IDC interview: “The automotive industry is going through a major transition, similar to 100 years ago”

Exclusive interview with Nathan Fredericks, Industry Development Planner, Industrial Development Corporation of South Africa (IDC) and a member of the advisory board of the upcoming Africa’s Green Economy Summit in February in Cape Town.

Let’s start with background on your career thus far.
Hi, my name is Nathan Fredericks. I’m a Development Finance Professional at the Industrial Development Corporation of South Africa (IDC), working as an industry development planner in a unit that’s responsible for developing IDC’s value chain strategies and then implementing those strategies across our business. My current focus areas are automotive and new energy vehicles (NEVs), where I develop and coordinate IDC strategies. I also look after other focus areas, for example, in Pharmaceuticals and Medical Devices, and I’m part of the battery value chain team that’s currently trying to build out the battery value chain in South Africa. 

My career at the IDC has spanned over 12 years, I started as a business analyst in the Metals and Transport Equipment Business Unit, and then for a period of eight years, I worked in several business units, including Forestry and Wood Products, Pharmaceuticals and Chemical Products, where I worked as a Deal Maker and Project Development Manager. Prior to joining the IDC, I worked as a chemical engineer at Mintek in their advanced materials division, specialising in nanomaterial products such as catalysis, and I worked there for about 4–5 years before joining the IDC. 

Please tell us about your work on the IDC’s industry value chain strategy for automotive and new energy vehicles (NEVs). You also assisted with drafting South Africa’s Just Energy Transition Investment and Implementation Plan.
The automotive industry is going through a major transition, similar to the shift that was seen over 100 years ago with the mass production of motor vehicles for middle-income families. This transition involves moving from traditional technologies or internal combustion engine vehicle (ICEV) technologies to electric vehicles or new energy vehicles (NEVs), which also includes, hybrid technologies. 

In 2021, the IDC began developing its Automotive Value Chain Strategy to support investments in this sector, which was driven by various developments in major markets. What is key in this particular value chain for electric vehicles is there are several key realisations that you need to make in terms of what’s happening in this space. 

The number one thing that we picked up is that there’s a need for segmentation, which is very important, including the automotive supply chain, looking at various demand pathways, like business-to-business and business-to-government markets, the infrastructure and components where the segmentation and demand pathways meet. Looking at this value chain in a segmented manner allows you to identify the opportunities. 

China is leading in technology development and production of NEVs with lower cost curves for vehicle production and batteries. The adoption of EVs in China is growing at a staggering pace. I think they’re at about 55% of vehicle sales and will probably reach 70% in the next 2 years. China’s also leading with cost reduction advantages and high-capacity utilisation across all EV manufacturers. This has helped significantly to bring down the cost of EV components such as batteries. 

The transition for South Africa and the continent will be very different due to, for example, the slower pace of policy development. South Africa has recently released the NEV white paper and draft amendments to various incentive policies, which may assist the adoption. But the matching of support and matching what has been given or provided in developed countries will be a challenge for South Africa and many developing countries. 

However, there are some positive shoots that we’ve seen with recent announcements by automotive assemblers in South Africa like Ford and BMW, and with BMW also recently manufacturing its first hybrid plug-in vehicle in South Africa. 

Developing the NEV value chain is not just about a supply chain, but also about an ecosystem that needs to develop to assist the transition. There needs to be support, for example, to bring the prices for consumers to the same level of parity as existing technology. You need infrastructure investments. There’s a lot of consumer education that’s required on the value proposition for NEVs, and you need the involvement of institutions and organisations at the various touch points in the ecosystem. 

I think the global messaging that “EVs are not for us” is more about a race for technology and onshoring thereof and attracting capital allocation to develop markets, which means that it will take time for these investments to come to South Africa or the rest of the continent. And that unfortunately this places us in a position where we are followers as opposed to leaders. 

But there are examples in the past, if you look at South Africa, where Eskom had EV programmes in the 70s to 90s. The IDC co-funded Project Joule where we developed a commercial-ready electric vehicle. So, there are some examples where South Africa has led in electric vehicles. The transition will also require substantial financial resources and proactive trade and industrial policy. 

We see a widening gap between Chinese OEMs and traditional or legacy OEMs, and we see developed countries implementing aggressive incentive, industrial and trade policy measures to ensure that there’s a relocation of production in their own countries.   

