Facing global headwinds, Chinese automakers make a play for Africa
JOHANNESBURG : Chinese automakers are pushing to unlock Africa's underdeveloped potential, with a focus on electric and hybrid vehicles, as restrictions on exports to the US and Europe send them on a global quest for new markets.
Though home to over a billion people, low incomes and high import duties have long hampered manufacturers' efforts to sell more cars in Africa.
Unreliable power availability and a lack of charging infrastructure have meanwhile held back electric vehicle (EV) uptake.
However, companies including BYD, Chery Auto and Great Wall Motor (GWM) are aiming to leverage low prices to advance where others have struggled and use an expansion in South Africa as a stepping stone in a continent-wide strategy.
'We treat South Africa as a very important market for our global expansion,' said Tony Liu, the CEO of Chery South Africa, calling Africa's most developed auto market a 'gateway to the African continent'.
Nearly half of the 14 Chinese automotive brands currently active in South Africa launched only last year.
More, including DongFeng, Leapmotor, Dayun and Changan are set to enter the market soon.
As new players move in, more established companies are looking into producing cars locally, allowing them to benefit from a government incentive programme offering rebates for domestically made vehicles.
Liu said Chery – the number 2 Chinese auto company in South Africa – was considering partnerships or building its own factory to produce cars for the South African market and export to the rest of the continent and potentially Europe.
Omoda & Jaecoo – Chery's premium independent brand – is also conducting feasibility studies for local assembly, its South Africa general manager Hans Greyling told Reuters.
Until now, it had not made sense for GWM, the largest Chinese automaker in South Africa by sales, to localise component production, its COO Conrad Groenewald told Reuters, as Chinese imports had been cheaper.
That is changing, however, and outsourcing to a local manufacturer or setting up a semi-knockdown plant, which would turn partially pre-assembled kits into finished vehicles, were options.
'I think now that we've got economies of scale … We need to revisit those feasibility studies in the next 12 months,' he said.
Troubles with Europe and the US
Chinese carmakers, which are in the midst of a rapid switch to EVs and hybrid production, are facing growing obstacles in the US and Europe.
Growth of new EV sales has been slower than expected in many wealthy markets.
The EU's hefty duties on imports of Chinese-made EVs and 100% tariffs in the US have erased their primary competitive advantage: price.
Efforts to push into large emerging markets like India and Brazil have also proven to be complicated.
While the African market is still comparatively tiny, industry sources point to massive potential for growth.
South Africa, a market long dominated by the likes of Volkswagen and Toyota, manufactured just under 600,000 cars last year.
However, the government estimates production could grow to up to 1.5 million by 2035 given the right incentives.
The former head of the Association of African Automotive Manufacturers once estimated Sub-Saharan Africa's potential market at between 3 million and 4 million new car sales annually.
Chinese companies stand poised to test that potential.
Chery is launching sales of eight hybrid cars, including five extended-range plug-in hybrids and three hybrid models, in South Africa.
It will also introduce two small crossovers, while a pickup truck is scheduled to go on sale next year.
It also plans to bring its EV line iCar and another brand, Lepas, to South Africa in the near future, Liu said.
BYD, China's top producer of electric and plug-in hybrid vehicles, entered the South African market in 2023.
It recently doubled its South Africa line-up, adding the plug-in hybrid Shark pickup truck, plug-in hybrid SEALION 6 crossover and fully electric SEALION 7 SUV models to a range that had previously only included battery-powered models.
Hybrids and a pan-African push
Auto executives interviewed by Reuters view plug-in hybrids as critical to their Africa strategy.
'Battery electric vehicles have not really taken off in South Africa,' Omoda & Jaecoo's Greyling said.
'We've gone the route of looking more towards traditional hybrids or plug-in hybrids,' Greyling added.
South African sales of so-called new energy vehicles – a class including traditional and plug-in hybrids along with EVs – more than doubled from 2023 to last year, accounting for 3% share of total new vehicle sales.
While the numbers may still be small – 15,611 vehicles, mainly traditional hybrids – Chinese companies are encouraged by the trend.
'Based on our experience in China, once the market share of new energy vehicles reaches almost 10%, then the demand will start to explode,' Chery's Liu said.
Chinese automakers face consumer skepticism over quality, spare parts availability and the untested resale value of their vehicles.
