Private Sector R&D Investment in Vehicle Manufacturing 600x More Effective Than Government

Through the Industrial Development Corporation and the Technology and Innovation Agency, government invested R300 million in a company called Optimal Energy over several years to develop South Africa’s first electric car called the Joule.

Government had big plans for the vehicle. A report stated that “Optimal Energy, the Joule car’s maker, is firmly aligned with the government’s second industrial policy action plan, which seeks to increase local automotive content and manufacturing.” Furthermore,

These activities are labour intensive and result in SA increasing its levels of beneficiation and economic activity. “Manufacturing — which constitutes a sizable chunk of our value-added production — has not enjoyed sufficient dynamism,” said Trade and Industry Minister Rob Davies in a speech in February.

Optimal Energy says it will employ more than 2000 people in its assembly operation, while supplier and support activities could create a further 8000 downstream jobs. Once the plant is established and production volumes rise, the company believes local content value in the car could go as high as 65% — on a par with other local car plants.

These are the types of rosie forecasts that go into government job creation and investment plans. Government investments all come with the Keynesian multiplier, you know. R1 spent by government is worth R2 of GDP and 10 jobs, they’ll tell us with straight faces.

In June 2012, Optimal Energy shut its doors after no real investors believed its project would be sustainable and profitable and create value for customers over the long run. The vehicle was only ever revealed at car shows and barely even made it onto the road. 60 jobs were lost and lots of money and time has been wasted along with it.

Contrast this with the Metair group, who this week publicly unveiled an electric vehicle built from scratch with materials costing less than R60,000. Development costs of the vehicle cost less than R500,000, and it was built within four months! *

Engineering news reports on the project:

Automotive component manufacturer and distributor Metair on Thursday unveiled a completely homebuilt electric car, named the Met-Elec-R60.

The aim of this internal project, launched in July last year, was to produce an electric car within four months and with a bill-of-materials cost of less than R60 000.

The R60 000 includes all the components of the car should it be produced on a large scale and excludes labour. Development costs of the vehicle amounted to R500 000.

Also, the “fun project”, as Metair referred to the venture, set out to use the company’s proprietary start/stop battery technology as its fundamental power source and aimed to incorporate the skills, equipment and other technologies housed across the group’s subsidiary companies in South Africa.

First National Battery (FNB) and Supreme Springs led the collaborative response across the group.

The project delivered two vehicles. One was a retro-fit to an old vehicle, while the other was designed and built from scratch.

While the government is making hard work of building an electric vehicle, Metair’s fun project “achieved all its goals within a precise time period and without impacting on any employee’s day-to-day responsibilities. Management and associates from across the group worked together to design and build the vehicles using different and complementary technologies, housed across a number of our subsidiary companies.”

Do you think Rob Davies and Trevor Manuel could coordinate a project like this? Puhlease!

In a comment that seems squarely aimed at Trevor Manuel and Rob Davies, Metair CEO Theo Loock said:

the project demonstrate[s] that, contrary to popular belief, the development and manufacturing costs of a local electric vehicle could be much lower than those incurred by the now defunct local Joule electric vehicle project, as well as other similar local development projects.

Those development projects Loock refers to are all coming off the back of the government’s Industrial policy action plan 1, Industrial policy action plan 2, National Development Plan, and the New Growth Path. Imagine the amount of resources that are being wasted by our ‘wise’ ministers Ebrahim Patel, Rob Davies, and Trevor Manuel, who between the three of them have never started, or run, a business. This is why SA is growing poorer the more policy plans these central guys can conjure up.

So to summarise: government spent R300,000,000 and ended up with a failed company and couldn’t get an electric vehicle on the road after several years of ‘development’. Metair invested R500,000 and got two fully operational electric vehicles, one built from the ground up and another fitted in an existing vehicle on the road within four months.

Basically, this case is empirical proof that in the vehicle manufacturing sector, the private sector invests its resources about 600 times more effectively than government does.

*My cousin was one of the lead mechanical engineers of the project, and my uncle is MD of Supreme Springs, the subsidiary company of Metair which, along with First National Battery, coordinated the project. Well done guys!