Fuel Cell Electric Vehicles in South Africa the Development of a Hydrogen Society and the Case for Local Electric Vehicle Production

Fuel Cell Electric Vehicles in South Africa The development of a Hydrogen Society and the case for local electric vehicle production

Established by the Toyota Wessels Trust, TWIMS is a not-for-profit initiative dedicated to the development of manufacturing executives in Africa.

Our Vision An industrialised Africa built on world class management capabilities. Our Mission A prosperous Africa empowered by sustainable industrialisation. Our Objective Develop world-class management capabilities to drive African industrialisation.

Disclaimer Whilst every care has been taken to ensure the accuracy and integrity of the information and analysis presented in this report, TWIMS, its staff members, and associates, take no responsibility whatsoever for decisions derived from its content.

About the Author Guy Bowden is a Research Assistant at TWIMS. He is currently completing his master’s in Development Economics via the School of Economics at the University of Cape Town. His research interests are focussed on the intersection of industrialisation, trade, green energy, and future technology.

Contents

Contents ...... 1 Abbreviations ...... 2 Executive Summary ...... 3 Introduction ...... 4 1 - Progress of South Africa’s Hydrogen Society and Platinum Valley ...... 6 Government’s Hydrogen Strategy ...... 6 Hydrogen Production in South Africa ...... 7 Platinum Valley Project ...... 8 2 - BEVs versus FCEVs ...... 10 Infrastructure ...... 10 Total cost of ownership ...... 10 Performance ...... 12 FCEVs and BEVs as complimentary technologies ...... 14 3 - FCEV strategies of major automotive manufacturers ...... 15 4 - Potential Viability of FCEV demand and production in SA ...... 18 Ownership and Operating Costs ...... 18 Domestic Demand ...... 20 Local Production of FCEVs and BEVs ...... 21 Conclusion ...... 24 References ...... 26

Abbreviations

BEV – Battery Electric Vehicle

EV – Electric Vehicle

FCEV – Fuel Cell Electric Vehicle

FCT – Fuel Cell Technology

HFCT – Hydrogen Fuel Cell Technology

ICE – Internal Combustion Engine

LNG – Liquid Natural Gas

OEM – Original Equipment Manufacturer

PGM – Platinum Group Metals

Executive Summary

This report was compiled to (1) discuss the progress of South Africa’s proposed Hydrogen Society and Platinum Valley Project, (2) elaborate on the ongoing debate between Battery Electric Vehicles (BEV) and Fuel Cell Electric Vehicles (FCEV), and (3) to explore the potential viability for Fuel Cell Electric Vehicle (FCEV) production and demand in South Africa.

Key findings of this report are that South Africa’s Hydrogen Economy is still in its infancy. While FCEVs are proposed as a source of demand for platinum group metals (PGM) beneficiation, national government policy and industry research seems primarily focussed on developing cost-effective Hydrogen Fuel Cell Technology (HFCT) for export as well as building capabilities for the domestic manufacture of Fuel Cell Technology (FCT). South Africa has been widely regarded as a major potential generator of renewable electricity through solar and wind energy, this would create a significant advantage to locally produce green hydrogen. While clear opportunities for the export of South African green hydrogen and HFCT have been identified, it appears that the local economy will be slower in its uptake of green hydrogen and HFCT for domestic use. Globally, it seems that BEVs are the preferred replacement for Internal Combustion Engine (ICE) passenger vehicles primarily operating in urban areas, while FCEVs are shown to be more effective in heavy and long-range modes of transport. In particular, FCEVs have competitiveness potential in the large passenger vehicle segment as well as light commercial, medium commercial, heavy commercial and extra-heavy commercial vehicle markets.

Introduction

Hydrogen has been identified as a compelling form of energy transportation and storage that could unlock greater potential for other forms of renewable electricity generation. Hydrogen provides a crucial solution to intermittent supply and demand peaks associated with wind, solar and hydro electricity generation. To this effect, hydrogen offers a viable means of storing energy over long periods of time – a capability that battery technology does not yet have (Simolka, Kubler, & Voller, 2020). Hydrogen will play a significant role in the future of global electricity generation and energy storage as the world increasingly moves away from fossil fuels. Provided that hydrogen is produced with renewable energy, or if carbon capture storage is used alongside fossil fuels, hydrogen offers an environmentally friendly source of electricity. This is because, the by-products of using pure hydrogen are simply heat and water. Table 1 shows several advantages for HFCT, making FCEVs a viable alternative to ICE vehicles.

Table 1: Advantages of hydrogen fuel cell technology

Advantages of FCEV Explanation Safety Hydrogen is as safe as petrol and diesel. Reliability Less moving parts than an ICE. Energy density Hydrogen is more energy dense than lithium and LNG. Range Comparable range to existing ICE vehicles. Refuelling time Comparable to ICE (5 minutes). Weight H2 is significantly lighter than a battery pack and gasoline. Lowest carbon footprint (Green H2) Mining of lithium gives off pollution. Price In the long-term price of green H2 will be cheaper than LNG. Source: BloombergNEF (2020); Hydrogen Council (2020); Roos and Wright (2021)

Hydrogen offers a viable alternative to current national and global energy complexes without completely having to overhaul some existing infrastructure and systems. Since hydrogen can be stored as a liquid or gas it can be transported and stored in similar methods to existing non-renewable liquid and gas fuels. For example, existing pipelines, storage containers, and ships can be adapted to transport hydrogen. However, maximising the cost effectiveness of hydrogen transport and efficient hydrogen storage remain key challenges that will require enormous investment. Over three times more hydrogen storage capacity will be needed than what is presently available, if hydrogen is to replace natural gas as expected (BloombergNEF, 2020).

