Auto policy: do not fix what is not broken

A new automobiles and auto parts manufacturing policy for 2026–31 is in the making. In the past three successive five-year policies, one end goal remained common: reaching 500k cars production per annum.

The target again is to reach the same magic number by 2031. So far, at best, the country has assembled two-thirds of it twice, only to fall back thereafter due to macroeconomic factors.

If the country cannot break this threshold, there must be solid reasons for it. The need is for all stakeholders, automobile assemblers, parts manufacturers, and the government, to come together and develop an unbiased framework to scale up the market. It is a win-win for all.

However, what is happening on the ground is infighting among different stakeholders. The pie has shrunk while more players are trying to grab a share of it. All are lobbying for their own agendas, which are conflicting. Everyone is trying to secure a bigger share rather than focusing on expanding the pie.

One stakeholder group consists of legacy players who want to juice the maximum out of their existing products. They do not want new cars, especially new energy vehicles (NEVs), to gain scale, as that would threaten their own survival. The market remained under the control of three assemblers for a long time, and now they are losing share to a few new entrants. They want to protect what they once had.

The second group comprises auto parts manufacturers whose primary demand is to enhance localization. And that should happen. Historically, they relied on legacy players and grew by manufacturing parts for their models. With new players entering the market, their share is declining, as localization remains low among the latest entrants. Instead of focusing on how to become part of the newer players’ value chains, they are pushing the agenda of the legacy players.

A better and long-term strategy would be to up their game and invest in technology to start making parts for NEVs. For example, someone making glass for ICE vehicles cannot necessarily make glass for cars with ADAS features. The same is the case for tyres, wire harnesses, and many other parts, as EV technology is more complex. They should instead be discussing duty structures to support localization of parts for NEVs. Instead, they debate NEV definitions and related issues. They appear confused and are fiddling with their own interests.

The third set comprises new entrants, mainly focusing on Chinese brands. This group can be subdivided into two: one includes Korean brands as well, while the other assembles only Chinese brands. Korean brands thrived under the 2016–21 policy, giving consumers choices in compact SUVs and capturing a chunk of the legacy Japanese market, mainly in internal combustion engine (ICE) vehicles.

However, Korean brands are now facing tough competition from Chinese players. Their newer models are struggling. That is why both major local players have partnered with Chinese brands to improve utilization of their assembly plants. However, they still seek support for HEVs to reap the benefits of the investments they have already made.

Largely, all players, except the legacy Japanese assemblers, are going to focus on Chinese brands, which have revolutionized the global automobile industry. They are superior in NEV technology while remaining affordable at the same time. Korean brands cannot compete effectively. Chinese companies are capturing markets across the globe, and in Pakistan they are changing market dynamics. A market that once relied on models scrapped in other countries now has access to the latest models. Assemblers are reducing prices and offering cars on installments as competition intensifies.

The momentum is positive. Almost all major Chinese brands are now in Pakistan, and they will continue increasing their market share because they offer options in ICEs, HEVs, PHEVs, REEVs, and EVs. The question is which segment to promote, and that depends upon the policy.

NEVs are expensive today and can only achieve penetration if duties and taxes are reduced. Right now, taxes are lowest on BEVs and REEVs and progressively higher on PHEVs, HEVs, and ICE vehicles. This appears to be a sensible policy, as duties and taxes are largely based on HS code classifications by the World Customs Organization (WCO).

According to seasoned auto strategist Asif Rizvi, all NEVs do not provide the same level of emission reduction or fuel savings, and therefore incentives should be structured accordingly, while keeping comparative concessions for auto parts manufacturers in mind.

There are conflicting views among stakeholders regarding the definition of NEVs and the level of support the government should provide. Their arguments are largely shaped by what they currently have in their product portfolios. The government, however, should do what is best for the country. NEVs reduce the imported fuel bill and lower carbon emissions, and therefore they should be supported. The decision regarding emission-based incentives should be left to environmental experts.

All players should come together to advocate for lower duties and taxes to make cars cheaper and move closer to the target of 500k cars by 2031. In 2022, when production crossed 300k units, car prices sharply increased due to PKR depreciation and a significant rise in taxes. The SBP imposed financing limits and discouraged car imports. That is hurting auto parts manufacturers because, with more than two dozen models in the market, scale cannot be achieved without expanding the pie, and localization will remain limited.

The other battle stakeholders should fight is against used car imports, as an active lobby is working in support of them and trying to benefit from all the confusion. It is difficult to ensure proper quality checks. Used car sellers do not build after-sales service networks and mostly dump products into the market. This results in lower job creation, while consumers suffer due to weak after-sales support and inadequate safety checks.

“The end goal should be the development of the local industry by maintaining a delicate balance between NEVs, ICE vehicles, and auto parts manufacturers,” as prudently summed up by Asif Rizvi.

Copyright Business Recorder, 2026