By Dylan Jessup, COVA Advisory
Much has been written about the intended phasing-out of internal combustion engines (ICEs) in the European Union (EU) by 2030 and their replacement by electric vehicles (EVs) and battery-electric vehicles (BEVs). This trend will also be reflected in other markets.
With the EU as our major export destination, there is a mammoth challenge ahead of us. South Africa’s automotive industry is currently 100% dedicated to the building of ICEs, but we need to adapt to rapidly changing technology.
A crucial question that arises is: how does the SA automotive sector adapt to these fast-emerging challenges, and how soon does the sector start looking for solutions? Of course, 2030 may seem like a far horizon. However, time flies when you are having fun. Make no mistake – the 2030 deadline cannot be ignored for too long without fatal consequences.
How do component manufacturers start positioning and readying themselves for the industry’s change-over from ICE production to the production of EV and BEV vehicles? This not only affects the OEMs but also the supporting component supply-chain.
The South African Automotive Masterplan 2035, the blueprint for the local automotive industry, which comes into force from 1 July 2021, is silent about the migration to EVs and BEVs. This is simply because the Masterplan, which in turn led to the Automotive Production Development Programme Phase 2 (APDP2), was developed before the migration to EVs and BEVs gathered momentum. This indicates that all stakeholders need to revisit the Masterplan to incorporate the switch-over from ICE production and realign their strategy with trends in the rest of the world.
So there is no doubt that the local auto manufacturing sector will need to focus on the development and adaptation of existing products and production methodologies to align with the different requirements for manufacturing EVs and BEVs. You snooze, you lose.
Help is at hand
What will investment in all the necessary changes and developments cost? And where will you find the cash? International research shows that most companies fund development and research internally – without considering the outside support which may be available. This is despite all the government help which is on offer from various research and development grants, incentives and tax allowances.
The underutilisation of opportunities to fund research and development from the available external funding can lead to higher costs and will limit your effectiveness. South Africa has several mechanisms available from the government to assist in the funding of research and development initiatives. With the 2030 deadline for exporting green vehicles which the South Africa automotive sector is facing, component manufacturers should seriously undertake a review of their strategy and examine where R&D will play a part, and how accessing government funding can help with this.
Several available mechanisms can be accessed, that cater to different stages in the research and development process:
- The first is Section 11D Income Tax Allowance, which allows for a 150% deduction of qualifying expenses for Research & Development. This translates to a 14% additional taxable benefit which can be claimed through your annual tax return. This tax allowance is administered by the Department of Science and Innovation (previously the Department of Science and Technology).
- Secondly, there is the Innovation Fund (previously the Sovereign Innovation Fund), which is also administered by the Department of Science and Innovation. The objective of this fund is also to help fund research and development activities.
- Then we have the Support Programme for Industrial Innovation (SPII), which is a cost-sharing cash-based benefit administered by the Department of Trade, Industry and Competition (DTIC). The benefit is determined by examining various qualifying costs, which are a function of the development process. Benefits range from 50% -75% of the qualifying costs. The development process is segmented into three phases of a project’s lifecycle, with benefits in some instances being paid in advance to fund the development process.
- Also, there is the Technology Innovation Agency (TIA). which provides a reimbursable cost-sharing cash benefit of up to R 15 million across three different funds or sub-programmes. The three focus areas, or stages of development, are Seed Fund, Technology Development Fund and Commercialisation Support Fund. The three different funds have specific target areas in the lifecycle of research and development.
- Lastly, there is the Technology and Human Resources and Industry Programme (THRIP). The THRIP programme targets research and development where the private sector partners with universities or other research institutions. Under the programme, university researchers are engaged by the applicant to conduct the actual research and development on the applicant’s behalf.
All these funding avenues provide evidence that there is indeed government support for component manufacturers to prepare themselves for the future challenges of gearing up to supplying EV and BEV vehicle platforms, by investing in research and development. The urgent requirement is to spend time interrogating what the future holds and how to prepare for this future, with a focus on investigating how government-funded research and development assistance can support your business.
Should you have any queries on how to access any of the above benefits, please contact Cova Advisory & Associates.
Company: COVA Advisory
Contact: Dylan Jessup
Email: [email protected]