Mobius Motors collapse casts doubt on the future of local auto industry

When Joel Jackson embarked on building Mobius, he believed he had figured out what an ideal vehicle for Kenya and Africa would look like.

He envisioned a no-frills SUV that did not have such nonessentials as air conditioning and automatic windows keeping the production costs low, high ground clearance to enable the vehicle to handle potholes and “ruggedised” suspension for the generally rough terrain.

All this for about Sh1 million, at least for the vehicle’s first addition.

He was eyeing a space dominated by imported passenger cars that do not factor local usage in their design stage while high import duties significantly add to the production costs “sometimes doubling the price of a car”.

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“The Pan-African economy is booming. The combined GDP is already over $2 trillion (Sh258 trillion). This is a massive commercial and social opportunity, not a helpless continent,” said Jackson in 2018, speaking on Ted Talk. African GDP has since grown to $3.1 trillion (Sh399 trillion) in 2023.

His venture in Mobius earned critics who dismissed the effort as trying to reinvent the wheel. This is considering many traders import ready-made SUVs, both new and second-hand, and make a killing. He could have also engaged Chinese contract manufacturers who could enable him to deliver Mobius to Kenya without the backbreaking rigours of local assembly.

If anything, many firms that have in the past produced different goods locally have shut down Kenyan operations, weighed down by the high cost of production.

They have instead shipped their manufacturing to countries such as China and today import finished products to sell to Kenyans and possibly fairing better than local manufacturers.

But he thought he could play a role in spurring local manufacturing that would in turn create jobs, reduce imports and grow the economy.

“Today, manufacturing is still the engine of economic growth and stability, even as new technologies have inevitably transformed the way we live,” he had said.

“Making stuff is important, especially for nation-states wanting to boost employment, increase skills and reduce import dependence.”

Despite the need to invest in Africa’s manufacturing, major auto firms had given the continent a wide berth when it came to setting production facilities.

Instead, they continue focusing on the already established markets of Europe and North America as well as China and India. Local industries too had not focused heavily on vehicle production.

“Around the world, automotive is a quarter of the manufacturing sector. But in Africa, it’s generally been overlooked by carmakers, who are focused on larger, established markets and emerging economies like India and China,” said Jackson.

“This lack of industrialisation, which itself creates a vicious-cycle barrier to the emergence of industry, has caused the dependence on imports. There is a supply-demand disconnect, with the vast majority of automotive spending on the continent today, essentially funding an international network of car exporters instead of fueling the growth of local industry.”

“It’s entirely possible to solve this disconnect, though, starting with products that people want. And this is what motivated me to start Mobius, to build a vehicle in Africa, for Africa.”

Despite his optimism and what looked like a solid product and great preparations in bringing it to the market, it turns out that he may have been wrong with Mobius Motors now winding up.

But was he wrong?

Kenya imports the bulk of the vehicles that are used on local roads. In 2023, the number of newly registered vehicles – excluding motorcycles - reached 119,205, according to data from the Kenya National Bureau of Standards. Of these new vehicles, only 10 per cent or 13,106 units were assembled in Kenya.

The local assembly has in recent years made some progress and posted steady growth from 7,802 in 2019.

Kenya has been trying to increase the number of cars made locally. The Industrialisation Ministry has recently drawn up the National Automotive Policy.

The Policy noted that there is adequate production capacity to meet demand both in the country as well as the region.

While local assemblers produced 13,000 vehicles in the country last year, they could produce 34,000 units, as of 2022, over a single shift, according to documents by the Ministry of Trade and Industry. This would mean that by producing round the clock over three shifts, they can produce 102,000 annually, almost adequate to meet local demand at 119,000.

Kenya has been implementing the ‘Buy Kenya Build Kenya’ initiative. It is seen in the automotive industry, with nearly all firms undertaking vehicle assembly being in business with the government. Particularly through the leasing programme. Mobius, it appears, was one of the few that missed out.

The vehicle, particularly the first edition, evoked the hardy land rovers that were once used by provincial administration to traverse difficult terrains as they delivered public service. While the firm had not been explicit about Mobius partnering with the government in such an area, it crossed the minds of many.