South Africa is not the only region to have recognised the potential for a hydrogen- based economy. Australia, Chile, Germany, the European Union, Japan, New Zealand, Portugal, Spain, and South Korea already have strong national/regional strategies for the introduction of hydrogen as an integral means for electricity generation and energy storage. The EU and Japan have made it clear that green hydrogen will be an important component of their energy complexes. Due to their limited renewable energy potential, specifically limited solar resources, they will be large importers of green hydrogen creating new economic opportunities for countries that can capitalise on their renewable resource endowments.

Therefore, the opportunities for South Africa surrounding hydrogen are twofold. Firstly, the country has the potential to export hydrogen to markets that are transitioning to green economies. This would create valuable export earnings for the country and stimulate wider investment, economic growth, and job creation. Secondly, South Africa has an opportunity to transform its own energy infrastructure and take positive steps towards a green economy if it can harness some of its own renewable energy potential and hydrogen fuel generation. A renewables and hydrogen based energy complex could eventually overhaul the country’s aging energy infrastructure and dependence on fossil fuels. However, in the nearer future, it could be used to power key manufacturing and industrial sectors ensuring continued access to valuable export markets for new and existing products in the face of looming carbon border tariffs. In effect this could afford the country a very real opportunity to reverse its industrial decline whilst simultaneously lowering the carbon footprint of locally produced goods. In the context of South Africa’s automotive industry, the use of renewable energy and green hydrogen in production could help to boost demand and drive economies of scale for domestic green electricity generation. Moreover, it simultaneously lowers the carbon footprint of locally produced automotives making them more competitive in export markets such as the UK and EU which will introduce increasingly stricter restrictions on ICE vehicles and carbon intensive goods and services in the next few years.

1 - Progress of South Africa’s Hydrogen Society and Platinum Valley

Government’s Hydrogen Strategy

South Africa’s transition to a hydrogen economy is still in its early stages. Very little hydrogen infrastructure has been developed domestically. At this stage, the country is positioning itself to be a producer and exporter of HFCT as opposed to a major HFCT user. The transition to a renewables-based and hydrogen dependent economy will not take place in the short-term. At this stage public and private fuel cell technology stakeholders in South Africa seem focused on taking advantage of export opportunities as major markets such as the EU and Japan have and continue to announce greater green energy targets and carbon generation restrictions (Nagashima, 2020; Roos & Wright, 2021).

The South African Hydrogen Strategy or HySA was instituted in 2008 by the Department of Science and Technology (DST). It was tasked with stimulating and guiding innovation within the local hydrogen value chain, with a distinct focus on PGMs beneficiation. HySA has been responsible for developing local intellectual property, knowledge, human resources, products and processes around hydrogen infrastructure, fuel cell powered systems, and fuel cell catalysis and components (Bessarabov et al., 2012). Examples of recent achievements include the development of hydrogen based auxiliary power units in partnership with airbus, the development of HFCT manufacturing capabilities, the establishment of a local supply chain using SMMEs, and the development of world class HFCT and patents (BusinessLIVE, 2014; Pollet et al., 2014).

The Hydrogen Society Roadmap is a new government policy document spearheaded by the Department of Science and Innovation (DSI), currently under draft, that is intended to inform and guide stakeholders in developing and deploying hydrogen technologies. The Hydrogen Society Roadmap process began in June 2020 (M. Creamer, 2020d). The roadmap will also guide stakeholders as to how hydrogen technology will be integrated into the national government’s South African Renewable Energy Masterplan (also currently under draft) – one of 14 industry specific masterplans being developed in conjunction with the Department of Trade, Industry and Competition (DTIC) (Engineering News, 2020).

Hydrogen Production in South Africa

The Hydrogen Society Roadmap is intended to identify the costs associated with green hydrogen production and green hydrogen technology in South Africa. Importantly, South Africa has been identified as a large potential exporter of green hydrogen. Figure 1 demonstrates the country’s abundant wind and solar potential – among the highest in the world. As a result, South Africa has the potential to be a global leader in green hydrogen production (Hydrogen Council, 2020; Roos & Wright, 2021). However, it will take time to develop the necessary infrastructure as well as overcome the few remaining technological barriers in order to unlock the production of green hydrogen at a cost-effective scale. In the long-run, green hydrogen will be cheaper than fossil fuels as well as all other forms of industrial hydrogen production (BloombergNEF, 2020; Hydrogen Council, 2020; Roos & Wright, 2021).

Figure 1: Hydrogen costs from hybrid solar PV and onshore wind systems in the long term

Source: International Energy Agency (2019)

In the meantime, already established industrial and less environmentally friendly methods of producing hydrogen have been ear marked as a means to build up demand for HFCT and unlock the economies of scale required for the proliferation of green hydrogen. Figure 2 shows the “grey” and “brown” non-environmentally friendly hydrogen alternatives. As Figure 2 demonstrates, grey and brown hydrogen can be coupled with carbon capture storage (CCS) in order to produce environmentally friendly “blue” hydrogen. CCS does impose additional cost and technological challenges, but it has been shown to be 85-95% effective at

removing CO2 emissions (Figueroa, Fout, Plasynski, Mcilvried, & Rameshwar, 2008).