Obviously, this fosters the technology development at a domestic level but also enhances the human capabilities needed or capacity needed for this transition. 

The IDC has been involved in developing the Just Energy Transition (2023–2027) Investment Plan (JET-IP) since 2021, supporting chapters such as green hydrogen and new energy vehicles. And worked closely with the Presidency and the JET Project Development Unit in developing these chapters. The IDC was also involved in the development of the JET-IP and was the drafting partner for the NEV chapter. 

The JET-IP is a way for South Africa to decarbonise our industries, to develop new industries to address wider socioeconomic challenges that we face. The IDC is currently setting up the JET offices for green hydrogen and NEVs and will coordinate the oversight and the governance structure for the implementation plan. 

Lastly, I’d like to add that the IDC is also looking at a more evidence-based approach and strategy to support investments. We’ve actually just concluded a study on electric vehicles, unpacking the value chain linkages for specific-use cases, for example, in last-mile delivery, logistics, public transport, mining, and agriculture; and then looking at what are the associated infrastructure and components that align with this value chain and that can potentially be identified as low hanging fruit opportunities for investments. Then beyond that, what are the medium- and long-term opportunities for investments in specific use cases for electric vehicles. 

What are you most excited about regarding e-mobility on the continent? What is your vision for this and what are the main challenges?
The e-mobility movement in the continent is really exciting!! 

And it demonstrates one thing, “that it always seems impossible until it’s done.” 

There are a few areas where there have been quite a few successes in the continent, and you can see things moving forward. There seems to be a strong desire for governments to transition their transport services to low-carbon vehicles. For example, if you look at countries like Kenya, Ethiopia, Rwanda and Uganda, you’re seeing strong evidence of the transition taking place in those countries. These countries want to create economic and employment opportunities in value-chain-creating activities for their people. That’s quite evident and we see this coming through in policies promoting localisation and automotive policies. 

For example, in countries like Kenya, we’re seeing that the government is quite strongly supporting the local manufacturing of electric vehicles, for example, e-bikes, where it could be used to transition or replace the ICE bikes / boda bodas and electric buses for public transport applications. 

There does need to be a slightly different approach to the transition in Africa, because the e-mobility solutions have to be tailored to local conditions and the environment. This is particularly true in applications for last mile delivery and public transport, and this gives rise to an SME ecosystem where entrepreneurs are providing unique solutions and scaling them together with support from government and green finance. 

Some of the challenges we’re seeing on the continent, for example: 

Used vehicles, which are quite prohibitive for not just the adoption of e-mobility, but also to establish local manufacturing on the continent. Although used vehicles solve the issue of access to transport and affordability of vehicles, from an industrialisation perspective, it creates a lot of limitations. I think the South African example of our automotive supply chain speaks to what happens when you establish a manufacturing base at a complete knockdown (CKD) level, which stimulates beneficiation and value-creating industries and creates long-term sustainable jobs. 

We see this across the continent where a lot of countries that have used imports, their local assemblies are limited to semi-knockdown (SKD) operations. 

Industrial policies on the continent also need a level of integration with other countries in Africa. We’re seeing a lot of countries adopting similar policies to South Africa, but without the level of integration, all you’re creating at the end of the day is essentially policy islands, which we can try to address through, for example, the Africa Free Trade Agreement or rules of origin. But I believe there’s a greater need for partnerships and alignment at a country level to really unlock the regional value chain opportunities and to create a level of integration where we can build a regional industrial base for transport equipment. 

Funding of large projects will also be critical, and this can only be done through partnerships, so that we can create the appropriate capital stacks to support projects and enterprises at various stages of development. The battery value chain, for example, where we need to create a regional value chain, and we have to build out the midstream for intermediary and high-value products. Some of the investments at the project development level could cost upwards of US$10 to 20 million per project and in the implementation or FID stage, these costs can increase by 5x or 10x. 

We need to support SMEs where they require funding for proof of concept and pilot stage studies to demonstrate services offered, which will essentially assist them to tie up agreements and off-takes with major downstream players. 

I can’t emphasise the need for policy integration enough. Greater localisation for EVs on the content can create long-term sustainable jobs in manufacturing. Higher levels of integration with countries will allow each country to leverage its capabilities. Some countries don’t have a deep industrial base, but they do have large markets and particularly large transport markets, which then creates opportunities for shared prosperity across borders.  