On hearing that the firm was closing shop, Principal Secretary, of Investment Promotion Hassan Abubakar said he had visited Mobius together with industry leaders and explored ways to resuscitate the company.

“Upon noticing the proposed voluntary winding up by Mobius Motors, together with chief executive officer Kenya Association of Manufacturers (KAM), we visited the leadership of the company… to understand the causes of the winding up. We explored corporate recovery, restructuring, and rescue mechanisms that can be exploited in such circumstances,” he said on his Twitter page.

“Going forward, we are coming up with a programme to assist such companies get strategic investors who are interested in distressed brownfield investment opportunities.”

But Kenyans reacted to his message, noting that the government had watched as the firm struggled. Many posed the question: “How many vehicles did the government buy from Mobius?”

“Where are rebates to support startups? How many Mobius vehicles did the Government of Kenya buy to support (the company)?” posed Kiprop Bundotich, the founder of logistics firm Buzeki Group, adding that the statement by the PS was for publicity and that many Kenyan firms have been forced to fold owing to the challenges they are facing with government doing little to intervene.

Mobius Motors may have also suffered access to capital from investors that has in recent years been drying up for companies in developing markets as investors take their money to the US where interest rates have been on the rise.

The firm had secured $56 million (Sh7.2 billion) from different investors over time, with some of its key funders being Playfair Capital and the US government’s Development Finance Corporation (DFC).

Chandaria Group, owned by the family of Mahesh Chandaria, had also acquired an undisclosed stake in Mobius Motors.

The flow of investor funds to frontier markets has however slowed down in recent years, which has seen several startups that had made inroads in Kenya and Africa close shop or significantly slow down operations.

The drop in investor interest, analysts have in the past said, has been due to higher returns that the US is offering following the hike in interest rates.

The failure of Mobius speaks to a local auto industry that has been trying to rebuild but now needs to re-strategise considering the challenges of the high cost of producing locally and the ever-growing imports. The emerging electric mobility could be an opportunity but one that will present a different set of challenges for the local auto industry.

Kenya’s auto manufacturing industry is among the sectors that have had a glorious past.

At its peak in the 1980s, it produced over 80 per cent of the vehicles that were sold in the local market. It would, however, decline to today’s 10 per cent of the vehicles that Kenyans are buying.

In 1983, for instance, the local industry produced 87 per cent of all cars sold in the local market, leaving imports to cater just for 13 per cent of the market.

For the industry to peak in the 1980s, the automakers had been building capacity since independence, especially in the 1970s when the Associated Vehicle Assemblers, General Motors and Kenya Vehicle Manufacturers set up plants in the country. Volkswagen had been producing its Beetle in the country in the 1960s until the 1980s.

“Kenya’s motor vehicle industry growth reached its peak in the 1980s by which time, the country boasted of three major assembly plants producing about 13,000 vehicles and a relatively vibrant parts manufacturing sub-sector,” said the Ministry of Industrialisation in the National Automotive Policy that seeks to restore this lost glory.

“A memorable milestone to date was the local production of the Nyayo Car in 1987.”

The growth of the automotive industry was slowed by the liberalisation of the automotive sector which allowed cheaper imported second-hand vehicles and parts. Since then the vehicle assembly industry has struggled to stay afloat.

The opening up of the industry to imports saw the government drop local content requirements as long the importers paid a duty of 25 per cent.

The spare parts manufacturers whose lifeline depended on a protected market saw many entities gradually close shop.

“By mid-2000s, many local content manufacturers had closed shop,” notes the Ministry.

In the National Automotive Policy, the Ministry has an ambition of scaling up local production and assembly of motor vehicles.

The policy that was mooted in 2022 was expected to increase local vehicle production to 20,000 within the first two years of implementation but appears to be falling behind.

The policy also proposes a phased ban on the importation of fully built units starting with commercial vehicles.

This is already taking place, with a recent decision by the Kenya Bureau of Standards (Kebs) to ban the importation of used buses and trucks.