Strong Momentum of Pakistan’s Automobile Sales: Breaking Through the Local Supply Dilemma

By Mariam Raheem | Gwadar Pro Sep 2, 2022

LAHORE, Sept 1, (Gwadar Pro)- Owing to the gradual opening of economic activities from Covid-19 pandemic and other contingency measures coupled with the vaccination drive, Pakistan witnessed a significant increase in both production and sales of passenger cars in FY2021-22. According to incomplete statistics of PAMA, Pakistan produced 226,433 passenger cars in FY2021-22 with sales volume of 234,180 units, up about 49%, 55% from 151,794 and 151,182 units in FY2020-21, respectively.

Industry insiders believe that the future of Pakistan’s auto industry is bright as more international auto players enter, bringing advanced equipment and technology. However, due to economic conditions such as inflation and power shortages, import restrictions and natural disasters, they pointed out that production and sales growth would slow or even decline in the current fiscal year. They also stated one of the most important factors determining the continuous and high growth of local automobile production in Pakistan is the perfect supply of spare parts.

Multiple factors contributed to the increase in production and sales

According to the Pakistan Economic Survey 2021-2022, during July-March FY2022, LSM staged the growth of 10.4 percent against 4.24 percent growth in the corresponding period last year.  Automobile remained one of the top performing sectors of LSM. There are multiple reasons for the increase in car production and sales.

Sohail Nasir, editor of Mobile World said in a recent interview with Gwadar Pro that the entry of Chinese automotive companies has contributed significantly to the landmark production of the Pakistani automotive industry. He cited the excellent performance of Chinese car brands such as Changan, Chery, MG, Changcheng, DFSK which continue the Chinese legacy  generating their share in the market where the 30-year-old model was in place already.

Engr. Asim Ayaz, General Manager(Policy/Admin/Coordination), Engineering Development Board(EDB) underlined that the reason is Pakistani government has announced Automobile Industry Development and Export Plan (AIDEP) 2021-26 to encourage local manufacturing of vehicles.

“More and more enterprises that need to go abroad are realizing Pakistan’s unique location and labor advantages.” Engr. Asim Ayaz added, “China, as Pakistan’s all-weather strategic partner, shares a border with our country and has stable policies to ensure that the supply chain will not be disrupted. The growing presence of Chinese companies has played a catfish role in invigorating the Pakistani car market.”

New energy vehicle forces on the rise

On 14 August, the first locally produced electric car was launched through the collective efforts of Dice Foundation, universities and the private sector in Karachi. Pakistan’s first ultra-rapid DC charging station for electric vehicles was inaugurated in Karachi 2 months ago. Dice Foundation Chairman Dr Khurshid Qureshi said the revolution of electric vehicles is making its way in the global auto industry and Pakistan has also taken the first step in this regard.

The recent rise in gasoline prices has led to a decline in demand for gasoline vehicles. In the long run, the most effective way to deal with climate change is to use new energy resources. Pakistan is a country heavily affected by climate change, and the promotion of new energy vehicles is of greater significance to Pakistan.

China has a core advantage in developing electric vehicles and Chinese companies have come in and invested in Pakistan as well as evaluating the market. For example, BYD China, the world’s leading electric vehicle manufacturer, has collaborated with Pakistan’s Sapphire Group for the market development and manufacturing of electric vehicles in Pakistan.

Imperative to improve the local parts supply chain

There are about 1,600 auto parts suppliers in Pakistan, of which about 400 are first-tier suppliers and are suppliers in the OEM market. Pakistan imported auto parts & accessories worth US $527 million during FY2021-22 against the imports of $406 million during FY2020-21, showing a growth of 29.74 percent, according to Pakistan Bureau of Statistics (PBS). Pakistan exported auto parts & accessories worth US $69 million during FY2021-22 against the exports of $51 million during FY2020-21, showing a growth of 33.73 percent.

Achieving maximum “Made in Pakistan” in the automotive industry is driving the country’s overall economic development. Importing auto parts incurs significant costs and delays, and localizing auto parts production will not only reduce costs, but also involve more labor. Pakistan’s difficulties in making car parts can be traced back to a shortage of raw materials upstream and high energy tariffs.

Abdur Razzaq Gauhar, Chairman of Pakistan Association of Automotive Parts & Accessories Manufacturers (PAPPAM) said foreign companies coming to Pakistan are mainly engaged in CKD assembly and cooperation in component manufacturing should be strengthened. He called on Chinese companies, Japanese companies and other global companies to come to Pakistan to set up factories and spread parts manufacturing skills locally.

Nasir Sohail believes China-Pakistan Economic Corridor (CPEC) offers immense opportunities for the development of auto parts. SEZs under CPEC are in full swing and more Chinese companies plan to set up assembly plants there.

Servis LongMarch (SLM), a Pak-China joint venture set up Pakistan’s first all-steel radial truck/bus tyre plant in Karachi, where monthly output has reached a respectable figure. “Automobile collaboration is only a small part of CPEC, other related upstream and downstream industries including materials and manufacturing will flourish and eventually localize the entire component sector.” Nasir Sohail concluded.

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