In addition to South Africa’s renewable energy production potential, Patel (2020) notes that South Africa has a first mover advantage in brown hydrogen production that could unlock

7 falling costs for locally produced green hydrogen. Both Sasol and PetroSA have existing infrastructure and expertise in the Fischer-Tropsch process that could be repurposed to produce hydrogen from coal (T. Creamer, 2021a, 2021b; Patel, 2020). While brown hydrogen is not environmentally friendly, this could be combined with CCS to produce blue hydrogen so as to meet the CO2 emissions targets and export demands of the EU and Japan. This would also safeguard an avenue for South Africa to realise the potential value of its coal fields as the country slowly moves towards greater renewables-based electricity generation.

Figure 2: Types of hydrogen based on production methods

Not Environmentally Friendly Environmentally Friendly

Grey H2 Brown H2 Blue H2 Green H2

Source Source Source Source

Fossil fuels Coal Fossil fuels Renewable energy

Process Process Process Process

Steam-Methane Coal gasification Grey H2 or Brown H2 + Electrolysis Reforming Carbon Capture

Storage (CCS)

Source: Derived from Feblowitz (2020); Metcalfe, Burger, and Mackay (2020)

Moreover, on the 13th of April 2021, Sasol made public its intent to leverage its existing human and technological expertise to lead South Africa’s hydrogen economy and position itself as a global leader in green hydrogen production (Grobler, 2021). The company also announced its exploration into converting existing assets at its Sasolburg and Secunda plants along with investing in greenfield projects to produce green hydrogen.

Platinum Valley Project

Platinum group metals (PGMs) are an important material in the production of catalysts for fuel cells and in Proton Exchange Membrane (PEM) electrolysis systems. Because fuel cells operate at high temperatures the use of PGMs is fundamental. However, in the production of hydrogen through electrolysis there are three major technologies: Alkaline Electrolysis,

PEM and Solid Oxide Electrolysis Cell (SOEC). Of these three technologies, only PEM requires the use of PGMs. PEM electrolysers have certain advantages, namely: cheaper running costs, they require less space, are capable of compressing hydrogen to a greater extent, and have greater operational flexibility. The latter being particularly useful in the variable electricity supply received from renewable energy sources. However, they involve greater initial costs due to high-value catalyst materials and have shorter lifetimes than alkali systems (Patel, 2020). SOEC systems are very new and are also expensive with short lifetimes, but, they have other unique properties making them suited for certain applications. Most interestingly, SOEC systems can operate in reverse, as if they were a fuel cell and an electrolyser (Patel, 2020). Patel (2020) notes that PEM electrolysers are favoured in most new installations. However, it should be made clear that use of other electrolyser technologies will not require PGMs and so technological developments in this regard should be monitored.

The production of FCT has been identified as an integral link for platinum beneficiation in South Africa. This has been identified as an integral solution to South Africa’s platinum industry crisis and as a means for realising the potential value of the country’s platinum reserves. This has increasingly led calls for the establishment of a National Platinum Strategy (Minerals Council South Africa, 2019). To this effect the government is in the process of developing a “Platinum Valley Corridor Project” consisting of several special economic zones (SEZs) stretching across the Northern Cape, the North West Province, Limpopo, Gauteng and KwaZulu-Natal. The project is intended to unite various hydrogen applications in the country to form an integrated hydrogen ecosystem (M. Creamer, 2020a). The project is still in an early phase with the Bojanala Platinum Valley SEZ supposed to have been completed recently (M. Creamer, 2019). However, there has been no update on the progression of this project. It is expected that the government’s Hydrogen Society Roadmap will provide greater detail on the country’s platinum strategy and the status of the Platinum Valley Project (M. Creamer, 2020d).

2 - BEVs versus FCEVs

The debate between BEVs and FCEVs has largely been centred around three key themes, namely: Total cost of ownership (TCO) (this includes the purchase price of the asset and the cost of ownership), performance (of which driving range is an important factor), and infrastructure.

Infrastructure

BEVs have a significant head start over FCEVs as they already have sunk infrastructure in major cities and regions around the world. In comparison, FCEVs currently have extremely limited infrastructure, confined to only a handful of cities (Hydrogen Council, 2020).

In terms of hydrogen infrastructure, significant investments need to be made in renewable energy generation, hydrogen production, hydrogen storage, hydrogen transportation and hydrogen refuelling sites. The conversion of existing petrol and diesel storage and refuelling stations shows potential, but this will still be an enormous infrastructural undertaking. However, there are still major infrastructural challenges associated with BEVs. Firstly, BEVs will cause spikes in electricity demand at peak times (FuelCellsWorks, 2020). Secondly, longer refuelling times (roughly 40 minutes for a “rapid charge”) poses a significant social, engineering, and technological hurdle. This is because there will be limited capacity (parking space and electric current) to ensure rapid charging for every BEV at peak times given existing road and urban designs. However, BEVs by their nature will encourage a shift in consumer “refuelling” habits as some BEV owners – at least those who live in standalone homes – will charge their vehicles overnight.

