The missing scale in Pakistan’s auto ambition

Pakistan’s proposed automotive policy emphasises localisation, exports and job creation. These are worthy objectives, but policymakers should first ask whether any country has built a competitive automobile industry by dividing a modest market among numerous makes and models without sufficient scale or a strong upstream industrial base.

Successful automotive countries generally possess at least one of four advantages: a large domestic market, substantial exports through favourable trade agreements, competitive steel and engineering industries, or integration into a major regional supply chain. Pakistan has not developed any of these advantages strongly enough to offset its fragmented domestic demand, and continued model proliferation.

Slovakia and Morocco show that a small domestic market need not prevent success—but not that scale is unimportant. Slovakia, with 5.5 million people, produces roughly one million vehicles annually for Europe. Its plants draw on the European Union’s integrated steel, petrochemical, engineering and logistics ecosystem and about 350 automotive suppliers, while each plant produces selected models in high volumes.

Morocco lacked a comprehensive auto-grade steel, petrochemical and engineering base, yet Renault and Stellantis now lead an industry whose exports reached about $17 billion in 2024. Morocco compensated by concentrating production around two anchor manufacturers, building export-oriented plants, investing in ports and rail, securing preferential access to European and African markets, and attracting component suppliers. Installed capacity is already around one million vehicles.

Morocco therefore demonstrates that missing upstream inputs can be overcome through export scale, efficient logistics, concentrated production and access to major markets. Its experience differs materially from Pakistan’s: production is concentrated around a small number of export-oriented assemblers, while Pakistan’s market is divided among more assemblers, including some operating at low volumes behind high tariff walls. Morocco also benefits from lower energy and business costs.

Engines, transmissions, electronics and safety systems account for much of a vehicle’s value and require specialised materials, precision engineering, intellectual property, testing and scale. Even simpler parts need expensive dies, moulds, tooling and certification whose fixed costs cannot be recovered competitively over small production runs.

Pakistan’s lack of locally produced auto-grade steel, engineering plastics and specialised petrochemicals compounds the problem. Imported materials can be used, but freight, inventories, energy costs and exchange-rate volatility leave local components disadvantaged against parts made near major suppliers and assembly plants.

Localisation therefore remains concentrated in tyres, batteries, seats, glass, wiring harnesses and simpler metal or plastic parts, often themselves reliant on imports. A higher nominal localisation percentage does not necessarily mean equivalent domestic value addition.

Yet suppliers that invested in moulds, dies, testing equipment and other specialised assets under earlier policies should not be abandoned abruptly. Their assets, frequently tied to particular assemblers and models, cannot always be redeployed when protection falls or demand shifts. The shift from ICE to NEVs compounds the problem.

This does not justify preserving inefficiency indefinitely. Temporary, declining support should help capable suppliers retool, gain international certification, serve multiple platforms and enter export markets. Accelerated depreciation, concessional retooling finance and testing support should be conditional on published productivity targets, certification milestones, export performance and a fixed timetable for reducing assistance.

The employment argument also requires scrutiny. Automobile assembly is capital intensive and increasingly automated. Slovakia’s proposed Volvo plant, for example, targets about 250,000 vehicles with just 3,300 direct jobs. In Pakistan, the three largest established assemblers together employ fewer than 10,000 people directly.

Employment in most successful automotive industries arises outside assembly, in components, tooling, electronics, logistics, software, testing, maintenance and repair. The relevant measure is additional productive employment from local manufacturing relative to its cost to consumers. The cost to consumers might be defensible if protection were likely to produce a competitive automotive industry. After four decades without that outcome, the case for continuing this burden is difficult to sustain.

Pakistan’s automotive history is not an unqualified failure. Assemblers and suppliers have developed technical skills, production discipline, quality control, tooling and managerial experience. This must be redirected from fragmented, low-volume assembly, towards activities that can achieve scale. Two opportunities stand out.

The first is replacement parts. Pakistan’s installed base of about five million cars creates recurring demand across models and production years, allowing suppliers to spread tooling, certification and distribution costs over a larger market than any single new model can provide. Filters, brake and suspension components, radiators, batteries, rubber products, lighting and selected electrical parts may therefore offer better prospects than localising engines or transmissions. Suppliers could also serve motorcycles, tractors, commercial vehicles, agricultural machinery and, where standards permit, defence production.

The second is a genuinely affordable small car. Pakistan needs safe, economical and durable transport that a broader population can buy, operate and repair, not more lightly differentiated models for a narrow upper-income market.

This should not become a government-designed “national car” or another permanently protected assembler. Government should define the outcome and invite competition, encouraging one or two high-volume platforms with standardised components usable across manufacturers, as also in the replacement market.

The car should be fuel-efficient, perhaps a hybrid, suitable for local roads and climate, inexpensive to maintain, and compliant with credible safety and emission standards. But a small engine alone will not ensure affordability if sales taxes, registration charges and financing costs remain high, or production volumes remain low.

Fiscal concessions should be transparent, time-bound and conditional on declining real prices, rising volumes, measurable domestic value addition and eventual exports. Otherwise, an affordable-car programme could become another transfer from consumers to protected manufacturers.

Concentrating demand on a few platforms would lengthen production runs and allow common tooling and parts to serve more vehicles, reducing unit costs, inventories and replacement-part prices. It could also produce a robust, economical vehicle suited to other developing markets, offering a more credible export route than immediate competition in sophisticated global segments.

Pakistan must decide whether automotive policy is intended primarily to broaden the range of locally assembled vehicles or to deliver affordability, meaningful localisation, exports, external-account relief and productive employment. If the latter objectives take priority, the proposed approach spreads limited demand and policy support across too many models to offer a credible prospect of success.

A narrower strategy—supporting competitive replacement parts and a genuinely affordable small car—may appear less ambitious. But delivering affordable mobility, viable component manufacturers and a pathway to exports would achieve far more than another expansive policy whose objectives remain beyond the industry’s scale and capabilities.

Copyright Business Recorder, 2026