As you navigate through various urban areas in South Africa, you may notice a vehicle showcasing an unfamiliar emblem, likely representing one of the numerous Chinese models gaining popularity among drivers.

Chinese automotive brands have made significant strides in the mid-range market, particularly with vehicles generally priced below R600,000 ($33,000). In the crossover SUV category, also known as “compact family cars,” two Chinese brands, Haval and Chery, secured positions in the top 10 for new car sales in the first half of 2024, according to reports from South Africa’s Automotive Business Council.

These brands are also performing well in the SUV market, where prices exceed R600,000. Statistics reveal that Haval and Chery ranked as the top and third best-selling SUVs from January to November 2023, respectively.

What contributes to their success in the South African automotive landscape? Analysts indicate that there are two primary factors at play: affordability and perceived quality.

“The value proposition is incredibly appealing—significantly surpassing what traditional manufacturers offer. Chinese brands adopt a unique strategy; their vehicles come well-equipped from the start. You get exactly what you see, and the technology is impressive,” explains Ciro De Siena, a journalist for Cars.co.za, in an interview with African Business.

“Conventional brands typically price their vehicles with opportunities for customization, but by the time you add features like a panoramic roof or comprehensive camera systems, you’re looking at an extra R100,000. A Chinese vehicle, on the other hand, is more likely to include these features right out of the box.”

Auto journalist and expert Lance Braquinho emphasizes that the appeal of Chinese cars transcends their pricing. He notes that these vehicles have seen significant improvements since their initial entries into the market in the late 2000s.

“Some of what’s available today is genuinely impressive. I visited China in 2008, and the cars were, to be honest, quite below standard. However, I met many talented young engineers who were eager to discuss Tesla and German brands; it was clear they were striving for those benchmarks in quality and learning rapidly,” he states.

Braquinho posits that Chinese automakers currently hold a competitive edge over their rivals, particularly regarding technology, especially in software integration.

“Modern car manufacturers must also operate as software engineers to meet consumer demands for integrated app experiences and immersive technology. The early iPhones were built there, and many of those engineers have started their own enterprises. Meanwhile, traditional brands are falling behind,” he asserts.

Affordable Options

Chinese vehicles began making their way into the South African market around 2007, coinciding with a phase of economic growth. Yet, many brands withdrew following the global financial crisis, and it is only recently that they have established a more robust presence.

De Siena notes that Chinese brands are reentering the market at a prime time, as consumers are increasingly on the lookout for affordable alternatives.

“Interestingly, the South African market once prioritized brand reputation. Affluent consumers usually opted for BMWs or Audis, fostering a strong sense of brand loyalty. However, in the last decade—amid skyrocketing prices, inflated costs, and rising living expenses—consumers have shifted their focus towards value over status. The South African market has grown more price-sensitive. The reappearance of Chinese brands aligns well, as they don’t have to persuade buyers to embrace their branding. They are offering what seems to be quality products at far more accessible prices,” he explains.

Brandon Cohen, chairperson of the National Automobile Dealers Association (NADA), agrees that consumers are adopting a more financially conscious mindset and are more open to exploring Chinese brands.

“Middle-class consumers in South Africa are increasingly looking for vehicles under R300,000, and given the ongoing economic hurdles, the allure of competitively priced Chinese brands is particularly strong.”

While the South African automobile market has not experienced substantial growth post-pandemic—with new vehicle sales showing just a 0.5% year-on-year increase in 2023, totaling 532,098 units compared to 529,556 units in 2022—investors remain hopeful about the newly established, business-friendly coalition government. If the projected 1.1% economic growth outlined by the IMF materializes, consumers may regain their willingness to invest in new vehicles.

Tariffs

However, a number of hurdles lie ahead for Chinese manufacturers targeting the South African market. Light vehicles currently face a 25% tariff, while original equipment components incur a 20% duty. Additionally, a preferential agreement allows vehicles imported from the EU to face only an 18% tariff. Medium and heavy commercial vehicles are subject to a 20% ad valorem import tax, while EU manufacturers benefit from a reduced rate of just 12%.

Establishing local production would be necessary for manufacturers to evade these tariffs.

However, launching local manufacturing “would likely require a long-term commitment and substantial investment,” Cohen explains.

In 2018, Chinese company BAIC, in partnership with South Africa’s Industrial Development Corporation, inaugurated a manufacturing facility in Gqeberha (Port Elizabeth). This R11bn ($604.3m) facility was hailed as China’s largest investment outside Europe, yet reports indicate that it has produced only 300 cars since its opening. Conversely, Ford’s Silverton assembly plant in Pretoria has the capacity to assemble 720 vehicles daily, and the American automotive giant recently announced plans to invest $281m to manufacture hybrid vehicles in South Africa by late 2023.