Total cost of ownership

Table 2 shows the expected timeframe for various road-based hydrogen powered vehicles to reach parity in terms of total cost of ownership with internal combustion engine and battery electric alternatives. Longer time frames for FCEVs to reach parity in various segments indicates lower levels of competitiveness because it gives more time for BEVs to become established – in effect raising the barriers to entry for these segments. For example, FCEVs

10 must then compete with capital and infrastructure investments and not just in terms of TCO. Table 2 uses a colour scale to indicate the competitiveness of FCEVs against their BEV and ICE alternatives. Shades of green indicate quicker timeframes and greater levels of competitiveness, while shades of yellow to red indicate longer time frames and less competitiveness – with red being the least competitive.

Table 2 shows that fuel cell powered HCVs (heavy commercial vehicles) and XHCVs (extra-heavy commercial vehicles) have the most potential for competitiveness with both ICE and BEV alternatives. The table shows good potential for FCEVs reaching competitiveness with both BEV and ICE alternatives in the long-range LCV (light commercial vehicle), long- range bus and long-range coach segments. The table does indicate competitiveness potential for long-range large PVs (passenger vehicles) and short-range MCVs (medium commercial vehicles), but to a lesser degree. Finally, Table 2 shows that FCEVs contain the least competitiveness potential in comparison to BEVs for the small short-range PV (passenger vehicles) and short-range bus segments.

Table 2: Expected TCO year of parity for FCEV ranges in relation to BEVs and ICE vehicles

Type of vehicle Usage Range Year of parity with ICE Year of parity with BEV Small PV Short range 200 km 2035 2050 Large PV (i.e. SUV) Long range 600 km 2030 2030 LCV Long range 650 km 2030 2025 MCV Short range 300 km 2025 2030 HCV Long range 500 km 2025 2020 XHCV Long range 600 km 2025 2020 Bus Short range 150 km 2025 2040 Bus Long range 450 km 2025 2025 Coach Long range 500 km 2025 2025 Source: Adapted from Hydrogen Council, 2020, p. 33-41

A market segment not represented in Table 2 that does present TCO competitiveness opportunities for FCEVs is e-hailing. Even though most e-hailing services (e.g., Uber, Lyft and Bolt) use small or large passenger vehicles, the frequency of vehicle use generally makes FCEVs better suited than BEVs. This is because FCEVs have quick refueling times meaning that vehicles have quick turnaround times and can serve a greater number of clients. Moreover, e-hailing typically follows standardized travel patterns (i.e., much of their time is spent servicing airports, business districts, etc.), combined with advanced mapping and machine learning it is significantly easier to build hydrogen infrastructure in locations that suit the travel patterns of e-hailing services than it is for private small and large passenger vehicle users.

Performance

Table 2 shows that FCEVs are generally more competitive in long-range and heavier modes of transport. A key reason for this is the weight associated with battery packs in BEVs. For example, the battery packs in the Tesla Model 3 and Chevy Bolt – two prominent passenger BEVs – weigh 480 and 435 kilograms, respectively (Arcus, 2018). In comparison, the Toyota Mirai’s three full hydrogen tanks weigh a combined 30 kilograms (Toyota Motor Sales USA, 2021). Heavier vehicles with longer-range uses require much larger battery packs, which drives up TCO and weight. As a result, a significant amount of the battery’s extra capacity is wasted on carrying around this additional weight. There is, therefore, a diminishing relationship between a battery’s effectiveness and the weight of the battery itself. This relationship extends beyond road-based modes of transport and holds true for the shipping and aviation sectors (Hydrogen Council, 2020).

Table 3: Performance comparison of FCEV and BEV

Performance Indicator FCEV BEV Passenger Vehicle Toyota Mirai Tesla Model 3 Range 647 km 423 km (568 km for long-range model) Refuelling time 5 minutes 9 hours (40 minutes for rapid 80% charge) Power output 136 kw 211 kw Top speed 171 kph 225 kph 0-100 kph 9 seconds 5.3 seconds Bus Hyundai Elec City FCEV Hyundai Elec City BEV Range 434 km 210 km Refuelling time 15 minutes 72 minutes Power output 180 kw 240 kw Heavy Truck Nikola Two FCEV Nikola Two BEV Range 1207 km 563 km Refuelling time 20 minutes "several hours" Power output 745 kw 745 kw 0-100 kph 30 seconds 30 seconds Source: Hyundai Motor Group Tech (n.d.); Nikola Corporation (2021); Tesla (2021); Toyota Motor Sales USA (2021)

Table 3 shows performance comparisons between existing FCEV and BEV models for the passenger vehicle, bus, and heavy truck segment. As the most prominent examples of passenger FCEVs and BEVs, respectively, the Toyota Mirai (base version) and Tesla Model 3 (base version) were compared against one another. In the case of busses and heavy trucks, the comparison was aided by the fact that Hyundai and Nikola both make fuel cell and battery powered variants of the same chassis. Table 3 shows the Toyota Mirai’s longer range and vastly

12 superior refuelling time. The range of the Toyota Mirai is comparable to that of most passenger ICE vehicles. Due to the nature of hydrogen storage and the technological limits of hydrogen storage tanks at present, it is difficult to increase the range of passenger FCEVs at this moment. Despite, further range and better refuelling time, Table 3 shows that the Tesla Model 3 has significantly greater power output. Furthermore, Table 3 shows that passenger BEVs are still capable of fairly impressive range (the long-range tesla model 3 is capable of 568 km) which is certainly sufficient for urban commute on a day-to-day basis.

