The global market for electric vehicles (EVs) has seen rapid growth in recent years, with sales doubling in 2021 compared to 2020, reaching 6.6 million units and capturing a global market share of 10%. China continues to lead the way in EV adoption, accounting for almost half of all sales worldwide.
Looking ahead, EVs are expected to make up just over 20% of new vehicle sales by 2030, compared to just 10% today. Meanwhile, African countries like Kenya and Rwanda are working to catch up, setting targets for electrifying their transport systems. Kenya aims to electrify 5% of its vehicle fleet by 2025, while Rwanda aims to electrify 20% of its buses, 30% of its motorcycles, and 8% of its cars by 2030.
Despite policy action driving EV adoption globally, Sub-Saharan Africa (SSA) has lagged in policy support. Rwanda is the only exception in the region, with the highest number of adopted policy frameworks, but uptake has yet to match available provisions fully. Despite these challenges, three key factors drive e-mobility in SSA: lower total cost of ownership, access to asset financing solutions, and removing fuel subsidies, increasing the gap between fossil fuel and electricity costs.
Despite these challenges, three key factors drive e-mobility in SSA: lower total cost of ownership, access to asset financing solutions, and removing fuel subsidies, increasing the gap between fossil fuel and electricity costs.
Supply Chain Challenges
Sub-Saharan Africa faces various supply chain challenges that have hindered the speedy growth of the region’s electric vehicle (EV) adoption. These challenges can be categorized into three main groups: financial, material, and logistical.
Finance
E-mobility of any nature is capital-intensive because of the upfront investment cost from the supply side. In this early stage, e-mobility companies focus on raising investment from equity and not exploring debt as much. Debt instruments could be early-to-market segments that haven’t been fully proven at the commercial scale, for instance, battery swap stations or electric minibus taxis. Sub Sahara Africa has raised a little over $65M, a far cry from some world leaders, such as Rivian, that went public and raised $12B.
Capacity is rooted in having sufficient financing to make bulk orders and negotiate prices. E-mobility companies across Africa are slowly coming out of their pilot and into the commercial stage, shown through their recent raises, including MAX Drive, Basigo, and ARC Ride. An apparent reality is that China and India are the source countries for these products, which hints at a future possibility of procurement collaborations.
Materials
The primary materials used in manufacturing batteries (Lithium, Nickel, and Cobalt) continue to be in short supply as demand rises. This shortfall in supply has increased lithium prices over seven times between 2021 and 2022. Such price volatility combined with currency fluctuations can increase the complexity of EVs competing in local markets. The primary materials for EV battery production, such as lithium, cobalt, and nickel, are often sourced from countries with less stable political climates, making it difficult to secure a consistent supply. Some of these raw materials are also subject to price fluctuations, making it difficult for EV startups to predict costs and plan for production.
Logistics
Shipping of Lithium batteries, or vehicles with embedded batteries, is often subjected to stringent safety requirements, including having passed certain battery tests like the UN 38.3, and conducting a pre-verification of export inspection, among others. Understanding the correct HS Codes, getting the right logistics partner to help you secure vessels that ship electric vehicles, and having proper counsel on the port clearing process can be the difference between appropriate and obscene tax implications.
So what can we do about it? The following are strategies that e-mobility companies in Africa can apply to remain resilient amid global supply chain challenges.
Resolutions to Supply Chain Headaches
Develop a Sourcing Strategy
EVs have fewer but newer, more sophisticated components, such as batteries with lesser mature supply chains than Internal Combustion Engine (ICE) vehicles. Electric vehicles require semiconductor chips for better management of the powertrain components. Semiconductors chips are already strained in supply because of increased demand for consumer electronics and other high-tech computing applications.
Action 1: Diversify sourcing
India and China have been the primary markets for the majority of the supply of EV components to Africa. Consider identifying suppliers in both markets to minimise disruption in the event of national directives, including zero-COVID strategies that affected suppliers in China to the end of 2022.
Action 2: Increase vertical integration
Whether importing fully-built, semi-knockdown, or complete knockdown kits, consider increasing internal capacity to enhance assembly or manufacturing. Partnering with local electrical contractors to build battery-swapping cabinets, for example, can reduce the lead times for market deployment. Assembly of battery packs or the local manufacturing of charging cables can help optimise production times. Ensure that the EV products are compatible with existing vehicle parts such as mirrors, tyres, and side stands seats, among others.
