The Eastern Cape Automotive Industry Development Centre (AIDCEC) has warned that the 15% electricity tariff increase that comes into effect onApril 1 will slam the brakes on the South African automotive supply chain’s drive to achieve greater levels of global competitiveness.

The AIDCEC says rising input costs could stunt growth in terms of volumes, particularly export volumes, which, in turn, would make it difficult for the automotive sector to achieve its inclusiveness, localisation and job creation targets.

AIDCEC CEO Thabo Shenxane says the tariff increase will also have a negative effect on the Eastern Cape economy, which is driven largely by automotive manufacturing.

“As South Africa’s leading producer of vehicles and its biggest exporter, accounting for around 49% of South Africa’s vehicle exports, the Eastern Cape and, by extension South Africa’s supply chain, will be under even greater pressure to produce at competitive prices.”

National Association of Automotive Component and Allied Manufacturers executive director Renai Moothilal views the Eastern Cape automotive manufacturing sector as a vital cog in the overall South African automotive sector and says it needs a competitive electricity system to ensure the sector’s wellbeing.

“Not too long ago, cost-effective and stable electricity input was a competitive advantage of South Africa’s automotive value proposition.

“This is no longer the case, and the sector cannot keep absorbing such increases. The losers in this case will be regions that dominate auto production, such as the Eastern Cape.”

Shenxane says the tariff increase will have the most pronounced effect on small manufacturing companies and facilities.

“Electricity costs contribute more to the overall operating costs of small businesses than to that of larger establishments, and another significant cost increase could be the final blow for already struggling businesses.

“Some companies have still not recovered from the effects of the ongoing pandemic, and they are struggling to regain lost business and having to operate under the Covid-19 restrictions.”

The AIDCEC says that, according to its experience, electricity costs generally make up between 5% and 10% of total operating expenses for medium-sized to large auto manufacturers, and up to 20% for smaller companies.

In the automotive sector, the metal, glass and rubber processing facilities will be impacted on the most, as they have higher energy consuming processes.

The AIDCEC reports that about 13% of the automotive firms that supply directly to vehicle manufacturers fall into this category in the Eastern Cape.

AIDCEC energy management project manager Elmar Thiart says every industry or company with high energy consumption will have to continue evaluating alternative energy sources, or alternative methods to create the same product, to ensure long-term sustainability.

“A focus on low-cost energy improvement opportunities could assist in optimising ways in which resources and equipment are used, in addition to monitoring the behaviour of employees based on their mindset towards energy efficiency.

“Where capital is made available, high-impact projects with a low payback can be implemented.

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