Table 3 shows greater performance indicators for FCEVs in the bus and heavy truck segments. The hydrogen powered Hyundai Elec City Bus has roughly double the range and a shorter “refuelling” time compared to its battery electric counterpart. Like the case of the Toyota Mirai and the Tesla Model 3, the bus FCEV creates less power output compared to its BEV counterpart. The heavy truck segment shows the most significant competitiveness advantages for FCEVs versus BEVs. The fuel cell Nikola Two has more than double the range, much quicker “refuelling” time, the same power output and the same acceleration compared to its battery electric variant. While these comparisons may contain some limitations (for example, the manufacturers may have exaggerated perceived weaknesses or advantages by catering to different consumer demands), they support a similar trend discussed in Table 2, and the fact that FCEVs are particularly suited to long-range and heavy modes of transport.

Figure 3: Energy efficiency of BEV vs FCEV

Well-To-Tank Tank-To-Wheel

Electric Energy Transportation Battery B Motor E V

Available Energy 100% 80% 76%

Transport & Electric F Energy Electrolysis Compression Fuel Cell Battery C Dispensing Motor E V Available Energy 100% 70% 62% 49% 32% 30%

Source: Adapted from Volkswagen (2019)

While Table 2 and Table 3 show clear advantages for FCEVs in the long-distance truck and bus segments, they depict a slightly less clear scenario for passenger vehicles. Due to scale and different consumer demands, the competitiveness of FCEVs in the passenger segment are more affected by infrastructure requirements and overall effectiveness of HFCT (FuelCellsWorks, 2020). A key reason for this is the energy loss that occurs from the moment energy is generated to the time it reaches the wheel in a BEV and FCEV. Figure 3 shows that 76% of initial energy generation remains by the time electricity reaches the wheel in a BEV. By comparison, only 30% of initial energy generation remains by the time electricity reaches the wheel in a FCEV. However, this is still more effective than a petrol powered ICE vehicle with one study showing that only 11-27% of its initial energy generation remains by the time energy reaches the wheel (Albatayneh, Assaf, Alterman, & Jaradat, 2020).

FCEVs and BEVs as complimentary technologies

The most substantial challenges facing FCEVs are the financing and rollout of hydrogen infrastructure at scale; the cost-effective production of hydrogen; and the energy efficiency of FCEVs compared to BEVs, as shown in Figure 3. Significant demand for green hydrogen and FCEVs is needed to drive economies of scale in production so that HFCT can reach its potential. In the meantime, governments along with automotive manufacturers, fuel producers and other stakeholders will need to provide incentives as well as layout initial infrastructure investments so that technological advancements and economies of scale can be accelerated within the industry. This does not mean, however, that BEVs and FCEVs are in a race against each other.

Toyota chairperson Takeshi Uchiyamada said in a Reuters interview at the Tokyo auto show in 2017, “We don’t really see an adversary ‘zero-sum’ relationship between the BEV and the hydrogen car. We’re not about to give up on hydrogen electric fuel-cell technology at all” (Reuters, 2020). Furthermore, Hyundai Motor Company and Nikola Motor Company have questioned whether there is even a race between BEVs and FCEVs at all. They insist that the technologies will serve to complement each other, filling various consumer niches where the other may not be suited (FuelCellsWorks, 2020; Horrell, 2020). Lastly, the nature of transport, mobility and urban design is steadily changing in order to combat congestion and other urban challenges. This will inevitably see present concerns and limitations of FCEVs and BEVs shift as cities and transport networks are no longer built around ICE vehicles.

3 - FCEV strategies of major automotive manufacturers

Figure 4 provides a visual representation of the stance towards FCEVs for many of the world’s largest automotive manufacturers. It is important to point out that this list is not exhaustive. It does not cover niche manufacturers or smaller firms that are solely dedicated to FCEV development and production. For example, firms like Arcola Energy, Nikola Motor Company, Linde, and Solaris Bus & Coach are not featured in Figure 4.

The firms located in the “passenger FCEV (in)” column are those firms which either have existing FCEVs (e.g., Toyota, Hyundai, Honda) or have made public their intentions to develop and produce FCEVs for the passenger market. Firms located in the “commercial FCEV (in)” column are those firms/partnerships that have existing commercial FCEV models or have publicly stated their intent to develop them. It is important to note that these firms have not necessarily chosen FCEVs over BEVs as these firms are also engaged in BEV research, development, and production. Firms located in the “passenger FCEV (out)” column are those firms that have explicitly stated that they do not intend to develop or produce FCEVs. Interestingly, Renault-Nissan, Daimler-Mercedes-Benz, and Ford announced their coordinated strategy to research and develop FCEVs in 2013. This partnership disintegrated with Mercedes- Benz completely pulling out of FCEVs (Woodraschke, Leutner, & Capata, n.d.). Since then, Daimler (soon to be separated from Mercedes-Benz) announced a partnership with Volvo to develop FCEV trucks (Daimler, 2020), and Renault has developed a range of fuel cell light commercial vans.

