- New players like Kia and Hyundai boosting competition; local parts production grows while EV adoption is slow
The automotive sector in Pakistan is a growing industry with a diverse range of players and is primarily focused on passenger vehicles, commercial vehicles, motorcycles, and agricultural machinery. In recent years, the monopoly of Suzuki, Toyota and Honda has come to an end as new players such as Kia, Hyundai, Changan, and MG have entered Pakistan’s market, bringing more competition and variety in terms of features and price. These companies are introducing both traditional and electric vehicles (EVs), though EV infrastructure is still underdeveloped.
Rising urbanisation, growing middle-class incomes, and increased demand for personal mobility have fuelled growth in the automotive sector. However, this demand is periodically influenced by economic challenges, inflation, and changing policies. Recently, auto financing may witness an uptick as State Bank of Pakistan (SBP) has reduced discount rate by 250 basis points. New entrants in auto sector may benefit from improved auto financing position due to reduced discount rates and higher ADR targets by banks. The Pakistani market has seen a growing preference for SUVs and crossover vehicles. With new models entering the market, these segments have gained traction, particularly among urban and affluent buyers. Due to high fuel prices, there is also a significant demand for affordable, fuel-efficient vehicles. The compact car and 800cc to 1000cc segments remain popular due to their cost-effectiveness.
Motivation
The auto sector is governed by various policies announced by the government from time to time like the Automotive Development Policy (ADP) 2016-2021, New EV Policy (2020) and Auto Industry Development and Export Policy (AIDEP) 2021-2026. These policies are aimed to encourage investment, promote competition, and expand the variety of vehicles available to consumers. They provide incentives for new entrants and localised production, resulting in the entry of several new automakers. These new policies aim to continue expanding the local automotive sector, increase localization, and encourage exports. They also set a target for improving the quality of locally produced vehicles and reducing reliance on imports.
Pakistan’s government has set ambitious goals to support the adoption of electric vehicles, targeting 30% EV penetration by 2030. The EV policy offers incentives like tax reductions on EV imports, exemptions from customs duty on charging equipment, and reduced sales tax for electric vehicles. However, the EV sector remains nascent with infrastructure challenges. The lack of widespread EV charging infrastructure and high initial costs have limited the adoption of electric vehicles, despite the government’s policy push. Many parts and components are still imported, making local manufacturing vulnerable to currency fluctuations and high import costs, which increases vehicle prices.
Challenges
There are various challenges being faced by the automotive sector of Pakistan. Despite growth, Pakistan’s car ownership rate is relatively low compared to other countries, with motorcycles being the more common mode of personal transport. Economic factors such as inflation, interest rate hikes, and fuel price volatility can impact consumer purchasing power and make it difficult for the industry to sustain growth consistently.
The government encourages the localisation of auto parts to reduce import costs and build a sustainable domestic industry. Local parts manufacturers are now supplying key components to major automotive companies, which has positively impacted job creation and skill development. However, local manufacturing still faces challenges in technology transfer, high production costs, and the need for further skill development and innovation.
As foreign players increase their investments, Pakistan’s production capabilities are expected to grow, bringing down costs and making cars more accessible to the broader population. With government support, the EV market is expected to grow gradually, especially as the infrastructure develops, battery costs decrease, and local assembly options expand. With more global brands entering the market, competition is likely to improve quality and increase choices for consumers. The focus on localisation may lead to cost reductions, which could help make cars more affordable.
The automotive sector in Pakistan has promising potential but must overcome infrastructure, economic, and policy-related challenges to achieve sustainable growth. With more global players and government support for innovation, Pakistan’s automotive industry may become more competitive in the coming years.