We have seen it before with the telecommunications and fintech industries. Once the underserved and unbanked population were introduced to the world of mobile phones and subsequently mobile money, they quickly jumped in. They simple bypassed the fixed line era and brick & mortar banking when superior technology and services became available before the traditional telecoms and banking services had reached them. Having waited years for fixed telephone networks and traditional banking services to reach them, there was simply no reason to wait any longer once cell phones and associated value added services arrived. Africa’s low motorization levels present a similar opportunity.
Africa is not on the radar of most of the traditional OEMs in the auto industry that are bringing out, planning to, or are being compelled to bring out EVs due to stricter emission rules in Europe and other markets. Looking at the new vehicle sales in Africa compared to other regions, its not hard to see why.
In 2019, just under 100 million new vehicles were sold worldwide. In Africa, just over 1 million were sold, just about 100th of that number! New vehicle sales don’t show the real picture for Africa, as about 90% of vehicles imported into the various countries across the continent are used vehicles from other continents. Even with these used vehicles, the majority of African countries still have very low levels of motorization compared to countries in the developed world. 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.
Even though the majority of countries are starting from a very low base, sales of vehicles (new and used imports combined) are growing at rates of around 10% per year in a lot of these countries, and here lies the opportunity for another leapfrog moment. This opportunity is most likely to be missed by the traditional/legacy automakers looking at the new vehicle sales as the Total Addressable Market (TAM). They are probably also thinking along the lines of “there probably isn’t the infrastructure in place in a lot of countries to support EVs.”
This then leaves the door wide open for bold startups in the New Energy Vehicle space. Chinese players come to mind. Just like in the mobile phone industry, it was not the iPhone that drove the revolution, but the low cost South Korean and Chinese bare-bones Android phones that understood the market they wanted to target and included things like dual SIM card functionality grabbed the market. In the same fashion we will start to see the equivalents of Tecno, Xiaomi, Oppo, Huawei, and the basic Samsungs of the EV Space.
Individual countries can import around 100,000 used vehicles per year. Aggregating all of these over several countries presents a decent addressable market for the right sized EVs. Our favorite list of 7 ICE killers comes to mind. This list shows just how well these types of vehicles are positioned to take a huge chunk of sales from similarly priced used ICE vehicles that make up the hundreds of thousands of imports. The ICE killers would land at prices that are quite competitive.
Before the SARS-CoV-2 hit the world in 2020, African economies were some of the fastest growing in the world. This has led to the well documented growth in the number of families moving into the middle and upper middle class. Africa has a young & dynamic population and a largely brand-conscious middle class.
All this presents the perfect opportunity for these consumers to jump straight into the wonderful world of electromobility, bypassing the ICE age. A lot of these young consumers could actually have an electric motorcycle or car as their first ever vehicle. These 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.
We are starting to see this already in Ghana where you can now rent an all-electric sedan for just $160 per month. This sedan is actually the Chinese JAC iEV7L pure electric vehicle. This JAC sedan has a decent 35.2 kWh battery that’s good for about 302 km / 189 miles (NEDC). As numbers grow, surely these NEV manufacturers will be incentivized to open up assembly and manufacturing plants on the continent. Hyundai has already started assembling the Ioniq in Ethiopia. The transition to electromobility is happening a whole lot faster than most people think. More players should seriously look into this.
All graphs courtesy of AfricaNEV