Table 4 shows the leading applicants who have filed patents within the FCT Patent Family (PF) as well as the leading countries/regions in which FCT patents have been filed. It reaffirms Toyota’s leading position within FCT research and development. Expectedly, the other two major proponents of FCEVs (Honda and Hyundai) round out the top three. The table provides a good representation of firms conducting research and development into FCEVs and FCT. Table 5 also provides a good indication of the geographic regions in which major FCT research and development are taking place. The USA, EU, Japan, and China are each responsible for a relatively significant number of filed patents relating to FCT.

Figure 4: FCEV stance of major automotive manufacturers

Passenger FCEV (in) Commercial FCEV (in) Passenger FCEV (out)

*Vehicle manufacturers in the same cell, indicate a partnership/alliance. Source: Image created by author

Table 4: Leading applicants and jurisdictions for FCT related patents

Applicants Number of PFs Toyota Motors 360 Honda Motors 210 Hundai Motors 175 Daimler AG 160 GM Global Tech 103 Operations Inc. 92 General Motors Corp. 62 Bosch GMBH 57 Kia Motors Corp 56 Ford Global Tech Llc. 55 Source: Alvarez-Meaza, Zarrabeitia-Bilbao, Rio-Belver, and Garechana-Anacabe (2020)

Table 5: Leading jurisdictions for FCT related patents

Jurisdiction Country Number of PFs USA 1583 Germany 1147 Japan 1095 WIPO 928 China 838 EPO 552 South Korea 413 Canada 192 France 88 Great Britain 58 Source: Alvarez-Meaza et al. (2020)

4 - Potential Viability of FCEV demand and production in SA

Ownership and Operating Costs

Table 6 shows the estimated price of a Toyota Mirai (base version) and a Tesla Model 3 (base version) in South Africa. Since neither the Tesla Model 3 nor the Toyota Mirai are on sale in South Africa, it was possible to compare an estimation of their respective prices in South Africa by assuming that one would have to buy both vehicles in the United States and pay customs duties, ad valorem excise duties and VAT to have them imported into South Africa. Table 6 shows that the Toyota Mirai would be roughly R340 000 more expensive than the Tesla Model 3.

Table 6: Price comparison of FCEV and BEV in South African Market

Import associated costs Toyota Mirai Tesla Model 3 US market purchase price (converted to Rands) (A) R727,634 R543,753 SA customs duty (B)1 5%1 5%1 SA ad valorem excise duty (C) 30% 22% SA VAT rate (D) 15% 15% Final import price in SA (less shipping costs) R1,142,203 R801,030 Effective tax rate at price point 57% 47% Formula: Final import price in SA ((A x (1 + B)) x (1 + C)) x (1 + D) *Exchange rate: R14.71 = $1 (22nd March 2021) *Other levies, such as the tyre levy and CO2 levy, are not taken into account. Source: ("Customs and Excise Act 91 of 1964,"); SARS (2018, 2019, 2021); Tesla (2021); Toyota Motor Sales USA (2021)

According to Air Products South Africa (Pty) Ltd (2021), the price of industrial hydrogen in South Africa is approximately R300 per kg in February 2021. Japan has set a target price of R52.20 per kg for imported blue/green hydrogen. This has been labelled as achievable for South African hydrogen producers (M. Creamer, 2020c). Furthermore, a joint European Union and South African investigation into power fuels and green hydrogen found that a long- term price of R26.50 per kg is possible for South African produced green hydrogen.

GlobalPetrolPrices.com (2021) collects data at several levels of electricity consumption to provide average annual electricity rates for both households and businesses in South Africa.

1 The customs duty specified in Table 6 differs to the customs duty stated by SARS shown in Table 8. Based on consultation with industry expert Justin Barnes, the average rate of customs duty applied by South African vehicle importers after rebating customs duties under the APDP is close to 5%.

Using this data, and accounting for Eskom’s 15.63% tariff hike that came into effect on the 1st of April, this puts the average household electricity price at R2.51 per kWh (GlobalPetrolPrices.com, 2021). At this price point it would cost R205 to fully charge a Tesla Model 3, equivalent to a cost of R0.49 per kilometre using the stated range shown in Table 3. As of the 7th of April 2021, the South African inland price of petrol sits at R17.32 per litre (AA, 2021). Under this scenario a petrol ICE vehicle with a consumption of 10 litres per every 100 kilometres would cost R1.73 per kilometre. However, a small fuel efficient 1.1 litre hatchback with a consumption of 5.5 litres per every 100 kilometres works out to R0.95 per kilometre. Therefore, a BEV represents significant operating cost savings compared to all ranges of ICE vehicles in South Africa.

