EVs: Light it up

The automobile industry in Pakistan is routinely thrust into controversy. At a demonstrably low car ownership rate, and a pronounced growth lag every few quarters, the market is small, and customers feel cheated. There is a growing discontent among car buyers on the essential monopolizing of the three OEMs and subsequently the lack of quality, variety and price competitiveness in vehicles that are being domestically assembled. Governments in the past have attempted, and failed, to nurture the market size until very recently when the previous incumbents were able to attract key investors (Kia/ Hyundai among others) into the market. Then came the EV policy—and naturally, a new controversy with it.

There is a certain seduction to electric vehicles which is not in any way unwarranted. In the Pakistani market, it could do wonders. Consumers will get more choice, and eventually enjoy a more affordable vehicle (once prices start to rationalize and given EV maintenance and usage is already substantially cheaper than internal combustion engines). The market will be disrupted with competition which will push automakers to innovate, and introduce consumer centric products that can rival their peers in terms of price, quality, feel, drive, longevity etc.

There are obvious environmental gains from reduced carbon emissions for which plenty of global evidence exists. Most importantly, in a country like Pakistan where the perennial deficit position in the current account continues to threaten macroeconomic stability, a slash in the import bill of fuels (which typically contributes the biggest share in total imports) would go a long way. Since the policy announcement, several major global players in EVs have shown interest to enter the enthralling Pakistani market. So, what is the problem?

Well, automakers are not happy. Domestic OEMs believe the policy will disincentivize their operations since EV imports will tilt favors towards the latter. There is a strong lobby opposing the approval of the EV policy for cars (current approval is only for 2/3 wheelers and buses) which may very well turn many potential investors away. This seems to be the ongoing controversy, but the government should know, without battery-run 4-wheelers, the future of EV in the country would remain inconsequential.

Then there are concerns about how/if EV demand will even materialize. If the government wants 30 percent vehicles to be run on batteries by 2030- though that seems far-fetched at this point- there are many important factors to consider.

One: EVs are expensive. Even with government incentives, they are at least double the price of combustion engines, of which batteries carry majority of the cost. Given how expensive cars in the country already are, and car penetration pretty low as a result (volumes have barely exceeded the 200,000 mark ever), creating an EV market could prove to be difficult.

Danial Malik, CEO Changan Motors agrees, but remains optimistic: “As true for any other new technology, pure EVs would be expensive in the beginning despite concessions”, he says. “But I believe, as international battery costs come down, the consumer could afford an EV in the same price range as a petrol run vehicle; but it would realistically take 5-7 years”. However, he emphasized the importance of government introducing an “aggressive” 4-wheeler policy without delays to begin vehicle electrification at least.

Second: There is the fear that new players will just import EVs at concessional rates and never enter assembly which would defeat the entire purpose of the policy. However, EV expert Riaz Haq argues that EV assembly is not difficult: “EVs have fewer parts than fossil fuel vehicles. They should be cheaper and easier for EV-makers to assemble and for EV-users to maintain [once bought]. The best option for Pakistan is to do joint ventures with Chinese companies that have substantial expertise in EV technology to leapfrog the entire process”.

That said, Danial warns that going into parts assembly would be “putting the cart before the horse” since a robust EV market is not established yet. “Everything is possible as long as it makes economic sense. Several countries have gone into battery and motors manufacturing but after achieving sustained volumes to absorb the intensive investment required to set up such plants”.

Third is infrastructure, including electricity challenges. It is possible that EVs may come but the charging infrastructure may not come fast enough. And if charging infrastructure comes, powering them may not. Granted Pakistan has ample electricity generation, but the actual challenge for the country is to provide uninterrupted distribution and transmission from the grid (read more “The E in EV”, July 14, 2020) to homes and industries. Undoubtedly, grid supply needs to be consistent and reliable.

Danial however, believes it’s an exaggerated risk: “I think, we are more concerned about charging stations than necessary. If one can charge their phone, they can surely charge their vehicle. The investment cost of charging station is also very little compared to petrol stations and charging stations can easily be installed at various locations unlike the latter”.

But even as these bottlenecks are being highlighted, there is optimism. The market is rife with news of upcoming EV brands and savvy car buyers are hopeful. To be fair, the question is not whether EVs will come or not, controversy and other challenges notwithstanding. But essentially, how fast they will grow, how many new investments they can garner on ground and how seamlessly EVs will fit into the automobile market in Pakistan. That is the true test, along which government interventions should lend focus.