Automobile Industry: Beyond the Junction

Embracing New Energy Vehicles

Last month, the Federal Ministry of Industries and Production unveiled Pakistan's New Energy Vehicle (NEV) policy for 2025-2030. This initiative marks a pivotal moment for the nation's automobile sector, setting ambitious targets to encourage a widespread transition towards environmentally friendly vehicles. The primary goal is to decarbonize Pakistan's transport sector. Reinforcing this commitment, the government has introduced an NEV levy on all Internal Combustion Engine (ICE) and Hybrid Electric Vehicles (HEVs), signaling a clear strategic push for greater Electric Vehicle (EV) adoption across the country.

Decade of Transformation and Persistent Roadblocks

Over the past decade, Pakistan's automotive industry has seen significant progress. The Automotive Development Policy (2016-2021) was instrumental in attracting numerous international players, effectively dismantling the long-standing dominance of the traditional "Big Three." This surge in competition led to the introduction of a wider variety of vehicles, particularly filling the gap in the C-SUV segment, which was previously absent from the local market. Further bolstering growth, the Auto Industry Development and Export Policy (2021-2026) mandated compliance with global safety and security standards and required a portion of production to be earmarked for export.

Despite these commendable advancements, the industry continues to grapple with several critical challenges. Persistent issues include escalating production costs, consistently low production volumes, frequent delays in vehicle deliveries, and a pronounced vulnerability to external economic pressures such as exchange rate fluctuations and import restrictions. These factors collectively hinder the sector's potential for sustainable expansion.

Affordability Crisis and Untapped Segments

While the Pakistani automotive market now offers a range of vehicles in the B segment and above, alongside a recent increase in hybrid C-SUVs, the entry-level A segment remains largely underserved. The continuous upward trend in vehicle prices has severely impacted the average citizen's ability to afford automobile ownership. Presently, even the most basic 660cc engine-capacity vehicle exceeds Rs three million, rendering the cheapest available options unaffordable for the majority of the population. Consequently, the automobile industry's consumer base is significantly narrowed, primarily due to pricing constraints.

Navigating Policy Dilemmas

While the government's commitment to aligning with global efforts to decarbonize road transport through increased EV usage is laudable, the implications for ICEV and HEV ownership costs in Pakistan pose a significant challenge. Vehicles in Pakistan are already subjected to substantial taxation, compounding high production costs and severely limiting vehicle ownership rates. Despite an annual production capacity exceeding half a million units, actual production typically hovers between 200,000 and 250,000 vehicles, even in favorable years.

The new NEV levy, by further increasing the cost of ownership for ICEVs and HEVs, risks further reducing vehicle affordability. Given that EVs are inherently more expensive due to their advanced technology, they remain accessible to an even smaller segment of the population. This scenario places the automobile industry at a crucial crossroads: while the government champions EV adoption, these vehicles are often financially out of reach due to their high upfront costs. Simultaneously, ICEVs and HEVs, which still command relatively high demand, have faced successive price hikes and are now subject to additional taxation, potentially eroding consumer affordability and subsequently impacting demand.

So, how must the automobile industry respond to this complex situation?

Strategies for Sustainable Growth and Affordability

To overcome these hurdles, the automobile industry must prioritize aggressively increasing production volumes to achieve economies of scale, which is crucial for reducing sale prices. While some localization of automotive parts has occurred, it largely remains confined to low-value, low-tech components. High-tech and high-value parts, such as engines, transmissions, and advanced digital features, continue to be entirely import-dependent. A significant barrier to localizing these sophisticated components is the low production volume; an annual output of at least one million vehicles in Pakistan is necessary to make investment in high-tech and high-value parts manufacturing financially viable.

Therefore, the industry must actively seek integration into the global value chain for automotive parts produced in Pakistan. This strategic move would enable increased overall production to levels that justify investment in high-tech and high-value components domestically. Exporting both automotive parts and complete automobiles would further allow the industry to lower per-unit costs, ultimately making vehicles more accessible and affordable for a broader segment of the population.

Innovation as the Catalyst for EV Adoption

As the Government of Pakistan aligns with global sustainability initiatives to electrify road transport, it is imperative that the automobile industry implements measures that make EVs not only financially viable but also a practically attractive choice for prospective buyers. Beyond simply reducing upfront costs through optimized production and economies of scale, the industry must significantly invest in Research and Development (R&D).

R&D efforts should focus on innovative solutions to mitigate the barriers hindering the shift towards EVs. The most prominent barrier is undoubtedly the initial purchase price, which necessitates developing methods for lower-cost battery production to bring down overall vehicle prices. Furthermore, to address consumer "range anxiety," R&D must strive to maximize travel distance from smaller battery capacities and significantly reduce charging times, thereby paving the way for widespread EV adoption in the country.

Achieving the EV transition targets outlined in the NEV policy 2025-2030 requires robust industry-academia collaboration for R&D and innovation. This is not merely about making vehicles affordable for the public but also about securing and fostering the long-term growth of the industry within Pakistan.

The Path Forward

The automobile industry stands at a critical juncture, facing a difficult but ultimately clear path ahead: it must innovate and dramatically increase production. The objective is to make all types of automobiles – be they ICEVs, HEVs, or EVs – affordable for a larger proportion of the country's population, securing a sustainable and inclusive future for Pakistan's automotive sector.