DailySun
As you navigate through one of South Africa’s urban locales, you may notice a vehicle sporting an unfamiliar emblem—likely one of the Chinese automotive models that are increasingly capturing the attention of drivers.
Chinese automotive brands have made significant strides in the mid-price segment, typically featuring cars priced below R600,000 ($33,000). In the category of crossover SUVs or “compact family cars,” two Chinese manufacturers, Haval and Chery, achieved positions in the top 10 for new vehicle sales during the first half of 2024, according to South Africa’s Automotive Business Council.
These brands are also enjoying success in the SUV market, where vehicles are generally priced over R600,000. Statistics reveal that from January to November 2023, Haval and Chery ranked as the top and third best-selling SUVs, respectively.
What is driving their success in the South African landscape? Analysts attribute it primarily to two key elements: affordability and perceived quality.
“The value proposition they present is incredibly appealing—far exceeding that of traditional automakers. Chinese brands adopt a unique strategy; their vehicles come well-equipped from the get-go. What you see is what you get, and their technology is impressive,” shares Ciro De Siena, a journalist from Cars.co.za, in a discussion with African Business.
“Established brands typically price their vehicles at a certain rate, but by the time you finalize custom features like panoramic roofs or 360-degree cameras, you might end up adding R100,000. Conversely, with a Chinese vehicle, those features are likely included from the start.”
According to automotive journalist and authority Lance Braquinho, the allure of Chinese vehicles extends beyond low costs. He notes that these models have vastly improved since their debut in the late 2000s.
“Some current options are genuinely impressive. During my visit to China in 2008, the cars were subpar at best. Yet, there was a group of talented young engineers eager to discuss Tesla and German models; it was clear they were aiming to rise to those quality standards and are learning at an extraordinary rate,” he remarks.
Braquinho asserts that Chinese automakers now possess a technological edge over their rivals, especially with software integration.
“Modern car manufacturers must also be adept software engineers to fulfill consumer desires for integrated mobile applications and immersive experiences. The early iPhones were produced there, and many engineers from that era have since founded their own companies. Meanwhile, the legacy automakers are lagging in this aspect.”
Affordable Choices
Chinese vehicles started entering the South African landscape around 2007 during a phase of economic prosperity. However, many exited following the global financial downturn, and it is only in recent years that they have established a stable foothold.
De Siena emphasizes that Chinese brands are returning to the market at a strategic moment, as consumers are increasingly in search of affordable alternatives.
“Notably, the South African consumer market once prioritized brand reputation. Those with financial means typically opted for BMW or Audi, which fostered strong brand loyalty. Yet, over the past decade—amid rising inflation, soaring car prices, and increased living costs—there has been a shift towards value acquisition over prestige. South Africa has grown more price-sensitive. The resurgence of Chinese brands aligns impeccably, as they didn’t have to drive a brand narrative; they’re simply offering what appears to be quality products at considerably more affordable rates.”
Brandon Cohen, chairperson of the National Automobile Dealers Association (NADA), agrees that consumers are now more financially conscious and open to trying Chinese brands.
“There’s a growing demand among South Africa’s middle class for options below R300,000, and in light of ongoing economic challenges, the attraction of competitively priced Chinese brands is particularly strong.”
Although the South African auto market has not experienced significant growth since the pandemic—with new vehicle sales increasing by merely 0.5% year-on-year in 2023 to 532,098 units compared to 529,556 units in 2022—investors remain hopeful regarding the newly formed coalition government. Should the projected 1.1% economic growth outlined by the IMF materialize, consumers may regain their inclination to invest in vehicles.
Tariffs
Nevertheless, several challenges are poised for Chinese manufacturers eyeing the South African market. Currently, light vehicles face a 25% tariff, while original equipment components incur a 20% charge. In contrast, vehicles imported from the EU benefit from a preferential arrangement, facing only an 18% duty. Medium and heavy commercial vehicles are subjected to a 20% ad valorem import tax, while EU manufacturers enjoy a more favorable 12% rate.
To circumvent these tariffs, manufacturers would need to invest in local production.
However, launching local manufacturing “would likely require a long-term commitment and substantial investment,” Cohen elaborates.
Chinese company BAIC partnered with South Africa’s Industrial Development Corporation to establish a manufacturing plant in Gqeberha (Port Elizabeth) in 2018. This R11bn ($604.3m) facility was heralded as China’s most significant investment outside of Europe; however, reports reveal it has produced only 300 vehicles since opening. In contrast, Ford’s Silverton assembly plant in Pretoria has the capacity to manufacture 720 vehicles daily. The US automaker additionally announced plans to invest $281m towards producing hybrid vehicles in South Africa by late 2023.
