Challenges facing the auto value chain

ANDREW KIRBY

president: NAAMSA

Challenges facing the auto value chain

Component manufacturers

OEM’s & Distributors Dealers & Retail

'SA Auto Industry is and will be experiencing the highest level of disruption since 1995'

Technology Disruptors

Customer Behaviour Changing

SA Business Environment

Challenges facing the auto value chain

CHallenges

Component manufacturers

OEM’s & Distributors Dealers & Retail

Respond to Market Changes

Optimise Regional Integration

Establish Infrastructure as an Enabler

Achieve Global Competitiveness

Develop an Inclusive Value Chain

1

2

3

4

5

RESPOND TO MARKET

CHANGES

RESPONDING TO MARKET CHANGESWhat is the real market opportunity in SA?1

Respond to global disruptors

South Africa’s dual economy2

To optimise our market potential we need to…3

Respond to changing customers

Respond to changes in retail trends

How big? How different? What factors?

SA MARKET Potential and diverse needs

Ve

hic

le P

rice

▪ Advanced technology

▪ Design

▪ No compromise on value

VEHICLE NEEDS – Dual Economy

Vehicle Size

How to provide advancED technology in a market mainly focused on affordability

▪ Affordability

▪ Practicality

▪ No compromise

on styling

176206

MotorisationPer 1000 people

$6,179.87

$9,894.87

Sou

th A

fric

aBra

zil

GDP per Capita

560 000

655 200

2018 F/C Market at Brazil

motorisation level

Market Potential

679 $31,984.01

Italy

Global disruptors

Autonomous

driving

Alternative propulsion

Connectivity

Impact on ‘developed market’ needs and expectations

20%

30%

40%

50%

60%

70%

80%

Basic automation Advanced automation Limited self-driving Full self-driving

GENERATION X PRE-BOOMERS GENERATION Y/Z

Source: Deloitte automotive survey

Global disruptors – autonomous driving

Autonomous

driving

Market acceptability for automation growing, yet skepticism

around SELF-DRIVING TECHNOLOGY remains

Driven by the need

for advanced safety

technology

CURRENT desired

Conventional engines

(Petrol / Diesel)

Other alternative engines

(BEV / FCV)

Hybrid electric

(HEV)

0.2% 0.6%

99.2%

6.0%

11.0%

83.0%

Global disruptors – alternative propulsion

SA is bucking the global trend

AlternativePropulsion 100

2016 201768BEV

HEV

BEVHEV

515 306

2819 4827

37,240 63,398

BEVHEV

205,473

283,593286,543 428,735

Sou

th A

fric

aIta

lyEu

rope

• Cost• Govt incentives• Infrastructure• Range

- 39%

70%+

45%+

Source: Deloitte automotive surveyacea.be

Changing customers

Afrilennials are FOCUSED ON SUCCESSMost ARE f i rs t -genera t ion middle -c lass and a re ac t i ve ly p lay ing

asse t ca tch- up. Ownersh ip is key !

Afrilennials are PROUDLY AFRICAN

MillennialsPrefer r ide shar ing to ownersh ip.

Major difference between millennials & Afrilennials…

car ownership!

Brick and mortar strikes back

Smart stores

Personalising for the segment of one

Hyper-personalisation

Adding voice to customer interactions

Intelligent assistants

Human interaction remains golden

Remote experts

Instant fulfillment

Blend Physical with Digital

Virtual & Augmented

Reality

Every transaction and user experience matters

Application experience

Global RETAIL TRENDS

Make it a reality

. . . Will influence CUSTOMER EXPECTATIONS OF buyING cars

Source: cisco.com

OptimiseRegional integration

Africa’s potential

1,111,25 1,16

1,50

2,00

2005 2010 2017 2020 2025 2030

Need economic growth backed by political and policy stability

New vehicle sales could reach

2 million in the next 5 – 10 years.

Opportunities

South Africa has potential to be the gateway to Africa

Trade measures1

Eg. Free trade agreements

Geographic advantage2

Products by Africans, for Africans

3

*

South Africa Production Benefit:

100% Duty Free

Opportunities – Trade Measures

Current CBU Import Duty Rates:

Malawi = 25%

Mauritius = 50-75%

Mozambique = 20%

Zambia = 30%

Zimbabwe = 40%

Current CBU Import Duty Rates:

Egypt = 135%

Kenya = 25%

Libya = 10%

Rwanda = 25%

Uganda = 25%

Current CBU Import Duty Rates:

Algeria = 15-30%

Cameroon = 30%

Ivory Coast = 22.5%

Morocco = 17.5-25%

Niger = 22-122%

South Africa Production Benefit:

To Be Confirmed

South Africa Production Benefit:

20 ~ 100% Duty Free

African Continental

Free Trade Area

(ACFTA)

The Tripartite Free

Trade Area (TFTA)

Southern African

Development

Community

(SADC)

