A New Wave Of Disruption Could Be Coming To Africa’s Used Car Ecosystem Courtesy Of More Affordable Brand New Cars From China

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In a global market where around 80 million brand new vehicles are sold per year, and just over 1 million of these are sold in Africa (about 1.3%), it is not surprising that traditional automakers have generally treated most countries on the African market as markets dominated by “non-consumers.” Traditional automakers tend to drip feed most markets on the continent and it’s common that most models of brand new cars will come to most countries on the continent years after they have been initially launched in larger global markets. Of course, several factors also contribute negatively to this, including issues around poor fuel quality (for ICE vehicles, an issue we will tackle in the near future in a separate article), poor road infrastructure in many areas, as well as the general lower buying power among the majority of consumers.

New vehicle sales don’t tell the full story though, as over 90% of vehicles imported in most African countries are used vehicles. This is due to several factors, such as lower disposable incomes as mentioned earlier, and lack of access to affordable long term car financing and leasing facilities. Therefore, most people cannot afford a brand new car. Most consumers who buy cars in a lot of countries on the continent therefore opt for used vehicles imported from places like Japan and Europe. An 8-year-old used vehicle would land at a price that is more affordable. Depending on the type of vehicle, its age, mileage, and a country’s import tariffs and taxes, the most popular imported used vehicles, such as small hatchbacks, are priced from about $9,000 to $15,000. Some of the other common used vehicles such as mid-sized sedans and compact SUVs range from $15,000 to about $26,000.

The proliferation of these used vehicle imports has decimated the local motor vehicle assembly industry in countries like Zimbabwe and has stalled the growth of assembly plants in other markets. At the height of the motor vehicle assembly industry in Zimbabwe, for example, the assembly plants used to produce at least 20,000 brand new units of various passenger cars. Many factories feeding into the assembly plants along the associated downstream industries have had to shut down, resulting in many people losing their jobs. Compare this with about 100,000 used vehicles imported into the country per year. The situation is the same in many African countries. The price difference between a brand new ICE car and an equivalent 8-year-old ICE car is just too high, hence the business of importing and selling used vehicles continues to flourish. This setup is ripe for disruption.

Here comes the opportunity. While traditional auto giants still view most markets on the continent as non-consumers, a new wave of disruption is on the way. Just like we saw with solar PV and LFP batteries for stationary storage applications, rapid technological progress over the last decade leading to exponential growth in production capacity, led mostly by Chinese players, resulted in dramatic drops in prices of solar panels and batteries. A new wave of adoption of these technologies is rising on the African continent as more people who were previously non-consumers of these solar and storage products can now suddenly afford them. Recently we saw a big rise in Africa’s solar panel imports. Imports from China rose 60% in the last 12 months to 15,032 MW. Over the last two years, the imports of solar panels outside of South Africa have nearly tripled from 3,734 MW to 11,248 MW.

I have always thought that similar innovation leading to lower priced brand new cars will disrupt the used car import market in Africa, leading to a new group of brand new car buyers, starting off with ICE and PHEVs and ultimately BEVs. Well, it looks like it is starting to happen. According to news from South Africa, an update from one of the country’s largest used car dealership groups, WeBuyCar says the “rapid rise of competitively priced brand new cars from Chinese brands including GWM, Chery, Omoda, Jaecoo, Jetour, MG, JAC, and BAIC, has significantly influenced consumer behaviour. WeBuyCars says the company adjusted selling prices on vehicles in competing categories to ensure healthy inventory turns and maintain liquidity.” So pre-loved vehicle dealers had to reduce margins as brand new vehicles from those Chinese OEMs become more attractive price-wise, persuading some buyers that would have usually bought a good approved secondhand vehicle to instead go for a brand new one. 

This is happening mostly for ICE, HEV, and PHEV cars as Chinese OEMs ramp up operations in South Africa. As more BEVs start to get to parity and close to parity in China from an upfront purchase point of view, this trend will also include BEVs in the very near future. It’s already starting to happen in Australia where recent reports show that the newly launched ATTO 1, which is known as the BYD Seagull, Dolphin Mini, and Dolphin Surf in other markets, is now the 3rd most affordable car in Australia. 

All this presents the perfect opportunity for consumers in a lot of African countries, where the level of motorization is still very low, to jump straight into the wonderful world of electromobility, bypassing the ICE age. A lot of young consumers could actually have an electric motorcycle or car as their first ever vehicle. Right-sized, correctly priced EVs could find a ready market right from rural areas (electric bikes and three-wheelers) through to peri-urban and urban areas. Innovative financing models seen in the solar industry in Africa, such as the PayGo models, could be applied to electric motorbikes, and general leasing contracts could become more affordable for the right-sized electric car. This will cascade across all vehicle segments in future, with a good portion of them being electric vehicles.

We might be witnessing the start of a whole new era for mobility for many countries on the African continent. Only a handful of countries have motorization rates above 100 vehicles per 1,000 people. The majority of countries have rates below 50 passenger vehicles per 1,000 people. To put this into perspective, South Korea and Germany have rates above 500 passenger vehicles per 1,000 people. The US has an even higher rate that’s closer to 800 vehicles per 1,000 people, according to a study by Siemens Stiftung. These conditions underpin a sector that’s ripe for disruption.