Other non-Chinese manufacturers have already made significant investments in the country. In April, German automaker Volkswagen announced plans to invest $220m in its Eastern Cape facility to prepare for a new SUV’s production by 2027. Franco-Italian carmaker Stellantis also confirmed in 2023 a preliminary agreement with South African authorities to establish a new plant in the country by the close of 2025. Additionally, Japan’s Nissan has made considerable investments in recent years.

Great Wall Motors, which owns the Haval, P-series, and Tank brands, has indicated through local media that it is engaged in ongoing discussions with stakeholders concerning vehicle production in South Africa. Nevertheless, local manufacturing poses significant costs, and manufacturers would require a broader customer base beyond South Africa for profitability.

Currently, South African auto manufacturers export to the US, Europe, the Middle East, and other African nations. For Chinese brands to establish a plant in South Africa, enhancing their appeal in similar markets will likely be essential. However, De Siena argues that the African market for internal combustion engine vehicles is set to become increasingly crucial for South African manufacturers, who have largely lagged in adapting to electric vehicle production until now.

“Demand for internal combustion engines is decreasing in Europe and the US, while South Africa has yet to transition towards manufacturing NEVs (new energy vehicles). Reconfiguring factories for such production is highly costly, pushing manufacturers to shift their focus towards Africa instead,” he states.

De Siena believes this might be the strategy for Chinese automakers: “The business goal should be to gain a foothold in South Africa, maximize vehicle sales, and then begin production aimed at exports to Africa—a region that appears to have significant growth potential.”

After 80,000km

Another potential challenge for Chinese car brands in South Africa is the public perception regarding their reliability. Given that Chinese models are relatively new to the market, knowledge regarding their long-term performance and durability—in a country known for long distances and varied road conditions—is limited.

“The real test will come into play when vehicles are out of warranty, specifically regarding durability after 80,000km. If maintenance expenses become prohibitive, these brands may face issues. Importing parts requires substantial warehousing, ensuring future-proofing. Should significant maintenance cycles kick in after 60, 80, or 100,000km, manufacturers will need specialized components. Limited availability can lead to customer dissatisfaction if cars remain unserviceable for long periods,” warns Braquinho.

Chinese brands are actively addressing this perception through generous warranty offerings. Recently, GAC Motors made headlines by becoming the first in South Africa to provide a lifetime engine warranty.

Resale value remains a significant consideration for consumers, and De Siena acknowledges that this has historically been a vulnerability for Chinese brands, although trends are shifting.

“Purchasing a Toyota typically assures a solid return on resale or trade-in, while Chinese vehicles have depreciated more rapidly than traditional brands. However, with the increasing demand for Chinese vehicles, resale values are starting to rise, enabling customers to suffer less financial loss upon resale, thus increasing the attractiveness of Chinese cars,” he adds.

Electric Vehicles

At the same time, China is making notable headway in the global electric vehicle sector. Data from the China Association of Automobile Manufacturing reveals that in the first nine months of 2024, total EV production in China reached 8.3 million units—a 31.7% increase from the previous year. Additionally, the country’s EV exports reached 111,000 units in September, marking a 0.9% rise compared to the prior month and a 15.6% upswing year-over-year.

In February, the Alliance for American Manufacturing cautioned that the influx of low-cost Chinese EVs into the US market could be an “extinction-level event” for the American auto industry. Consequently, the Biden administration raised tariffs on Chinese-made EVs from 25% to 100%, citing “extensive subsidies and non-market practices.” The EU followed suit in October, announcing a tariff increase of up to 45.3%.

BYD Auto, China’s largest EV manufacturer, entered the South African market last year and introduced the Dolphin model this year priced at R539,900, making it the country’s most affordable EV.

The South African government has expressed its intent to incentivize local electric vehicle production. Currently, a 25% tariff is imposed on EV imports. However, Braquinho points out that “the demand for purely electric vehicles remains limited at this time,” as importers face numerous obstacles including inadequate charging infrastructure and unreliable power supply due to frequent load shedding.

Braquinho anticipates only modest penetration of the EV market from China and other manufacturers.

“Diesel continues to be the preferred fuel for 99% of bakkies [pickup trucks], and for a good reason. It’s widely available, offers high power density, and performs reliably with proper maintenance. Chinese manufacturers are recognizing that the market largely favors diesel vehicles,” he comments.

Venturing into the Premium Segment

A further growth opportunity could be found in the premium vehicle market. Attempting to enter a sector that places less emphasis on price could return significant challenges for Chinese brands.

A comparable situation happened when Korean carmakers entered the South African market in the mid-1990s. Brands like Kia and Hyundai initially offered affordable vehicles, but as they established stronger reputations for quality, their prices gradually increased.

Today, Kia and Hyundai manufacture vehicles that surpass the million-rand mark while maintaining a solid customer base in the country.

“Chinese brands may face additional obstacles when attempting to penetrate the premium vehicle segment, which typically demands unique features, specifications, and a sense of brand prestige,” concludes Cohen.