EXISTING Being ratified Under discussion

Africa is open for business

*

Threat

Influence of world powers (esp china) is much bigger than that of SA

FDI FROM WORLD POWERSMarket

ShareCapex $bn Country

39% 36.1 China

12% 11.0 UAE

5% 4.8 MOROCCO

4% 4.0 ITALY

4% 3.8 SAUDI ARABIA

4% 3.4 UNITED STATES

4% 3.2 SINGAPORE

3% 3.1 JAPAN

3% 2.5 MALASIA

3% 2.5 UK

TOtal CAPEX $92.3bn

Threat

Flood of low-cost (new/used) vehicles from Asia

Threat

Regional policies dictating localisation

Localisation of motor industry

Prod Vol. 2015 2016 2017Variance

2015-2017

South africa

616k 599k 590k - 4%

Morocco 288k 345k 376k 31%

Algeria 19k 42k 60k 213%

egypt 36k 36k 37k 2%

world total 90.9m 95.1m 97.3m 7%

+

+

+

+

The number of vehicles produced in Morocco increased 9 times between 2010 and 2017

201042 k

2015288 k

2017376 k

\\\challenges

Compete with emerging competitors and 2nd hand imports

1

Support the development and access to a larger new car market

2

Establish InfrastructureAs an enabler

Challenges confronting participants

in the Automotive Value Chain Introduction of cleaner fuels

1

Road and rail infrastructure2

Roadmap for alternative energy source fuels

3

SA and Africa are lagging behind to introduce cleaner fuels

Global level above Euro3 Africa below Euro3

1. Regulation framework is required to introduce cleaner fuels

2. Lack of clean fuels restricts adoption of advanced engine technology

3. Cost disadvantage due to diverse market requirements

SA road network = 750,000km

increasing traffic congestion will retard growth of Motorisation and introduction of Autonomous vehicles

140,000kmPlanned for future?

154,000km Paved 21%

Capacity issues: not enough roads and deteriorating infrastructure

Range – consumer expectation

80-

160kms

240-

320kms

More

t han

400kms

Energy dilemma

54%

24%22%

Workplace: 1 / 2.5 cars

Retail Store: 1 / 20 cars

Highways: 1 / 50 – 120 Km

Global standard for charging station distribution

Charging stations are expanding however not catering to Consumer

Expectation

Uncertainty of market growth & Cost will hamper infrastructure development

Source: Deloitte automotive survey

Rail & port infrastructure

Make rail & port our competitive advantage

COMPETITIVE ADVANTAGE THROUGH IMPROVED STAKEHOLDER ENGAGEMENT

MAIn Activities

PORT: Berth Deepening

Potential to berth 3 vessels per quay

with increased cargo capacity Flexible Wagon load configuration solution

to allow for greater load optimisation.

RAIL: “Move to Rail” Increased Visibility “Sea & Land”

End to end visibility of key resources

enabling reduced cost and risk

1. Cost Containment 2. Productivity 3. Capacity Improvement

Achieve globalCOMPETITIVEness

Relationship – localiSation vs. parts costs

Less developed auto Supply Chain

Tota

l cos

t of p

arts

( lo

cal &

impo

rted

)

0% 50% 100%

Thailand in 1980’s, SA Industry now

MATURE INDUSTRY SUPPORTS LOCALISATION

Local Content

Cost reduction potential

Cost penalty potential

Switching point

Well developed auto Supply Chain

Tota

l cos

t of p

arts

( lo

cal &

impo

rted

)

0% 50% 100%

Thailand & Japan in the 2000’sLocal Content

Switching point

Automotive supply chain Image

Thailand auto supply chain South africa auto supply chain

SA Supply Chain is underdeveloped

Tier 2/3 28%

Tier 167%

OEM 5%

OEM 1%

Tier 129%

Tier 2/370%

Reasons for the SA Situation

Tier 2/3 suppliers need to be developed

Tier 1

Tier 2

Tier 3

Tier 1

T1’s tend to engage with each other

** The Automotive Industry is not an attractive market to the typical T2/3 supplier

OEM

X

X

OEMs focused highly on developing & Growing Tier 1’s

Was Not carried down to Tier 2 & 3

BUT…

▪Lack of skill

▪No incentive

▪Risk mitigation

▪Global Sourcing

Localisation Transformation Conundrum

Finding the right balance in a low-volume market

Global sourcing

Competitiveness

technology

access

HighInvestment

Lack of skills

Way forwardIDEAL SA AUTO SUPPLY CHAIN

To be competitive, we need localisation

Collaboration

Synchronisation

Attract Global Suppliers & Technology

OEM 5%

Tier 1

45%

Tier 2/350%

Develop an inclusive

value chain

Inclusive auto value chain

Scorecard progressionownership

leadership

Component manufacturers

OEM’s & Distributors Dealers & Retail

This is not business as usual!

Then we become a relevant, competitive and Inclusive auto value chain

Master plan IS CLEAR – 2035

Government Labour Auto industry

Component manufacturers

OEM’s & Distributors Dealers & Retail

thank you