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Pakistan’s automobile industry, despite its strategic importance and market potential, continues to underperform. In 2025, the sector posted a 40% rebound in sales, driven by macroeconomic stabilization and interest rate cuts. However, this recovery masks deeper structural issues that threaten long-term sustainability especially in light of upcoming tariff reforms and the evolving electric vehicle (EV) landscape.
The 2026–2030 Tariff Reform: A Policy Inflection Point
The Government of Pakistan’s decision to reduce import duties on used vehicles to a maximum of 15% by 2030 is a pivotal policy shift. While this aims to democratize vehicle ownership and stimulate competition, it also risks undermining domestic manufacturing.
Local assemblers, already burdened by high input costs and limited localization, may struggle to compete with a surge of cheaper imports. Without a parallel industrial support framework, this liberalization could lead to:
Plant closures and job losses in the local auto and parts manufacturing sectors.
Reduced investor confidence due to policy unpredictability.
Increased trade deficit, as local production is replaced by imports.
EVs in Pakistan: A Market with Promise, Not Yet Prepared
Pakistan’s EV policy targets 30% of new vehicle sales to be electric by 2030. However, the current trajectory suggests this goal may be overly ambitious without significant policy and infrastructure support.
Key challenges include:
Brand Credibility: Most EVs launched in Pakistan are Chinese brands with limited global presence. Except for BYD, these brands are often backed by local partners with weak aftersales capabilities & raised concerns about long-term service and parts availability.
Infrastructure Gaps: Charging infrastructure remains sparse, especially outside major urban centers
High Electricity Costs: With electricity tariffs among the highest in the region, EVs may not offer meaningful cost savings to consumers.
These factors could delay mass adoption and erode public trust in EV technology.
Global Lessons: What Policymakers Should Note
Countries that have successfully liberalized their auto sectors did so with strategic foresight:
India: Gradual tariff reductions were paired with incentives for local manufacturing and exports. Today, India is a global hub for small car production.
Mexico: Leveraged NAFTA to integrate into global supply chains, becoming a top auto exporter.
Thailand: Offered consistent policies and localization incentives, earning the title “Detroit of Asia.”
The common thread? Tariff liberalization was never standalone, it was always part of a broader industrial strategy which we don’t observe in Pakistan’s case.
Current Policy Landscape: Mixed Signals
The 2025-26 federal budget introduced a Green Levy on internal combustion engine (ICE) vehicles, ranging from 1% to 3% based on engine size. While this is a step toward environmental sustainability, it coincides with:
Increased GST on small cars (e.g., Suzuki Alto), raising prices by up to Rs. 190,000.
Carbon levies on fuel, increasing operational costs for transporters and consumers.
These measures, though well-intentioned, may inadvertently reduce affordability for low and middle income buyers unless offset by targeted subsidies or financing schemes.
Structural Challenges That Persist
Even without the tariff shift, the industry faces systemic issues:
Import Dependency: Almost 40% of the components are imported, exposing the sector to currency volatility.
Policy Volatility: Frequent changes in tax and trade policy deter long-term investment.
Affordability Crisis: With average car prices exceeding Rs. 3 million, new vehicles remain out of reach for most Pakistanis.
Innovation Deficit: Local R&D and EV development remain minimal.
Policy Recommendations: A Strategic Realignment
To ensure the auto sector contributes to industrial growth, employment, and environmental goals, policymakers should consider:
1. Phased Tariff Reduction: Gradually lowering duties (10-~15 years) while supporting local capacity building.
2. Localization Incentives: Offer tax breaks and grants for increasing local parts manufacturing to 80%~90% in existing vehicles and/or initiating EV assembly.
3. EV Ecosystem Development: Highly incentivizing the investments in charging infrastructure, battery recycling, and grid integration.
4. Consumer Financing: Expand access to affordable auto loans, especially subsidized for EVs and hybrids.
5. Stable Policy Framework: Ensure consistency in auto policy to attract long-term investment.
Conclusion: From Protection to Progress
Pakistan’s auto industry stands at a critical juncture. The upcoming tariff reforms and EV transition could either catalyze transformation or deepen structural vulnerabilities. Policymakers must act decisively to align trade liberalization with industrial development, infrastructure investment, and environmental sustainability.
The road ahead is challenging but with the right policy mix, Pakistan can shift gears from stagnation to sustainable growth.
This exclusive article has been published in Automark’s August-2025 printed edition. Written by Syed Arsalan Ali