Other non-Chinese brands have already committed significant investments in the region. In April, German automaker Volkswagen announced a $220m investment in its Eastern Cape facility, gearing up for the production of a new SUV by 2027. Franco-Italian manufacturer Stellantis also confirmed a preliminary agreement with South African authorities in 2023 to establish its first plant in the country by the end of 2025. Additionally, Japan’s Nissan has made considerable investments in recent years.
Great Wall Motors, which owns Haval, P-series, and Tank brands, has communicated with local media regarding ongoing discussions about vehicle production in South Africa. However, local manufacturing presents high costs, and producers must broaden their customer base beyond South Africa for profitability.
Currently, South African automotive manufacturers export to markets in the US, Europe, the Middle East, and across other African nations. Chinese brands would similarly need to enhance their appeal in these regions to justify the establishment of a plant in South Africa. Despite this, De Siena posits that the African market for internal combustion engine vehicles is becoming increasingly crucial for South African manufacturers, who have largely lagged in pivoting towards electric vehicle production thus far.
“Demand for internal combustion engines is declining in Europe and the US, while South Africa has not yet transitioned towards producing NEVs (new electric vehicles). Reconfiguring factories for such production is quite costly, leading manufacturers to turn to Africa instead,” he states.
De Siena believes this represents a strategy for Chinese automakers: “The primary goal would be to establish a presence in South Africa, maximize vehicle sales, and subsequently begin production focused on exports to Africa, a region that shows promising growth potential.”
After 80,000km
Another challenge confronting Chinese automotive brands in South Africa is the public’s perception of their reliability. Given that Chinese models are relatively recent entrants to the market, understanding their long-term performance and durability in a country marked by lengthy distances and varied road conditions remains limited.
“The real test will manifest once vehicles are out of warranty, especially concerning durability after reaching 80,000km. Should maintenance costs become steep, these brands could encounter difficulties. Importing requires significant warehousing of parts, which is pivotal for future-proofing. If heavy maintenance cycles arise after 60, 80, or 100,000km, manufacturers will need specialized components. Inaccessibility could lead to customer dissatisfaction if vehicles remain non-serviceable for extended durations,” cautions Braquinho.
Chinese brands are actively countering this perception by offering extensive warranty packages. Recently, GAC Motors became the first company in South Africa to provide a lifetime engine warranty.
Resale value is a crucial concern for consumers, and De Siena acknowledges this has historically been a weakness for Chinese brands, although the landscape is evolving.
“Buying a Toyota generally ensures a solid return upon resale or trade-in, while Chinese vehicles have tended to depreciate faster compared to their traditional counterparts. However, due to the rising demand for Chinese vehicles, resale values are starting to improve, allowing customers to experience lesser losses upon resale, which in turn elevates the appeal of Chinese models.”
Electric Vehicles
In parallel, China is also gaining ground in the global electric vehicle arena. Data from the China Association of Automobile Manufacturing shows that in the first nine months of 2024, total EV production in China reached 8.3 million units, demonstrating a 31.7% year-over-year increase. Moreover, the country’s EV exports reached 111,000 units in September, marking a 0.9% rise from the previous month and a 15.6% increase year-over-year.
In February, the Alliance for American Manufacturing issued a warning that the influx of low-cost Chinese EVs in the US market could lead to an “extinction-level event” for the American auto industry. Consequently, the Biden administration increased its tariff on Chinese-made EVs from 25% to 100%, citing “extensive subsidies and non-market practices.” The EU followed suit in October, raising tariffs to as high as 45.3%.
BYD Auto, the largest EV manufacturer in China, entered the South African market last year and introduced the Dolphin model this year at R539,900, making it the country’s most affordable electric vehicle.
The South African government has indicated its commitment to promoting local electric vehicle manufacturing. Currently, a 25% tariff applies to EV imports. However, Braquinho points out that “demand for purely electric vehicles is currently limited,” as importers face various obstacles, including inadequate charging infrastructure and an unreliable power supply due to ongoing load shedding.
Braquinho predicts only modest penetration of the EV market from China and other manufacturers.
“Diesel continues to be the preferred fuel for 99% of bakkies [pickup trucks], and for valid reasons. It is widely available, boasts high power density, and performs reliably with proper maintenance. Chinese manufacturers are beginning to recognize that the market leans towards diesel vehicles,” he remarks.
Entering the Premium Segment
Another potential growth avenue may lie in the premium vehicle sector. Attempting to penetrate a market that values features over price could pose a significant challenge for Chinese brands.
A comparable situation occurred when Korean automakers entered the South African space in the mid-1990s. Brands like Kia and Hyundai originally provided budget-friendly options, but as their quality reputation strengthened, their prices gradually increased.
Today, Kia and Hyundai manufacture vehicles that exceed the million-rand price mark while maintaining a strong customer base within the country.
“Chinese brands might encounter additional obstacles when trying to penetrate the premium vehicle segment, which often requires unique features, specifications, and brand prestige,” concludes Cohen.
