South Africa’s electric vehicle conundrum

14 Oct 2019

South Africa's electric vehicle conundrum

By Tasneem Samodien, Research Analyst at Old Mutual Wealth Private Client Securities

South Africa's submission to the Paris Agreement on climate change says the country will have more than 2.9-million electric vehicles (EVs) on the road by 2050, with R6.5-trillion to be invested in the industry over the next four decades. R6.5 trillion is a significant sum of money for a country with failing parastatals, which include its electricity supplier, Eskom. This begs the question, is it practical for South Africa to commit to investing this amount in electric vehicles within the next four decades?

The global argument for electric vehicle investment has long been to reduce carbon emissions and other motor vehicle exhaust emissions. As a slew of EVs have landed in South Africa during the first half of 2019, should South Africans be trading in their internal combustion engines for EVs and is this really a significant part of the solution to meeting our carbon emission commitments as set out in the Paris Agreement?

Cleaner but not greener

EVs certainly have less tailpipe emissions as they do not use oil for fuel, thus reducing smog in congested cities. However, what they do use is electricity. Research by Carbon Brief indicates that EVs result in less carbon dioxide emissions and therefore reduced air pollution, but only if the vehicle is charged with renewable energy sources. The same research indicates that when EVs are charged with coal-generated electricity, they can actually increase carbon dioxide related pollution relative to internal combustion engines.

In South Africa, more than 80% of electricity is coal generated and additional coal stations are set to come online in the next few years. In light of this, there appears to be no immediate motivation for investing in electric vehicle infrastructure. For those hoping for a shift towards cleaner energy, the overwhelming dominance of coal might seem impossible to overcome. Not only is coal a relatively cheap source of energy, but South Africa has an estimated 256 years of available coal reserves. Furthermore, the coal sector is a significant source of employment for the country.

Source: Statistics South Africa

The reality of our situation

While a coal-dominated power grid makes it difficult to make a climate change related investment case for EVs, it is not the only challenge. Eskom has on numerous occasions communicated the difficulties it faces in supplying South Africa with electricity while simultaneously repairing and maintaining its plants. It is no secret that Eskom, as an electricity provider to much of Southern Africa, is strained. This strain has resulted in load shedding, which started in 2008 and rears its head during the most inconvenient of times.

Despite being unable to guarantee a stable and consistent supply of electricity, Eskom, during a statement in April 2019, said that it remains committed to its role in unlocking the potential of the EV market in South Africa. Addressing fears that EVs might strain our already-unstable electricity network, Jaguar Land Rover SA's electrification team leader Brian Hastie quoted a CSIR study which showed that it would have little effect. In a simulated impact of EV charging on the Ekurhuleni grid, with the assumption that 25% of all cars were EVs, the study showed minimal change to the load profile. Importantly, this assumes that most cars are charged overnight when other electrical appliances are not in use. Eskom also tried to allay fears regarding EV charging, stating that load shedding usually takes place for two to four hours in a day, which still leaves consumers with ample time to charge their vehicles overnight.

In the name of economic growth

Earlier this year, a Business Day article suggested that "by 2025 there could be more than 145 000 EVs on SA roads as ranges improve and prices get cheaper" and in August 2019, the Government represented by Ebrahim Patel began discussions on local production of EVs with South Africa's automobile sector. The most pressing argument for EV uptake in South Africa is that the world is moving away from internal combustion engines and South Africa stands the risk of falling behind. In 2018, the value of South Africa's vehicle and automotive components exports reached a record R178.8-billion (growth of 8.36% from 2017). Therefore, as a motor vehicle manufacturer and exporter, South Africa has a strong economic incentive to push EVs on its citizens despite a potential increase in emissions and despite an unreliable electricity provider.

The question, however, remains whether a drive to increase South Africa's production of EVs would really add much value in meeting the country's Paris Agreement commitments to reducing its carbon emissions. While the world moves away from carbon intensive products, can our automotive industry really afford to follow suit at this point in time given the complexities of our economy? The success of EVs as an investment case would depend on the future stability of Eskom as Government strives to solve the SOE's current crisis. However, ultimately, the answer to the rise of consumer demand and whether South Africans will make their next vehicle an electric one, depends on what they value more: economic growth within South Africa's current fossil-fuel dependent context or reducing their carbon footprint?

Content by:

OM Wealth