The automotive industry in Pakistan continues to grapple with a challenging landscape amid elevated interest rates and high inflation. The concerning trend of rising CBU imports persists; they are up 7.8x YoY in 1HFY24. Current industry utilisation stands at approximately 22%. However, demand is expected to gradually rebound with easing inflationary pressures and the onset of monetary easing.
Automotive industry sales totaled 9,379 units, posting a decline of 3 %MoM and 1%YoY. This brings 9MFY24 sales to 69,078, reflecting a 38%YoY contraction.
Car production also experienced a downturn, dropping by 9 %MoM, potentially indicating weak demand in the coming months. Additionally, production figures may have been impacted by INDU’s 6-day plant closure during the month.
INDU: The company faced a second consecutive fall in monthly sales figures, declining by 16 %MoM. The reason for the decline in sales is that the luxury segment (Fortuner and IMVs) continued to lag, declining by 43 %MoM. This will likely have a negative impact on margins in 3QFY24.
PSMC: The company posted a 16%MoM and 27%YoY decline in sales. Swift displayed the weakest performance, down by 79 %MoM. The unwillingness of the Company to reduce prices may have started to impact demand. However, higher margins will likely continue to bolster the bottom line.
HCAR: The company witnessed a 44%MoM and 162%YoY surge in sales, primarily driven by sedan sales. BR-V and HR-V also showed robust growth sequentially. However, the absence of any Honda SUV production during the month signals diminishing demand, underscoring the company’s weakness in that segment.
Tractor industry: Tractor sales reached 4,608, marking an increase of 37%MoM and 54%YoY. This brings 9MFY24 sales to 35,199, up 66%YoY. The strong growth in this segment indicates that Pakistan’s agricultural sector remains a bright spot in an otherwise challenging macroeconomic environment. MTL outperformed AGTL sequentially, with a 40% sales increase compared to AGTL’s 31%.
The Engineering Development Board (EDB) recently issued licenses to 34 manufacturers of electric vehicles as part of the Electric Vehicles Policy for 2020-25, signaling a transition from conventional fuel-powered cars to electric ones.
During a webinar hosted by the Sustainable Development Policy Institute, Asim Ayaz, a senior EDB official, discussed the financing challenge for customers due to the higher costs of electric vehicles, primarily driven by battery expenses. To address this issue, the ministry proposed the installation of EV charging stations at all petrol stations.
Ahmed Sajeel from Deewan Motors BMW noted the initial resistance of Japanese car manufacturers towards electric vehicles but acknowledged that the global shift towards EVs has rendered such resistance unsustainable.
He stressed the importance of infrastructure development alongside EV adoption, proposing that local manufacturing, leveraging Pakistan’s abundant raw materials like silica, is the way forward.
The move towards electric vehicles represents a significant stride in addressing escalating fuel prices and curbing carbon emissions. However, ensuring affordability and establishing a robust charging infrastructure are crucial elements of this transition.
According to industry experts, the automotive industry which aimed at achieving half a million cars production target in the past is currently producing less than 150,000 units at present. A little deeper probe indicates that both the Government of Pakistan and the auto assemblers could be held responsible for the prevailing dismal conditions.
In an attempt to grab a larger share of a disappointingly small market size, OEMs keep on introducing new variants. As a result percentage of the imported components is on the rise. This not only puts pressure on the limited foreign exchange reserves of the country but deprives the local vendor industry of playing their due role.
The persistent decline in sales of the vendor units also highlights another anomaly; they are not allowed to sell their output to the replacement market. If one visits the auto parts market in any city, it is flooded with smuggled items. However, to deceive law enforcement agencies packing have names of various countries. Experts also say that there is criminal misuse of the Afghan Transit Trade Facility. The parts imported under this facility hardly leave Pakistan.
Another group of analysts say that ironically over the last 75 years, Pakistan has not been able to have efficient basic steel and plastic manufacturing facilities. On top of that, there is a minuscule difference in the duty rates of raw materials and finished products. Therefore, it is almost impossible for the local vendors to compete with the products mostly coming from Far Eastern countries.
Some cynics say that assemblers, enjoying strong negotiation powers have neither played any role in the development of the local vendor industry nor exporting the required number of units.
This reminds the buyers that in the past assemblers were making cars according to minimum acceptable standards and still not producing according to international standards.