Table 7: SA hydrogen price and passenger FCEV cost per kilometre

Type of Hydrogen Price (ZAR per kg) Toyota Mirai (ZAR per km)

Current price for industrial H2 300 2.61

Japanese target import price for green H2 52.2* 0.45

Long term price for green H2 in SA 26.5* 0.23 *Prices for green hydrogen are well-developed estimates quoted from external work, it should be noted that the price of green hydrogen is highly dependent on associated factor costs, technological development, and the achievement of economies of scale. Source: Air Products South Africa (Pty) Ltd (2021); M. Creamer (2020c); Roos and Wright (2021)

Table 7 shows the cost per kilometre for a Toyota Mirai. It shows that using current industrial prices for hydrogen the Toyota Mirai would cost over five times per kilometre more than a Tesla Model 3 and close to three times more than a fuel-efficient ICE hatchback. The longer-term targets for hydrogen prices in South Africa show that a Toyota Mirai would be cheaper per kilometre than all ranges of ICE vehicles and the Tesla Model 3 at current prices. While the price of fossil fuels have and will continue to rise into the future, electricity prices in South Africa could decrease significantly if supply limitations are solved and as local electricity generation transitions to cheaper and greener forms of energy. Given this trajectory, FCEVs will become cheaper per kilometre than comparative ICE vehicles as Table 7 demonstrates. However, it is difficult to estimate the future cost per kilometre advantage of a Tesla Model 3 versus a Toyota Mirai and vice versa. The cost per kilometre for BEVs and FCEVs are both likely to improve as South Africa transitions to greener electricity generation and as greater economies of scale are achieved.

Domestic Demand

At present there are no road going FCEVs in South Africa. There are, however, close to 1 000 BEVs on South African roads today. In 2018, slightly less than 70 BEVs were sold in South Africa, down by 42% from 2015 (Greencape, 2019). South Africa’s overall EV market is still small and has yet to experience accelerated growth. However, Autotrader’s survey of South African vehicle owners found that the overwhelming majority of surveyed consumers consider themselves increasingly likely to purchase an EV in the future (Autotrader, 2020).

BEVs have a head start over FCEVs in South Africa. The country already has several charging stations in big metropoles and along major regional highways. For example, there are already enough charging stations dispersed along the N1 for a BEV to travel from Cape Town to Johannesburg (Greencape, 2019). Given existing BEV penetration into the South African private passenger vehicle market, sunk infrastructure, and cheaper total cost of ownership, it seems likely that BEVs will take a leading stake in South Africa’s private passenger post ICE vehicle market over the next few years and possibly decades. With little infrastructure and limited private consumer exposure to FCEVs it seems unlikely that there will be a significant passenger FCEV market in South Africa until there are at least significant cost, performance, and infrastructural improvements. However, FCEVs may prove to be a viable alternative to ICE vehicles over BEVs for market segments where HFCT is competitive in South Africa. FCEVs could well become popular in South Africa’s commercial market segment and for specific types of public transport such as e-hailing and regional travel in the next few years.

On the 13th of April 2021 Sasol and Toyota South Africa announced a joint project to establish a hydrogen mobility ecosystem along the N3 corridor between Johannesburg and Durban (Grobler, 2021; Kirby, 2021). The project would involve the creation of two hydrogen generation sites and hydrogen refuelling facilities along the N3. Furthermore, Toyota South Africa would supply several commercial FCEVs through its Toyota-Hino partnership to create a pilot programme that demonstrates a business case for hydrogen mobility in South Africa. The project would be a significant steppingstone in the development of hydrogen infrastructure and the incorporation of FCEVs into logistics and freight operations in South Africa.

Local Production of FCEVs and BEVs

At present there are no FCEVs or BEVs produced in South Africa. Existing benefits and incentives provided to automotive OEMs in South Africa under the Automotive Production and Development Programme (APDP), its recent 2021 amendments and the Automotive Investment Scheme (AIS) do not exclude EV manufacturers. Therefore, EV producers would receive existing government incentives and support.

However, high ad valorem excise duties, shown in Table 8, which are placed on the excisable value of both locally produced and imported electric vehicles currently serve as a hindrance to local demand and manufacturing of all vehicle types in South Africa. While South Africa maintains reasonably high customs duties on imported electric vehicles, also shown in Table 8, which could incentivise local production, these duties can be rebated through Production Rebate Certificates (PRCs) under the APDP (DTIC, 2021). Therefore, it remains unclear how exactly local OEMs will use existing government production and investment incentives to onshore local FCEV and/or BEV production capabilities. What is apparent is that government taxes on all types of automotives, both imported and locally produced, remain high. Table 6 showed that the effective tax rate on an imported Toyota Mirai and Tesla Model 3 would be 57% and 47% respectively, assuming that PRCs were not used to offset customs duties. What is particularly worrying is the application of ad valorem excise duties on locally produced vehicles. Therefore, the reduction or removal of ad valorem excise duties on EVs could be a viable means of incentivising demand and in turn production of FCEVs and BEVs, especially given that government subsidies may not be feasible in South Africa.

Table 8: Import and excise duties on electric vehicles in South Africa

PV LCV MCV HCV XHCV Customs duty (imports) 25% 25% 25% 20% 20% Max ad valorem excise duty (imports and local) 30% 30% 30% 30% 30% Source: SARS (2019, 2021)

There is scope for local production of FCEVs and BEVs in South Africa, especially when combined with potential value chain linkages associated with the governments Platinum Valley Project and Hydrogen Strategy; other natural resource endowments such as manganese (an important material used in lithium-ion batteries) of which South Africa has 78% of the worlds known reserves (Greencape, 2019); an existing battery production and recycling industry; enduring automotive supply-chain sectors that will be important to EV production (e.g. steering, wiring harnesses, seats, lights, shock absorbers, brakes, etc.); and secured

21 preferential trade access to big automotive markets such as the EU. Therefore, local production of FCEVs and BEVs and the timing of which (if this is to happen) will largely come down to the individual decisions of OEMs and their global strategies, logistics and production mechanisms.