However, they are counting on price and advanced technology setting them apart from Africa's traditional market leaders and are focusing on offering plug-in hybrids and EVs with a starting price of under R400,000 (US$22,500).
'As long as they remain affordable from an up-front cost perspective, they will be differentiated against legacy brands offering similar specifications,' said Greg Cress of advisory firm Accenture.
Omoda & Jaecoo, which launched in Africa in 2023 and operates 52 dealerships in South Africa, Namibia, Eswatini and Botswana, hopes to triple sales in the next 18 months and enter new markets Zambia and Tanzania.
BYD plans to expand its dealership network in East, Southern and West Africa, including a first-time entry into Tanzania.
Steve Chang, BYD Auto South Africa's general manager, said he is not daunted by the slow adoption of EVs and Africa's internal combustion engine-dominated vehicles market.
'I think South Africa and the rest of Africa have a very big opportunity to what I call leapfrog from ICE into renewable energy (cars),' he said.
'Africa is a very big market,' he added.
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Other global automakers, including Toyota and Stellantis, have pursued similar partnerships with Chinese counterparts to learn how they operate. CEOs and other executives at global automakers including Ford, VW, Stellantis, GM, Renault and others have openly acknowledged the fierce competitive threat posed by Chinese rivals, often citing their development speed. VW's China chief Ralf Brandstaetter, at April's Shanghai auto show, touted efforts to speed development of models to compete with Chinese EVs and hybrids, saying it aimed to 'be as fast and as competitive as a Chinese startup'. That's a reversal: Until about a decade ago, China's automakers often copied foreign rivals. Chery once made Chevy lookalikes. BYD made Toyota knockoffs. 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VW is leaning on Xpeng and joint-venture partner FAW in China as part of its plans to launch 30 EVs and hybrids by 2030. VW didn't respond to questions about its China operation or development process. Christian Hering, Zeekr's chief platform architect for Europe, previously developed navigation software at a VW supplier for three years starting in 2017. VW's real-world testing protocols were rigid, he said: Even slight software tweaks were treated like physical-component changes – each requiring 25,000km of road-testing. Hering said he once changed the color of the trees depicted in a VW navigation system. That simple switch required 75,000km of tests because it was for three markets – North America, China and Europe. 'That's why traditional carmakers can't do speed,' Hering said. Despite their short-cutting of vetting processes, China-brand models have consistently won top five-star safety ratings from Euro New Car Assessment Programme (NCAP), a leading crash-tester. 'Forget what you might think – that Chinese means lower quality or lower safety performance,' said Matthew Avery, Euro NCAP's director of strategic development. The quality of modern Chinese-brand vehicles, he said, is 'better than others'. Import triple threat: EVs, Hybrids, gas Most Western car buyers have never heard of Chery, but the fast-growing automaker poses the biggest immediate threat to global automakers in markets outside China. The Wuhu-based manufacturer is China's largest auto exporter, selling 1.14 million vehicles in over 100 countries outside China, close to half its total last year. Chery, which started exporting in 2001, has more experience in foreign markets than most Chinese peers, including BYD. Another advantage is that Chery makes all kinds of cars, including internal-combustion-engine vehicles, which still dominate nearly every market beyond China. Last year, fully (EVs) accounted for one-fifth of Chery's sales. Chery's Omoda SUV line exemplifies that agnostic approach. The Omoda 5 that engineers raced to overhaul in 2023 for Europe was a gasoline model. However, Chery also builds a fully electric Omoda 5. Later this year it plans to launch the larger Omoda 7 and Omoda 9, both plug-in hybrids. Chery has big plans for European factories, including one in Spain in a joint venture with Spanish automaker Ebro that will launch production this year. The Chinese company expects European sales growth to require at least two more factories on the continent, said European managing director Jochen Tueting, a former Ford executive. 'Chery is a volume manufacturer,' he said, 'so we want to grow big in Europe.' he added. Chery says it creates between five and 10 digital design proposals for every car it develops. If any model flops, the company can quickly replace it. Matkin, Chery's chief international-brands engineer, pointed to the automaker's Jaecoo 7, a premium plug-in hybrid SUV. If it failed to win over European consumers, he said, Chery would just drop the vehicle and start from scratch. 'If everybody said today, 'We hate it,' Chery will just change it,' he said. 'It might still be called the Jaecoo 7, but it would look completely different. And it would be here in under two years.' he added.
