South Africa’s Semi-Knock-Down vehicle assembly regime is being wound down, and government has signalled that policy support will no longer flow to new SKD facilities. The decision recalibrates the incentives underpinning one of the country’s most capital-intensive industrial sectors.
Trade, Industry and Competition Minister Parks Tau announced the phase-out at SA Auto Week in Durban on Thursday, confirming that current SKD operations will be retired and that no new SKD facilities will receive backing. SKD manufacturing is a production and export method in which products, most commonly vehicles or major equipment, are shipped to a destination market partially disassembled and finished at a local assembly plant.
The move forms part of a broader review of the Automotive Production Development Programme, known as APDP2, being conducted alongside the Automotive Business Council, the National Association of Automotive and Component and Allied Manufacturers (Naacam) and organised labour unions. An APDP modelling study has been undertaken to assess the programme and identify possible short-term interventions to improve the competitiveness of domestic vehicle manufacturers against importers of fully built units. Tau noted that this development will exclude Medium and Heavy commercial vehicles.
“We will work to strengthen the legal definitions around what we determine as Complete-Knock-Down (CKD) manufacturing. We have agreed that the strategic competitiveness of South Africa’s ladder frame of the Light Commercial Vehicle (LCV) segment warrants formal investigation,” the Minister said. He added that any additional protection should be accompanied by reciprocal commitments relating to production, localisation, employment, transformation, exports, and investment. “I will be instructing the International Trade Administration Commission of South Africa (ITAC) to undertake this investigation to reach a final determination on the matter.”
Meanwhile, the Department of Trade, Industry and Competition has set out proposed interventions spanning several levers of the incentive architecture. A review of the ad valorem tax structure is proposed to create clearer differentiation between locally produced and imported vehicles, potentially involving adjustments to the tax base and the local adjustment factor to support domestic production competitiveness. Measures are also on the table to address structural imbalances within the APDP, particularly around the operation and accumulation of Production Rebate Certificates (PRCs), in order to strengthen localisation incentives.
Further proposals include revisions to the Volume Assembly Local Allowance (VALA) parameters to better align incentives with broader industrial policy objectives, and regulatory refinements related to SKD operations, including potential time-bound provisions designed to encourage a transition towards higher-value Complete Knocked Down (CKD) production. For investors and operators, the direction of travel is clear: lower-value assembly models are being phased out in favour of deeper, more capital-anchored local manufacturing.
Tau framed the moment in stark terms, acknowledging that the current period represents the greatest turning point the sector has faced in a century, with the way vehicles are powered, built, owned and used changing all at once. He identified New Energy Vehicles, South Africa’s commitment to carbon emission targets, and the Critical Minerals Beneficiation Strategy as key focus areas in placing the sector on a path to success.
The commercial stakes are considerable. “If we do not build the vehicles that markets such as Europe and the United Kingdom will buy, we will lose those markets, and with them our plants and our jobs,” Tau warned. Domestic demand signals add weight to the argument: in the first seven months of this year, South Africans bought almost as many new energy vehicles as in the whole of last year.
The Minister also positioned the sector at the intersection of industrial strategy and resource policy, saying the automotive industry is where the beneficiation strategy meets the reindustrialisation programme. Every new energy vehicle sold today will one day reach the end of its life, and so will its battery, he noted, pointing to the economic opportunity in that cycle. Government has begun work on an End of Life Vehicle policy as part of the decarbonisation pathway in the Industrial Development Strategy. “Recycling batteries and giving them a second life is a new industry in its own right. South Africa intends to build it from the start,” Tau said.
Further details of the review are available from the South African Government News Agency at https://www.sanews.gov.za/south-africa/government-reviews-skd-operations.