To this effect, Toyota South Africa announced on the 13th of April 2021 that its transition towards the local production of EVs would begin with Petrol Hybrid Electric Vehicles (PHEVs). Toyota would begin production of its first PHEVs in the country by the end of 2021 (Kirby, 2021). Importantly this could create opportunities for local value addition surrounding new technologies involved in BEVs whilst maintaining opportunities for existing supply firms that specialise in ICE specific components. This would provide these local suppliers with some time to transform their business operations and production processes for the eventuality that they may exclusively supply components for electric vehicles or go out of business.

However, what is unclear is the extent to which renewable electricity and green hydrogen could be used in the production of automotives – in effect greening the value chain. So far little has been mentioned by government, in terms of its Hydrogen Society Roadmap and Renewable Energy Masterplan, and OEMs about the potential for creating value added goods through green energy. In this regard, there is a clear opportunity to reduce carbon emissions stemming from industrial activities, unlocking competitiveness advantages as carbon border tariffs are instituted in key export markets. Not only does this ensure the longevity of South Africa’s automotive industry, but it helps to drive the local market for green energy, further aiding the development of a hydrogen economy and making BEVs and FCEVs more affordable to produce and purchase within South Africa.

Key to the localisation of FCEV and BEV production is the development of local demand. This, then, is intimately tied to the local generation and supply of green energy. South Africa’s existing coal-based energy complex and supply challenges severely inhibit the overall effectiveness of EVs. Not only does it inflate running costs and affect recharging practices of BEVs, but it curtails the green potential of both FCEVs and BEVs. Therefore, the future production of FCEVs and BEVs in South Africa must be ushered with serious commitments to expand South Africa’s green energy supply. While it is hoped that the government’s Hydrogen Society Roadmap and South African Renewable Energy Masterplan will guide this, it is also clear that there will need to be considerable initiative taken on behalf of private firms to

22 accelerate and supplement the development of green energy generation in South Africa. In the case of the automotive sector, OEMs have a vested interest in the expansion of green energy. Inevitably an adequate supply of green energy will lead to cheaper electricity prices that will drive demand for EVs, creating a serious business case for the local production of FCEVs and BEVs in South Africa.

Specifically looking at FCEV’s there is a major opportunity for local production that could revolutionise the local and regional automotive value chain. As explained earlier, BEVs are particularly suited for passenger vehicle and other short range market segments. BEV technology, production and demand are more advanced in larger and wealthier markets and South Africa would likely be less competitive in producing such vehicles given the size of the domestic and regional passenger vehicle market. In 2019 South Africa produced a total of 254 418 ICE LCVs (light commercial vehicles) accounting for a significant 1.3% share of the global LCV market (Lightstone Auto, 2021; OICA, 2021). The overwhelming majority of vehicles produced in this segment were pickup trucks or “bakkies” as they are commonly referred to in South Africa. Table 2, earlier, showed a clear competitiveness case for FCEVs in this market segment. Therefore, clear synergies exist between South Africa’s established LCV manufacturing capabilities, it’s local and regional LCV market, and HFCT. Key to unlocking such synergies would be significant investment in local green energy production which will in turn drive green hydrogen production and FCT manufacturing capabilities in South Africa.

Conclusion

South Africa’s Hydrogen Society is still in its infancy. The governments Platinum Valley Project, and Hydrogen Strategy are focussed on the development of local HFCT manufacturing capabilities so as to position the country as a future exporter of green hydrogen, FCT, and fuel cell powered systems. South Africa possesses several infrastructural, human capital and natural resource endowments that present significant opportunities to be a future potential leader in the production of green hydrogen.

In terms of FCEVs there is presently no established infrastructure and demand in South Africa. While BEV’s have a head start in this respect, several industry leaders insist that the two technologies will serve to complement one another. It is clear, that FCEVs are more effective for long-range and heavy modes of transport. In this respect, FCEVs contain competitiveness opportunities in the heavy truck, long-distance bus, light commercial vehicle, and large passenger vehicle segments. FCEVs are also particularly suited for other modes of transport such as e-hailing. On the other hand, BEVs are more effective for short range modes of transport, in particular the passenger vehicle and urban bus segment. As local OEMs transition to building fully electric vehicles in South Africa, it will be important to prioritise these market segments where FCEVs and BEVs already have strong cost competitiveness profiles and where local consumer demand is likely to complement this.

Finally, there is scope for both domestic production of FCEVs and BEVs in South Africa - the country is certainly making attempts to position itself in both spaces. EV producers are included under existing benefits and incentives under the APDP and AIS. However, the onshoring of domestic EV manufacturing capabilities will largely come down to the individual decisions of South Africa’s foreign owned OEMs and their respective global manufacturing strategies and logistics. Ultimately, the future production of FCEVs and BEVs in South Africa is dependent on technology development, industry preferences, government policy and the broader economic trajectory of South Africa. Key to this will be the creation of domestic demand for EVs, of which the reduction of ad valorem excise duties will be an important incentive. However, increasing the supply of domestic green energy will be a crucial driver for the adoption of EVs in the local market. More importantly, it is key to harnessing the synergies between FCT, South Africa’s potential for green hydrogen production, and the country’s existing LCV market and manufacturing capabilities. This alone could revolutionise the South

African automotive value chain as it guarantees superior economies of scale and higher levels of competitiveness around core product offerings.

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