Electric vehicles in South Africa: The more cost effective option

Given the high price of electric vehicles in South Africa, it may be surprising to consider them the more cost-effective option. But, a February 2022 stunt from Jaguar South Africa successfully proved that they are cheaper to fuel. The luxury car maker asked one of its senior driving instructors to conduct a week-long trial of its fully electric I-PACE to report on its electricity consumption. The mission was to simulate real-world driving patterns as realistically as possible.

Johannesburg instructor Andrew Blane roleplayed a typical customer. He charged the car at home and drove his usual commute. At the end of the week, the results were in. Charging the Jaguar I-PACE was approximately 22 cents per kilometre (km), significantly cheaper than any equivalent petrol or diesel car.

Fuel costs: Electric cars vs petrol

While the Jaguar experiment was a publicity stunt, its conclusions were still valid. The average price of electricity rose to R1.46 per kilowatt hour (kWh) in July 2022, although bills vary wildly depending on your municipality and what type of energy consumer you are. The average electric car consumes roughly 21.5 kWh to travel 100 km. At the July 2022 price, this would cost around R31.4.

Let’s compare this to some of South Africa’s most fuel-efficient cars with conventional engines. A relatively small hatchback, like the Toyota Starlet, needs 5.1 litres of petrol to cover the same distance, while a multi-purpose vehicle, like the Toyota Rumion, requires 6.1. In September 2022, a litre of petrol was around R23. This means that a 100-km journey in one of the most fuel-efficient cars could cost about R117. This is before you account for manufacturers’ fuel efficiency claims tending to be somewhat optimistic. Even if electricity rates were to double or triple, electric vehicles in South Africa would still be cheaper to fuel. The costs are even lower for homes with solar panels.

Running an electric car saves money long term, and it also means being less vulnerable to temporary price spikes and shortages of petrol and diesel. In July 2022, a delay in crude oil shipments to South Africa’s only inland refinery caused it to close temporarily. This led to concern over fuel shortages at a time when motorists had already been experiencing record prices at the pump. A country that relies so much on fuel imports is vulnerable to this happening again in the future.

Petrol price uncertainty

Petrol prices are not just about the wholesale price of fuel. What you pay at the pump also depends on retail margins, distribution and storage costs, and taxes. These are all subject to change through forces outside of our control.

The fuel levy raised on sales of petrol and diesel is South Africa’s main source of income to fund the construction and maintenance of roads. From April through to July 2022, the government reduced the fuel levy to help struggling motorists as oil prices soared. However, this move cost the state R4.5 billion in lost revenue. By August 2022, there was concern that the government would raise the fuel levy again to offset the loss to the treasury of scrapping e-tolls. This could add as much as 25 to 30 cents per litre.

One component of the general fuel levy is a carbon tax, introduced in 2019 as part of a drive to reduce South Africa’s greenhouse gas emissions. As the country works towards its goal of reaching net zero by 2050, this could potentially increase as a way to encourage greener driving. This would push up the overall cost of motoring in South Africa – but not for drivers of electric vehicles.

Insuring electric vehicles in South Africa

The price of fuel is not the only car-related cost to consider. Apart from this and the purchase price, the biggest expenses of car ownership are insurance and maintenance.

Currently, electric vehicles tend to cost more to insure than their petrol and diesel counterparts. But, the insurance calculations for electric vehicles in South Africa are based on a multitude of factors. The purchase price of the car is one obvious consideration, and the comparatively high cost of electric vehicles is a driver for high insurance premiums. When electric cars gain price parity, insurance costs will fall too.

The comparative rarity of electric vehicles in South Africa works somewhat in their favour regarding insurance because their low numbers make them harder for criminals to dispose of. But, this is outweighed by insurers’ caution in the face of the unknown. One insurance expert told ESI Africa in 2019: “In the absence of data, insurers globally have tended to default to higher premiums. South Africa has proved no exception in his regard.”

The rising number of electric vehicle sales in South Africa will eventually provide insurers with the kind of certainty they need to offer more attractive premiums.

Why an electric vehicle means lower maintenance costs

Electric vehicles certainly reduce one of the biggest headaches for car owners: maintenance and repairs. Compared to vehicles with conventional engines, electric cars have fewer moving parts and, therefore, fewer opportunities for things to go wrong. There are no gaskets to blow and replace, no valves to clog up and no oil to change. Maintenance costs for an electric vehicle can be as much as 50 per cent less.

The greatest maintenance cost for an electric vehicle is likely to involve replacing the battery. Battery packs gradually lose their ability to hold a charge, shortening the electric vehicle’s driving range. But, estimates predict that a typical lithium-ion electric vehicle battery could last nearly 161,000 km before the reduced driving range becomes a problem.

Of course, electric cars still have elements like brakes, tyres and cooling systems that will need regular garage checks. However, compared to a conventional car, which can have hundreds of working parts, they require much less work. Research shows that an electric vehicle costs at least 30 per cent less to service and maintain. It is also worth considering the other, less tangible costs of an unreliable vehicle, like wasted time and stress.

