Future of local auto industry

Mansoor Ahmad
Tuesday, Sep 19, 2023

LAHORE: The debate that vehicles in Pakistan are expensive because the expensive and critical parts have not been localised, may be true, but times have changed. Combustion based technology is fading and it is time to move to electronic vehicles.

The decision to invest in producing critical parts for conventional vehicles in Pakistan should be carefully considered within the context of our economic and industrial development goals, as well as the global automotive market trends. Conventional vehicles pollute the atmosphere and Pakistan is committed to reduce pollution.

It is important to acknowledge that the automotive industry is undergoing a significant transformation, with a growing emphasis on electric vehicles (EVs) and sustainable transportation solutions.

Many developed countries and major automakers are actively transitioning toward EV production. Pakistani planners should be aware of this global shift and consider aligning their strategies with the changing automotive landscape.

Government planners should evaluate the economic viability of investing in the production of conventional vehicle parts. This should include a cost-benefit analysis, taking into account factors like production costs, competition, potential export markets, and the expected lifespan of conventional vehicles in the region.

We have seen that the domestic auto players have stopped investing in any critical parts because they realise that the amortization cost of the dies and moulds of these parts would not be possible due to the fading demand for conventional vehicles. Since the demand for conventional vehicles is expected to fade after a decade, importing these parts is a better option.

There is no doubt that the demand for conventional vehicles would keep local assemblers busy for a while because the EV vehicles are very expensive mainly because of flaws in government policies.

There are EVs in the global market that cost less than the small car segments of 600-1000cc cars. These EVs are produced by China, the largest manufacturer of both EV and conventional cars, though the proportion of EVs is sharply increasing. Small EV variants with passenger capacities equivalent to 600 and 1000cc cars are available in CBU at Rs2.6 million. After adding 25 percent custom duty and 18 percent sales along with 6 percent regulatory duty, the landed cost moves to Rs4.2 million.

These small EVs cost Rs4.50 per km when recharging cost of batteries is included. In comparison the small 660cc conventional vehicle costs Rs18 per km.

In this, factors such as consumer preferences, government policies (such as incentives for EV adoption), and infrastructure development (charging stations for EVs) will help determine the market potential for conventional vehicle parts.

We have seen that despite incentives announced for establishing local EV plants, no investor has come forward. To promote EV vehicles, the government would have to halve the taxes on small EV cars so that they become cheaper than similar conventional cars.

A Rs3 million EV car doing 220km in one charge would replace Rs4-4.5 million conventional car. As these cars start coming in large numbers, the issue of few charging stations would also be resolved.

Moreover, it would put pressure on conventional car assemblers to bring their EV technology to Pakistan.

As EV technology advances and becomes more affordable, the demand for conventional vehicles may decline further. It is crucial to factor in the potential for obsolescence and stranded investments.

Conventional vehicles with internal combustion engines contribute to air pollution and climate change. Pakistan must align its industrial strategies with global efforts to reduce greenhouse gas emissions.

Instead of solely focusing on conventional vehicle parts, planners must explore opportunities in industries related to clean energy, renewable resources, and advanced manufacturing technologies, including EV components.

Both public and private sectors must explore opportunities for collaboration with global automakers and EV manufacturers. Many international companies are looking to invest in EV production facilities in developing markets. Collaboration could provide access to advanced technologies and global markets.