More support for SMEs in e-mobility is definitely needed. There are good examples, not just in Kenya, but also in South Africa, that speak to these points. 

What in your view are some of the biggest success stories of e-mobility up until now?
I think that the biggest success story in e-mobility to date is definitely the last mile delivery space, where we’re seeing SMEs that have scaled their service offerings through proof of concept and pilot stage projects. Some are even operating fleets, providing servicing for food delivery platforms, retailers and logistics companies. 

The IDC has invested in two companies, Greenriders and MellowVans, and both these companies have continued to expand after our investments. For me, in addition to increasing the number of SMEs in this space, the other success is really the employment opportunities that these businesses are creating.  

For example, Greenriders employs unemployed youth from townships, provides them with training and support so that they can have jobs in the food delivery space using e-mobility and be able to earn a decent income at the end of the day. For me, that’s really the success we want to see. 

Some companies are also demonstrating that despite the energy challenges that we face in South Africa and the fear around the lack of energy supply when owning an EV, they are still able to operate EV fleets and charge from the grid. They are debunking the myths around the new technology and its application and providing us with data by putting the assets into practice and showing that we can operate EVs and EV fleets in South Africa despite the challenges we face.  

How important is green and clean transport for the achievement of a low-carbon, climate resilient future?
I definitely think there’s a strong need to decarbonise supply chains, and there’s a drive for that, particularly from private sector. We see this across the world where supply chains are pushing towards low carbon emissions. Obviously, a large component of that is transportation. There is a strong case for this based on, for example, total cost of ownership (TCO) and the difference between the existing ICE technology and NEV technology. But this does vary depending on the use case. For example, last-mile delivery, it’s quite comprehensive that the total cost of ownership is significantly lower, whereas in long-haul logistics, there are a few things that need to happen to make that value proposition more appetising. But I don’t think we can only wait for economic viability. It’s an important consideration, but it might come at the expense of developing our climate resilient supply chain, where there’s still a lot of learnings that need to happen.  

The transition has many stakeholders in supply chains, and they are all different, and they all exist at various nodes in the supply chain. But I think what’s important is that there’s a relationship between the buy side and the supply side of this equation to ensure that things happen. I think we all acknowledge the importance of the task at hand, but we can’t wait for technology to mature and match the business case of older and more carbon-intensive technology. 

What we also need is more “first movers in Africa”. It’s important to have first movers, and we see this in many other countries as well. On both sides, particularly on the buy side, and that partnership is crucial so that we can actually demonstrate how things can be done, how we can implement projects, technologies and then share those learnings. 

I think there’s a bit of an unfair expectation of the role of government and the support for the transition through mainly fiscal capital. Unfortunately, the situations in developed countries are different from developing countries. Therefore, I believe that through a partnership with private sector funders and government, we can de-risk the adoption of e-mobility and supply chains at a faster pace. 

You are a member of the advisory board of the upcoming Africa’s Green Economy Summit. How important is such an event for the continent?
I believe that AGES is an important event. It’s one of the events we look forward to in the calendar year. AGES tries to differentiate itself through the conversations it has about the transition, which is critical for investors, project promoters and enterprises.  It brings together all of these stakeholders in the same room so that they can engage with each other. One of the key areas that AGES touches on is, for example, bringing funders and projects together through their business matchmaking platform. That’s been a highlight for me over the past 2 years, and I think there’s been quite a lot of success with that. 

This year we’re looking at, for example, a green supply chain segment. We cannot underestimate the need for this platform where knowledge is shared across the continent. This segment will showcase successes in decarbonising logistics from last mile to ports and allow for engagements at different nodes of the supply chain to create opportunities that we can scale. 

How do you think AGES can have an actual impact?
I think AGES as a platform is having an impact by ensuring that the right conversations are taking place and that stakeholders who are in the room and engaging with each other can have an impact. And of course, after the event, continuing that engagement. I think AGES has brought a new dimension to the green conference space. For example, the funders roundtable at its last event was a very interesting addition where it was important to have project promoters in the same room as funders and to listen to funders engaging with each other on the need for the transition, the challenges they face, the limitations and their desire to support the transition towards a low-carbon economy. This exposure is invaluable to project promoters and enterprises or entrepreneurs so that they can then go back and align their business plans to attract the right type of capital and investors.