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Positive prospect seen in Pakistan automobile sector

Things finally seem to be looking good for the automobile industry, especially after the downfall caused by Covid-19. Domestic car production grew at a cumulative growth rate of 10% approx. over the past six years while weak demand due to challenging macroeconomic environment lead to a sharp decline in production in FY-20. Due to continuous slowdown in demand, all local auto manufacturers observed several non-production days in order to rationalize operational costs and maintain optimum inventory levels. Given stringent import policies being pursued by the government, car imports have declined considerably over the last two years while share of imported cars in the industry reduced to 12%.

Despite various challenges, launch of Suzuki Alto and Kia Picanto along with consumers’ shift towards low priced segments resulted in an increase in market share of 800-1000cc passenger cars in FY-20. Given recent decline in interest rates around 625 bps during four month period (March-June 2020), auto financing is expected to pick up in the medium term. Going forward, demand for auto and tractor sales is expected to rebound in 2021 and the same may emanate from the rural economy given the recent announcement of the agriculture package.

The Competition Commission of Pakistan (CCoP) describe Pakistan’s automobile industry as uncompetitive, however, with new entrants in race, it is expected that competition will enhance and industry will witness a shift in market structure in the long term. However, absence of incentives for players in AIDP-II will dent long term competitive dynamics in favor of new entrants. The government’s Electric Vehicles Policy offers huge incentives on account of duties and taxes for import of plant and machinery, electric chargers and CKDSs on 1% custom duty and exemption of GST. Above all 5 years income tax exemption for setting up of manufacturing facility for electric vehicles and its related equipment. All new companies will try to launch as many models as they can before the ADP 2016-21 policy ends. It is expected that the government will roll out the new ADP next year for passenger cars with a focus on electric cars.

Several local companies have started exploring the EV segment of local vehicle market, which is expected to recover soon after pandemic. M/s Jolta Electric (Pvt) Ltd. Lahore, which has already made significant investment in designing and development of EV specific equipment, has submitted its request to EDB for local manufacturing of electric bikes in Pakistan. Similarly, United Auto Industries, the second largest manufacturing brand in motorcycle segment is working in close coordination with EDB for launch of various electric versions of their motorcycles and scooters. Sazgar Engineering Works Limited has already manufactured electric three wheelers, whereas Crown Group of Companies Karachi has test marketed various electric 2-3 wheelers and are expected to shift to their local manufacturing soon. Electric motorcycles of Eiffel Industries Ltd (Road Prince) will also be launched in the local market soon. Apart from this, several companies are contacting EDB and are aligning for manufacturing of electric 2-3 wheelers. As a result of this initiative, the adverse impact of pollution on environment will reduce whereas operating and maintenance cost of vehicles will also be reduced. Introduction of EVs in local market will be beneficial in providing additional employment for the talented youth in automobile sector of Pakistan.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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