Action 3: Consolidate
Teaming up with other companies to buy components in bulk and using experienced logistics companies can result in more bargaining power and priority service, reducing lead times. Programs such as the Demand Aggregation for Renewable Technology (DART) have worked well in aggregating orders from mini-grid developers in Nigeria and using a single platform for bulk procurement and logistics. The result has been lowering the procurement and logistics costs for the developers and an eventual ability to offer competitive tariffs to the end user.
Manage Logistics
Engaging the expertise of a logistics company will save you time and money here.
Action 1: Documentation
Ensure you understand the documentation for transporting separate components like batteries or fully-built electric vehicles safely. Aside from basics like a commercial invoice and packing lists, ensure the consignment is allocated the correct Harmonised System (HS) code. Additionally, the United Nations has developed guidelines for shipping Dangerous Goods under which electric vehicles and lithium-ion batteries fall. Confirm the vessel requirements for your vehicles, whether they ship roll-on/roll-off, pure truck or car carriers, or car carriers. Confirm with your carrier if they allow it if you’re shipping used EVs.
Action 2: Be realistic with timelines
Always confirm with the shipping line how much time each stage of the shipping process will take, depending on whether it is air or sea freight. Be realistic in factoring in any major events that are coming up (like the Chinese New Year) and how they might affect your timelines. Remember, shipping doesn’t end at the port but includes the time to complete clearing and forwarding goods to your final destination.
Action 3: Understand the taxation regime
A clearing agent is important for this stage because of their local knowledge and experience around the clearing process. Your clearing agent should have already guided you on the tax implications of the HS Code you used. Check if there are any tax incentives for the components you’re bringing, for example, complete knockdown kits (CKD) for local assembly. Ensure you have the necessary shipping and compliance documentation.
Each customs territory on the continent will have its unique regulations. These territories include;
- The Southern African Customs Union (SACU)
- The Economic Community of West African States (ECOWAS)
- The East African Community (EAC)
- The West African Economic and Monetary Union (WAEMU)
- The Economic and Monetary Community of Central Africa (CEMAC)
- The Common Market for Eastern and Southern Africa (COMESA)
Rollout
Supply chain optimisation goes beyond importation and into product deployment.
Action 1: Local compliance
Local compliance is a critical step to ensure you operate within the confines of the law. From business and health safety and environment (HSE) permits to Government approvals for vehicle assembly, ensure you tick all the boxes to roll out your products quickly.
Action 2: Secure infrastructure locations
For companies that require to have charging infrastructure, it is in your interest to secure suitable locations ahead of time. Whether partnering with an existing business or setting up a dedicated charging location, ensure you adhere to local compliance requirements to avoid putting your end users at risk of service unavailability or reduced safety.
Action 3: Repair and maintenance capacity
Ensure you’ve included spare parts of components that are not common in your local market. For more generic parts like side stands or tyres and brake components, you may also partner with local garages and repair shops to increase convenience for your buyers. Investing in your capacity to conduct repair and maintenance, not only for the vehicles but for charging infrastructure, creates an enabling ecosystem to speed up your product rollout. Ensure you pair this maintenance capacity with a feedback loop to inform you of parts that either need to be replaced or upgraded in future product cycles.
Conclusion
Electric vehicles promise reduced energy dependence on fossil fuels for transport, locally available renewable energy consumption, and elimination of tailpipe emissions, which could lead to cleaner air for the masses. The global automotive market has shown resilience over the last three years in the face of the pandemic, geopolitical conflict, and the effects of climate change in Africa. India’s sales of electric two and three-wheelers are expected to grow 50% to 70% by 2030, according to McKinsey, which could have a boosting effect on Africa, which is partly dependent on the country’s supply chain.
However, to reach this critical point, there are several bumps along the way that must be overcome to ensure a competitive and speedy transition. Supply chain challenges will persist, requiring companies to shift from reactive to proactive strategies. Africa’s market potential is a remarkable opportunity for vehicle electrification because of locally available renewable energy, the proliferation of the internet and mobile money, and a young, savvy population. Africa-based electric mobility companies can accelerate the transition to clean transport by assessing and optimizing sourcing, transporting, and distribution channels.