Volkswagen executive sends warning over SA factory: “We’re not in the business of charity”

Volkswagen’s South African operations face uncertainty as Thomas Schäfer, CEO of Volkswagen Passenger Cars, expresses concern over challenges like load-shedding and rising labor costs impacting the viability of the Kariega plant. While the company globally focuses on cost-cutting for EV transition, Schäfer rules out local EV production due to cost constraints and lack of policy support. The looming 2035 ban on petrol and diesel cars in Europe adds pressure, emphasizing the urgent need for clear government policies to sustain the local automotive industry.

Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.

We are not running a charity — Volkswagen boss sends big warning over South African factory

By MyBroadband Staff Writer

Volkswagen’s global passenger car boss has expressed concern over the future viability of the German automotive giant’s operations in South Africa, Reuters reports.

On Friday, Volkswagen Passenger Car CEO Thomas Schäfer said factors like the country’s competitive labour costs once put the South African factory among the manufacturer’s best performers globally.

The VW Kariega plant in the Eastern Cape has been assembling cars for over 70 years.

It currently manufactures the highly popular Polo and Polo Vivo hatchbacks and employs over 3,500 people.

The plant has played a vital part in establishing Volkswagen’s popularity in South Africa, and it exports thousands of cars to international markets each year.

Volkswagen South Africa’s Kariega Plant in the Eastern Cape

However, Schäfer said the cost of mitigating challenges like load-shedding, rising labour costs, and delays in railway transport and the movement of goods through South Africa’s ports had eaten away at the plant’s advantages.

“Eventually, you have to ask, ‘Why are we building cars in a less competitive factory somewhere far away from the real market where the consumption is?’” Schaefer said.

“I’m very worried about it … We’re not in the business of charity.”

Schäfer served as chairman and managing director of Volkswagen Group South Africa from 2015 to 2020, so he has a deep understanding of the country’s situation.

Schäfer said although the Volkswagen South Africa team had tried to fend off the impacts, the government needed to come to the party and solve the problems.

Thomas Schäfer, Volkswagen Passenger Car CEO

Volkswagen is busy cutting costs to improve its profitability and help it remain competitive in the global transition to electric vehicles (EVs).

The company has struggled to compete in the growing segment in one of its biggest markets — China.

Its “ID.” EVs have also been met with largely mixed or negative reviews over the past few years, with software issues plaguing customers and critics alike.

Volkswagen is yet to offer any of these cars to consumers in South Africa, although it has run several fleet tests over the past few years — including a trial of the ID.4 in 2022.

The automaker also recently started a trial of four ID.Buzz cargo vans with delivery service DHL.

No plans to make EVs in South Africa

Schäfer said there were no plans to produce EVs locally because they were priced out of the budgets of most domestic consumers.

It would also not be environmentally sustainable to make them for overseas markets, likely because Eskom’s grid is primarily powered by coal.

Volkswagen South Africa’s head of passenger cars, Steffen Knapp, previously told that the company 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.

Volkswagen ID.4 electric crossover

Europe’s ban on the sale of new petrol and diesel cars from 2035 is a major threat for local car manufacturers, as it is a key export market.

Volkswagen is a member of the National Association of Automobile Manufacturers of South Africa (Naamsa), which has repeatedly warned that the government’s slow development of new energy vehicle (NEV) policies was endangering the local automotive manufacturing industry.

Naamsa CEO Mikel Mabasa said that the production of vehicles was no longer about a fight between the manufacturers themselves; 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 absolutely clear about what their policies are going to be,” Mabasa said.

Mabasa warned that the global headquarters of car manufacturing firms urgently needed to make decisions on whether their next production lines were going to 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 are able to give them some policy certainty,” Mabasa said.

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

Mikel Mabasa, Naamsa CEO

The Department of Trade, Industry, and Competition (DTIC) previously committed to publishing an automotive green paper on NEVs by the end of the calendar year.

Following discussions with the Minister of Finance, Enoch Godongwana, the automotive industry expected an official announcement on the government’s plans during his Medium Term Budget Policy Statement on 1 November 2023.

However, Godongwana said that tax and expenditure measures to support the sector would only be revealed in his Budget Speech in March 2024.

Whether the DTIC still plans to publish its green paper before the end of 2023 or if it will wait until the Budget Speech is now unknown.

Mabasa slammed the lack of urgency on pronouncements around government policy to support or encourage and stimulate NEVs in South Africa as absolutely “pedestrian”.

Read also:

This post was first published by MyBroadband and is republished with permission