My first mobile phone, many decades ago, way before the smart phone days, was a pretty and shiny little Motorola. My sister-in-law had gone on holiday in South Africa and bought that phone as a present for me. Back then, the big names and the most popular brands were Nokia, Motorola, Samsung, Sony Ericson, and LG. But cellphones were very expensive for a lot of people in this part of the world and the mobile penetration was low.
Then the iPhone era came, and smartphones blossomed around the world. The problem was that these smartphones were even more expensive for the average consumer, putting the smartphone out of reach for the majority. This led to a growth in the “feature phone” market in Africa. pcmag defines a feature phone as: “A cell phone that contains a fixed set of functions beyond voice calling and text messaging but is not as extensive as a smartphone. For example, feature phones may offer Web browsing and email, but they generally cannot download apps from an online marketplace.”
Feature phones provided an opportunity for millions of people to access the internet through an affordable and easily accessible device. These devices were often financed through innovative methods payable via mobile money platforms that are available to the majority of the population, which is largely unbanked. Smartphone and feature phone sales continue to grow across Africa, but there are new players in town dominating this market. A look at cellphone shipments last year show that only one of the old names, Samsung, is still in the top 5. TECNO is now the top brand in Africa. In fact, Transsion Holdings’ three brands, TECNO, Itel, and Infinix were responsible for 38% of shipments in Africa’s smartphone market in 2020. So how did Transsion Holdings get to the top and how will this be likely to be the same trend in Africa’s car market in the near future?
According to Counterpoint Research, Transsion’s business strategy initially focused on the lower-tier cities and rural areas, offering a range of very affordable smartphones. Transsion also sent managers from its headquarters in China to live and work in remote African locations for a long time in order for them to gain local knowledge. Transsion then backed this up with aggressive spend on distribution, sales, and marketing. It would also alter campaigns and go-to-market strategies based on the learnings from the different places. You can see massive Itel and TECNO billboards across a lot of African cities, and it’s easy to see that Transsion has taken over the cellphone market in this part of the world.
Transsion’s approach focusing on lower-tier cities and concentrating on affordable, functional smartphones to reach a large under-served addressable market can show how Africa’s mobility market may shape up. A lot of Transsion’s customers would have been part of the “non-consumers,” folks who would not have been in the market for a smartphone as they could not have afforded one. 50% of smartphone shipments to Africa in 2020 were in the US$99 and below band. 38% were in the $100 -$199 band. The $500 and above range only represents 3% of smartphone shipments. By offering sub-$100 phones and opening up the market for people who could only afford up to $99 for a phone, these firms essentially created the market for these products. Africa’s low motorization rate, and low brand new vehicle sales outside of South Africa and a few others, makes it appear to be a continent of non-consumers of brand new vehicles. A similar approach as used in the smartphone industry could open up a whole new market for practical, functional, affordable electric vehicles that are not loaded with all the bells and whistles.
Let’s use the most recent non-pandemic year for example. In 2019, just under 100 million new vehicles were sold worldwide. In Africa, just over 1 million were sold, only about 100th of that number! But 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. Individual countries can import around 100,000 used vehicles per year. Aggregating all of these over several countries presents a decent addressable market for right-sized EVs. So whilst it appears there is no market for new vehicle sales in a lot of African countries, there is a huge potential if the right kind of vehicles are brought in.
This is where the Transsion approach can come into play. Most legacy OEMs and new EV companies won’t be looking at Africa as a key market for new vehicle sales. Their respective new EV models from Europe or USA are still designed and priced to be in the iPhone and Samsung Note range band. These EVs would initially fall into the same top niche market, like the 3% $500+ range in the cellphone market example.
In some countries in Africa, such as Kenya and Zimbabwe, maybe 5,000 to 10,000 brand new ICE vehicles are sold per year per country, but over 100,000 used vehicles are imported from Japan and the UK in Kenya per year. A lot of these vehicles are priced in the $6,000 to $14,000 range. A lot of them are 5- to 8-year-old compact hatchbacks, such as the Honda Fit, Mazda Demio, and the Toyota Passo and Vitz. These small hatchbacks are not much larger than a new breed of EVs starting to come out of China, such as the Changan BenBen EStar. Following the success of the blockbuster Wuling Hongguang Mini EV, there still even more models of slightly smaller and affordable city EVs starting to push reasonable volumes in China. These include the Pocco Mei Mei. These start from just $5,000 for a brand new vehicle in China. The Wuling Hongguang Mini EV showed that at this price range with air conditioning and electric windows, these types of vehicles that get the job done moving people and goods around the city are pretty popular in China’s lower-tier cities, as well as with first-time car buyers.
So, for Honda and other old automakers focused on a 175 km real world range with an expensive $37,000 small EV such as the Honda E, they probably aren’t targeting a lot of sales for brand new EVs Africa. That’s probably still OK and that could be part of the 3% “iPhone market.” The real deal in town and gamechanger could be the $8000, 30 kWh LFP battery-based small Chinese city EVs. With 200 km range, these could come and take a huge share of the market similar to what the TECNOs and Itels have done in the smartphone market. The recent university graduate who just got his first job, an early career professional or that small business owner who has saved up about $6000 for an 8-year-old Honda Fit could well do with a Pocco Mei Mei.
These new small EVs present the first real opportunity for many folks to actually buy or drive a brand new car — folks who would have only ever driven used ICE cars, and also folks who would have never bought a used ICE due to the high maintenance and service costs associated with them. These folks could be a new market captured from the non-consumers who would now be able to enjoy the benefits of cheaper to own and maintain electric vehicles. Just like affordable and easily accessible smart- and feature phones from companies like Transsion Holdings, cheaper more affordable small city EVs will soon start to shake up the car market in Africa. Just as The TECNOs have upstaged the Samsungs and Nokias, the popular Japanese car brands such as Toyota could well be in for a surprise in the near future. Just as the Mini EVs have their strongest sales in the provinces of Shandong, Hebei, and Henan, Guangxi Zhuang, which are ranked 9, 17, 23 and 25 among China’s regions when it comes to after-tax income per person, these EVs could also find a big market in lower-tier cities across Africa with first time buyers.
A lot of these small Chinese city EVs are in their first generation, probably building on the learnings from China’s large low speed electric vehicle market. Just like the budget smartphones, they will get better and better over time and probably get some improvements as well with added safety features for the export market. They will also get an improved suspension to handle some of the interesting roads in this part of the world. This will happen sooner than a lot of people realize. It’s about to get really exciting in Africa’s EV space.