The Auto Industry Development Plan (AIDP 2026), which is predicted to be finalized by the first week of August, provides grounds for an expansionary cycle for the sector with new entrants coming in and existing players embarking on expansion. Although, the primary framework of the policy has been enlisted as part of the Federal Budget 2021/22.
The policy does not imply differences between a new entrant and an existing player, making a level-playing space for all. That said, the privileges are concentrated on hybrids and electrical vehicles where Indus Motor, Pak Suzuki, and Honda Cars are ready to make impressions.
Asad Ali at KASB Securities said, “The policy with relevant benefits is looking to set up Hybrid Electrical Vehicles (HEV) and Electrical Vehicles (EV) plants, which may invite ‘Japanese 3’ and ‘Korean 2’ to investment into HEV, effectively boosting the industry capacity by 54 percent in our view. We foresee sector volumes to reach 264,000 units and 291,000 in FY22 and FY23, respectively.”
He added, The concessions for the HEV and EV segment in the AIDP-2026 will disclose the ability of the auto sector and will set the groundwork for further investments by manufacturers. He also revealed that 15 new vehicle models will be launched in the upcoming days and with that, the demand for spare parts, particularly for HEVs and EVs, is at its peak.
Toyota Indus Motor Company (IMC) is expected to be a first-mover in Pakistan’s HEV segment to venture on the concessions and to add value to its lineup.
The Pakistan Suzuki Motor Company (PSMC), which was previously planning to expand by 100,000 units, is most likely to eventually act on the decision, while Honda Atlas Cars (HCAR) will probably follow up on its City Hybrid schedules.
Kia and Hyundai may likely roll out their electrical vehicles and PHEV lineup, which is the main focus of the company strategy globally.
The government has targeted the affordability of entry-level vehicles by scrapping off exorbitant taxation. Referring to the concessions, the manufacturers have reduced car prices to 85,000 from 155,000 for cars up to 1000cc. The automotive sector is buzzing with the concessions in duties and taxes;
♦ The federal excise duty is slashed 2.5 percent across the board effectively eliminating it for vehicles under 1000cc,
♦ Sales tax is being lowered to 12.5 percent from 17 percent for vehicles under 1000cc.
♦ A marked reduction in the import of Completely Knocked Down (CKD) duty for new vehicles launched under 850cc to 15 percent from 30 percent,
♦ Reduction in the Customs duty on sub-assemblies to 10 percent from 20 percent, and
♦ Reduction in the sales tax to 8.5 percent for HEVs under 1800cc and 12.75 percent for 1800cc plus vehicles.
The Electric Vehicles Policy could prove to be a game-changer for the automobiles division, as this will entice new players to set up automobile manufacturing plants in Pakistan. Analysts expect the AIDP 2026 should establish grounds for long-term investment. It can further bring emphasis to HEVs and EVs from the formal Internal Combustion Engine (ICE) vehicles that will provoke growth from the domestic Original Equipment Manufacturers.