Electric vehicles in South Africa: Holding their value

Whatever price you pay for a new car, it is unlikely to be worth the same a few years later. Experts say that a new car loses value as soon as you drive it off the showroom forecourt. The rate of depreciation alters depending on various factors. This includes your mileage, the popularity of the model and how well you take care of your car. One 2020 study found that the average vehicle depreciated by 40.1 per cent over five years. But, most experts estimate the average depreciation rate as higher: around 60 per cent of the value within three years.

A fast depreciation rate adds to the hidden costs of your car. However, electric cars are more cost-effective in this regard. They retain around 49 per cent of their value after three years. This makes their depreciation slower than the industry average. In-demand models, like the Tesla Model X, tend to hold their value for even longer. Here, the low number of electric cars on offer in South Africa can even be an advantage. Their comparative rarity may push up prices.

According to a May 2021 article, electric vehicles in the R600,000 to R900,000 range are more likely to hold their value than those priced over R2 million.

A longer lifespan

Most car depreciation happens in the first year, and it then begins to level off around the five-year mark. After 10 years, the price has effectively bottomed out at around 20 per cent of the original value.

An increasing number of drivers in South Africa prefer to keep driving their cars beyond this point. In July 2022, a clear majority (42 per cent) of cars on South Africa’s roads were between 11 and 20 years old. The second most common age group for vehicles is six to 10 years old, at roughly 30 per cent. This may be because the cost of getting a new car is too high for most drivers.

For drivers who want their cars to last, electric is best. Most petrol cars manage around 150,000 to 200,000 miles (241,400 to 321,870 kms) in their lifetime because their design means more wear and tear. For electric cars, the battery is the biggest limiting factor. But, some of the newer batteries can last over 300,000 miles (482,800 kms). The motor is the other part with the potential to wear out, but this can last over 400,00 miles (643,737 kms).

Batteries naturally degrade over time, but manufacturers tend to build in spare capacity to compensate for this. This means that the range of the vehicle can stay roughly the same even as the battery ages. The driver tends to notice a reduction in range and performance once the battery capacity is below 80 per cent. But, this is often long after the equivalent petrol or diesel car has gone to the scrapyard.

Electric vehicle sales and the cost barrier

The upfront purchase price is the biggest barrier for people wanting to buy electric vehicles in South Africa. So, why are costs so high?

Electric cars tend to be more expensive than petrol and diesel cars because they are produced in smaller numbers and use newer technology. However, taxes are also a significant driver of high prices. The 25 per cent tariff on electric vehicles imported to South Africa is significantly higher than the 18 per cent paid on vehicles with conventional engines. The Democratic Alliance has called for the tariff on EVs to be scrapped completely. This would encourage the clean vehicle transition and help motorists to avoid rising petrol prices.

The government has also slapped a 17 per cent ad valorem tax (usually associated with luxury goods) on the sale of electric vehicles in South Africa. Combined with the import tariff, this means that 42 per cent of an electric car’s price tag is pure tax.

Motoring analyst Alexander Parker has suggested that high taxes on electric vehicles in South Africa are because the government does not consider EVs a possible solution for global climate change but instead a luxury item. Ironically, it is the government’s decision to classify them as such, which makes the price so unaffordable for many.

But, change is coming. In May 2021, the government published a draft green paper on electric vehicles. This sets out the ambition to position South Africa at the forefront of electric vehicle sales and manufacturing.

Photo credit: Holden Baxter

A turning point for electric vehicles in South Africa

Globally, electric cars are no longer a niche concern. In August 2022, analysts reported that the world could be close to a tipping point where EVs begin to occupy most – and then all – of the car market. Projected growth in this market is exponential. But, although sales are rising in South Africa, the country is lagging behind. Electric vehicle sales account for less than 0.05 per cent of all recorded vehicle sales in South Africa. In contrast, globally they make up nine per cent of the market.

The CEO of charging equipment firm GridCars warned in 2019 that if the transition to electric vehicles does not happen more quickly, South Africa could be “locked into a cycle of poverty”. South Africa’s two largest export markets for cars, the UK and the EU, have moved to ban the sale of petrol and diesel cars by 2035. South Africa’s car manufacturing sector risks being left behind if it cannot make the transition quickly enough. This could mean losing R201 billion in export earnings every year, having a seriously negative impact on the economy.

The road ahead for electric vehicle sales

The May 2021 green paper contains proposals to transform the future of electric vehicles in South Africa. This includes investing in the development of manufacturing plants for electric cars, upskilling the automotive workforce and adopting newer manufacturing processes. Crucially, it also describes building an “appropriate fiscal and regulatory framework”. The tax structure could be used to make South Africa a global leader in electric vehicle production.

The paper was supposed to be finalised in August 2021, so progress has been slow. But, September 2022 reports suggest that the Department of Trade, Industry and Competition could be taking things forward soon.

Monetary policy could have a huge impact on the price of electric vehicles in South Africa. In recent years, Norway has reversed the perception of EVs as ‘too expensive’ through a raft of different taxes, subsidies and regulations. There is nothing to stop South Africa from doing the same. Financial incentives could make electric vehicles in South Africa the obviously more cost-effective option. To achieve the green vehicle transition, EVs must lose the ‘luxury item’ label. Instead, they need to be positioned as an affordable, sensible choice for drivers.