Homegrown electric hopeful the Joule was the darling of the local automotive industry when it debuted at the Paris Motor Show, in 2008. The combined input of former Rooivalk helicopter engineers and design master Keith Helfet (of Jaguar fame) made the Joule not only the first commercial electric car from Africa, but also a model that shrugged off the utilitarian look of many electric vehicles (EVs) at the time.
Hailed from day one as a proudly South African product, the Joule will find its home largely on European roads, due to limited interest from domestic consumers.

The company behind the Joule, Cape Town-based Optimal Energy, was founded in 2005 and backed by initial investments through the Department of Science and Technology’s (DST) Innovation Fund (now the Technology Innovation Agency) and the Industrial Development Corporation (IDC). It has so far received R128 million in funding through the DST and R80 million from the IDC.

Now, Optimal Energy needs another R9 billion to commercialise the Joule, and the source of funding will play a big role in how much of a presence the Joule will continue to have in the country.

The DST handed over the development of the Joule to the Department of Trade and Industry (DTI) last year, under its 2010-2013 Industrial Policy Action Plan (IPAP2). It’s up to the department to decide to what extent its investments will continue.

According to Optimal Energy CEO Kobus Meiring, prototype development on the Joule is complete and the company is putting together the total funding and structure for the production phase.
Meiring says the substantial investment required includes the final stages of R&D and the total industrialisation process – product, plant and retail development. It will also pay for the start-up of manufacturing and retail operations. Optimal Energy is in talks with the DTI and says there are many possible options, from equity to debt financing.

“The most important question now is whether SA wants to head in this direction.”

While the company’s stated vision is to establish and head up an EV industry in SA, Meiring says the plan has always been to sell the bulk of the vehicles to overseas markets. “We’ve always said only about 10% of the Joule models will be sold in SA, while the rest will go to the UK and Europe, and from 2025 onwards, China will become a dominant EV market.

Kobus Meiring, Optimal Energy CEO

“To sell in China you need to make it in China, and for that you need a Chinese partner,” notes Meiring. But this is still a long way off, and in the beginning Optimal Energy will focus on partnering with European manufacturers.

The production site is in the East London Industrial Development Zone, with two manufacturing options: “The one is a plant dedicated to the Joule, and the other is a multi-production plant where three or four different vehicles can be assembled,” Meiring explains. Optimal Energy is currently conducting a feasibility study to identify potential partners.

Not only would the second option lower capital costs, it would also reduce risks (in terms of volume) and offer greater flexibility, he says.

While both the DTI and Optimal Energy stress the employment and economic benefits a locally manufactured car could bring, the continuation of sizable government investments has raised questions about the Joule’s ROI. Last year, Democratic Alliance shadow minister of science and technology Marian Shinn questioned whether the public needed to further fund the commercial development of the EV.

While supporting the development of the Joule, Shinn said government should encourage private investment into its commercialisation, and that the Joule would be best served by venture capital funding as it moves to the next phase.

Magic number

A big part of the consideration around manufacturing involves the DTI’s investment scheme for the automotive industry. It requires a new manufacturer applying in the light motor vehicle category to demonstrate that it will achieve, within three years, a minimum of 50 000 annual units of production per plant. “The Automotive Product Development Programme of the DTI sees specific investment incentives kicking in after the 50 000-mark. But a plant like the one planned can actually produce around 100 000 vehicles, because the auto industry works on economies of scale,” says Meiring.

“And the way we read the forecasts, markets are on an upward trajectory almost everywhere.”

According to Meiring, there are around 800 million cars in the world today, a number likely to double by 2030. With an estimated 10% of cars globally predicted to be EVs by then, the potential market could be close to 10 million, he says.

Optimal Energy’s export goal is 50 000 vehicles a year, with the volume launch for the urban passenger market in SA set for 2015. Exporting will also begin from 2015, with export growing to more than 80% of total sales, notes Meiring. “The UK will be our first export market, then the Commonwealth and the EU, and finally the east.”

The growing global appetite for electric cars isn’t reflected in SA, however. Barlow Manilal, CEO of the Automotive Industry Development Centre, notes that low consumer awareness and the relatively high cost of EVs has resulted in a lukewarm local market.

“There is no immediate demand or significant market interest for electric vehicles, but this is from a customer demand perspective. There is, however, an enormous requirement from an R&D perspective as we need to move to a commercially viable and comparative application to combustion engines,” says Manilal.

This will become increasingly important if SA is to meet its greenhouse gas (GHG) emissions reduction target of 34% by 2020, and as tougher environmental legislation comes in. The Joule is approximately five times more energy efficient than its petrol and diesel peers, emitting less pollution and GHG fumes when driven in an urban environment.

Manilal notes that 2020 and beyond will see a shift in the way we view vehicles: “This will be directly influenced by greater effects of global warming, exorbitant fuels costs, greater penalties imposed on conventional vehicles, greater travel range and reliability of EVs, and greater affordability. A greater number of interactive applications in vehicles will also create an office on wheels rather than wheels to the office.”

