Thomas Schaefer, Martina Biene, Gunnar Kilian at Kariega Plant in the Eastern Cape city of Gqeberha. Image: Supplied Thomas Schaefer, Martina Biene, Gunnar Kilian at Kariega Plant in the Eastern Cape city of Gqeberha. Image: Supplied
Company is also developing a new business model that will focus more on SA and Africa and less on exports.
Volkswagen is developing a new sustainable business model for its South Africa business that will involve a greater focus on increasing sales in the domestic market and Africa and less on exports to Europe.
The vehicle manufacturer is also working on plans to produce a third model at its plant in Kariega in the Eastern Cape city of Gqeberha and is confident it will have locally produced electric vehicles (EVs) in South Africa and Africa by 2035.
Thomas Schaefer, the global CEO of the Volkswagen Passenger Cars Brand and a former chair and managing director of Volkswagen Group South Africa, on Thursday, said that current challenges are that 80% of its production in South Africa is exported to Europe and the proposed Euro 7 emission will endanger its current business model.
Schaefer said rising logistics costs are also a major challenge, resulting in the shift in focus to regional markets.
“As a group, we believe in building cars where you sell them and not shipping them around the world,” he said.
Schaefer added that Volkswagen needs the regional and African market to grow and is determined to achieve this and identify the future of South Africa and Africa going forward as “not being dependent on some international treaty or something”.
Martina Biene, the newly appointed chair and managing director of Volkswagen Group South Africa, stressed local production of the Polo and Polo Vivo will both remain beyond 2025 and the new locally produced product being considered would not replace the Polo.
Biene said the product Volkswagen is considering producing in South Africa is currently not produced anywhere else “so its secret” but it has a special utility vehicle (SUV) body style.
Schaefer said they probably need another four or five weeks to get clarity and approval for the production of a third model in South Africa.
He added that there would be no need for Volkswagen to invest in additional production capacity at its Kariega plant for the third model.
Biene said the plant has an annual capacity of 160 000 units, which they will optimise.
She also admitted there might be a decline in internal combustion engine (ICE) vehicle exports to Europe given that the Euro 7 legislation is “somewhere around the corner”.
But Biene stressed Volkswagen South Africa is fighting against fewer exports to Europe and to maintain its current production levels by firming it up with vehicles that are in demand locally.
Biene declined to comment on any investment that will be made in the plant for the new model, particularly as it has a different shape to what is currently produced there.
“First we will have to decide on that product finally and then we can comment on the investment,” she said.
Schaefer said Volkswagen’s production plant in Kariega is versatile and the body shape of the proposed new model is not that decisive in regard to further investment in the plant.
He said the proposed Euro 7 regulations are not only about emissions but also safety and cybersecurity, which together will make vehicles incredibly expensive and probably easily add between €3 000 and €4 000 (R53 800 and R71 760) to the cost of each car for the new technology required to comply with these regulations.
Schaefer said this is not such a big deal for bigger and more expensive vehicles but adding this cost to smaller Polo-sized cars will make them unaffordable for customers and sales volumes will obviously shrink.
“That is why we have to fight for volumes and keep this up. So to invest in capacity extension at the moment makes no sense,” he said.
Schaefer said the entire automotive industry is developing into electric vehicles and “there is no way back”.
He said all the cars are developed for China, Europe and the US and these three major regions are all moving strongly into electrification.
“The hope in South Africa that we could carry on as if nothing else has happened in the world is a myth.
“The market is far too small to develop your own car for Africa,” he said.
Schaefer said the Volkswagen brand will be launching 10 new electric vehicles by 2026 and will then have the biggest EV lineup in the original equipment manufacturer (OEM) space.
Biene said Volkswagen is striving to make the local production of EVs happen but indicated there were many preconditions before this could become a reality.
She said this included infrastructure, such as a stable electricity grid that is not 95% based on coal-sources and getting battery cells closer to a manufacturing zone.
Biene added that the raw material for batteries is available in Africa and stressed Volkswagen, like other OEMs, would not ship batteries to an electric vehicle manufacturer from somewhere else in the world.
She said that by the middle of the next decade, she is “pretty sure” there will also be electric vehicle manufacturing in South Africa and Africa.
“Unfortunately we will have to bridge that gap from 2022 until 2035. We will have to find a product and increase our footprint in Africa to not … become a pure export brand.
“That is our strategy in the meantime, while strengthening and ramping up for electric vehicles in South Africa and Africa,” she said.