South Africa announces tax break to boost EV and hydrogen vehicle production

South Africa has taken a significant step to bolster one of its key export industries by introducing a major tax break for investments in the production of electric and hydrogen-powered vehicles. The measure, announced in Wednesday's budget, allows companies to claim a 150 per cent tax deduction on such investments.

This move aims to support vehicle manufacturers, including local units of Ford Motor Co. and Volkswagen AG, which have been advocating for incentives to sustain the industry that contributed over 400 billion rand ($21 billion) in exports last year, a report by Bloomberg stated.

The tax break is seen as a crucial incentive to attract investments, promote innovation, and drive the growth of the electric vehicle (EV) sector in South Africa. However, some industry leaders, like Mikel Mabasa, CEO of the National Association of Automobile Manufacturers of South Africa, believe that the 2026 start date for the incentive is too late.

Despite its natural advantages, South Africa has made limited progress in developing an electric vehicle industry. The country possesses significant reserves of raw materials crucial for manufacturing lithium-ion batteries, such as nickel and manganese, ranking sixth globally in this aspect.

South Africa also has ambitious plans to develop a green hydrogen industry, leveraging its status as the world's largest producer of platinum, a key metal used in fuel-cell engines powered by hydrogen. The Bloomberg report added that with the new tax incentive and its existing auto industry, South Africa could become a hub for electric vehicles in the region. However, it also highlighted challenges such as power cuts, a high carbon intensity power grid, and weak economic growth that could hinder these ambitions.

Toyota Motor Corp. and BMW AG are among the major automakers operating in South Africa. The tax break is expected to stimulate investment in these sectors, driving technological advancement and economic growth in South Africa's automotive industry.