contrast, has been a constant feature of the South African economy for the past 15 years, and alarmingly, the situation shows no signs of improvement.
Small business needs help
SA-made barges, road-going, for port export. But will volumes continue to grow in the future?
The Department of Trade and Industry, which is mandated to grow the automotive industry, reduce risks to trade and increase the diversity of deep-rooted employment, is doing nothing. Small automotive industry suppliers need relatively less energy compared to large industrial users, but they need it constantly. If the government enacts 100MW private generation rules, various construction projects in urban industrial zones can solve the problem. But it didn’t happen.
The talk is about the South African automotive industry changing in line with the motoring world’s transition from ICE to new-generation powertrains. That requires new production systems and local suppliers to produce complex battery chemistry slurries.
When your CNC machine stops grinding a metal part, that’s not good, but when power is restored, it can restart and finish the job. But battery chemistry? All of these liquids and sensitive shores require careful handling and don’t take kindly to cuts.
What is the worst case scenario for the local motor industry? Locally sourced and truly “Proudly Made in South Africa” vehicles, we can experience many CKD kit cars in the future, effectively completing the imported vehicle by tying only a few elementary parts. In this dystopian future, South Africa will still have an automotive manufacturing sector, but the skilled labor and job growth it has provided since the mid-2000s will be artificially shallow.
After that, the current generation of domestically produced vehicles is at the end. Every manufacturing plant has to bid for any next product and if our local plants don’t meet the standards of the German/Japanese bosses (due to constant delays due to lack of electricity) they simply close shop and move elsewhere.
Worse is the loss of a diverse and thriving small business sector of technical providers that keep the country in touch with global technology trends – a real labor force booster.
This article was originally published on Cars.co.za…