Outsider

Europe, on the other hand, is an attractive destination for electric cars due to regulations and incentives aimed at lowering vehicle emissions, says Meiring. “Europe is probably the leading EV market at the moment given the goal of reducing emissions to 95g per kilometre by 2020.”

The European Parliament has approved regulations, setting a binding target of 120g/km for the average CO2 emissions for the entire car industry by 2012, compared to current levels of 160g/km. A longer-term target of 95g/km has been established for 2020, and emission targets have to be met by each car manufacturer.

“To reach the target, just about every OEM who wants to be able to sell in Europe will have to look at introducing an EV of some kind,” notes Meiring. Finding a European partner is critical for the Joule in order to break into a new and competitive market, he adds. “About 10 to 18 years ago, when SsangYong came to SA [1995], its alliance with Mercedes Benz meant that while people didn’t know SsangYong itself, the fact that it was affiliated with a well-known brand made it more trustworthy.”
However, with OEMs likely to be backing their own EV models, the chances of them partnering with Optimal Energy are slim. Meiring’s answer is that the EV market is likely to become less homogenous, with more diversification.

“In the same way that the petrol and diesel market is segmented into different classes, with A Class being something like the Hyundai Atos and D Class a BMW 3 series, so the EV market will also split into various segments.”

Meiring says the company has positioned the Joule for the C segment of the upcoming EV market, which is where the car is placed in terms of price. “Joule will be available in three specification levels, starting at about R250 000 for the Lifestyle model, and going to more or less R320 000 for the Executive. In Europe, prices will range from €25 000 to €29 000.”

Countries around the world have recently announced plans to encourage EV adoption, with US president Barack Obama calling for one million plug-in vehicles by 2015, earlier this year. Not to be outdone, China announced plans to put more than a million EVs on roads each year by 2015. The country’s Ministry of Industry and Information Technology has pledged investments of more than 100 billion yuan ($15.7 billion) over the next 10 years to stimulate production. The German government, meanwhile, has set a goal of having one million EVs by 2020, and doubled research spending on electric transport to €2 billion over the next two years.

Manilal says any production being considered can only be linked to export markets. “When considering the cautious approach to hybrid vehicles, one can predict that it will be eight to 10 years before we have domestic demand that can sustain local EV production.”

He adds that SA is still a few years away from getting the necessary legislation and charging infrastructure in place.

“The automotive sector has always been a global business and SA has always been a small market,” notes Meiring. “Even big manufacturers in SA like Toyota and Volkswagen have to export.
“From a patriotic perspective, one wishes it had a loyal local following, but as we have seen with the current market, our consumers are not too concerned about where their vehicles originate from,” says Manilal. “The automotive industry is a very difficult and challenging industry, and due to it being fully integrated into global networks, it is also very exposed to global risks.”

Big budget buy-in

In the IPAP2 published in March last year, government recognised that the long-term shift towards cleaner means of transport, such as electric cars, would have a profound effect on the automotive sector. The policy plan outlines several initiatives to aid the commercialisation of SA’s electric car.

These include supporting the local manufacture of EVs and related components, building the necessary infrastructure, creating testing facilities, and introducing incentives to stimulate demand and educate the public on aspects of alternative-energy-source vehicles.

According to DTI spokesperson Sidwell Medupe, the department is evaluating a draft strategy to support the local production and operation of electric vehicles, following extensive research and engagement with stakeholders.

The DTI has also collaborated with Optimal Energy in the company’s efforts to secure a strategic partner, says Medupe. Lastly, potential investment support for the manufacture of electric vehicles and their components has been identified.

The department outlines its expectations and possible input in the IPAP2: “Government foresees an estimated 160 000 direct jobs will be created in the industry in the next 10 years. Investment levels exceeding R20 billion are expected to take place in the next four years, with an expected further annual R3 billion for the following six years.”

Neither the DTI nor Optimal Energy will comment further on developments, saying engagements between the two are continuing on a confidential basis.

Meiring notes the number of jobs mentioned in the Policy Action Plan is based on the broader effect on industry. “The EV strategy currently under review by the DTI mentions a target of 120 000 EVs per year being manufactured in SA by 2020 – which, together with collateral industry and the multiplier effect, could well reach 160 000 jobs.”

According to Manilal, any form of manufacturing will create jobs and significantly stimulate the local economy. But he adds: “There must also be substantial trade-offs that support government’s socio-economic agenda.”

While Manilal sees a future for EVs in SA, he says it won’t be a leader in global uptake of the technology. “I anticipate a slow and gradual domestic demand… but I don’t forecast any significant uptake over the next five years.”

For now at least, the Joule will remain South African only in origin, as the limited local market destines the bulk for export. This is its catch-22; creating the demand needed to make the car affordable locally requires the very economies of scale the domestic market cannot support.