Islamabad:
The automotive industry is undergoing a tectonic shift, transitioning from over a century of internal combustion engine (ICEV) dominance to electric vehicles (EVs).
As a first-timer, China has taken an insurmountable lead and now produces twice as many electric vehicles as the US and EU combined. Unable to compete, President Biden recently quadrupled tariffs on Chinese electric vehicles to 100%.
Similarly, the EU is considering imposing countervailing tariffs of 30-50% on Chinese electric vehicles. However, unlike the US, the EU follows due process and acts according to WTO rules.
Several developing countries are now emulating China’s policies to build EV production capacity. Thailand and Indonesia have already exceeded annual production capacity of 250,000 EVs each.
India recently unveiled a new EV policy, offering several incentives to any EV manufacturer that pledges a minimum investment of $500 million.
Meanwhile, Morocco, a newcomer to the automotive scene, is ambitiously targeting a significant share of the EV export market. Capitalizing on its favorable free trade agreements with the EU and the US, along with its strategic geographic location, it has quickly emerged as a hub for automotive exports.
Starting from zero exports about 15 years ago, Morocco’s car exports are set to exceed $14 billion in 2023.
Despite announcing a multi-incentive electric vehicle policy five years ago, Pakistan has not attracted investors to assemble electric cars. The small size of the domestic market, the localization requirements and the significant initial investment required can be substantial deterrents.
The three existing major assemblers have also shown no interest in moving towards EVs or making any effort to increase their capacity utilization to capture export share.
The Special Investment Facilitation Council (SIFC) recently instructed the Ministry of Industries to make import quotas for car kits conditional on the achievement of certain exports. The assemblers’ response was that import dependence on exports is illegal under WTO rules.
If the auto industry is not making efforts to achieve even a minimum level of exports and is not interested in adopting EV technology, the government should look for a new approach.
Whether we have our own EV assembly facility or not, it is in our best interest to accelerate the transition to electric cars. These are at least four times more energy efficient and do not require regular maintenance as they contain one hundredth of the moving parts compared to an internal combustion engine. This change could save the country billions of dollars in fuel and auto parts.
In the past, the cost of electric cars was much higher, but now some electric cars, such as China’s BYD Seagull five-door EV with a range of 405 km, are sold at about $10,000, which is lower than the CKD kits of our current cars.
Among other advantages, they will be an important factor in reducing pollution and health care costs. At the current level of carbon dioxide emissions, our major cities have become unlivable.
Lessons can be learned from countries that pursued policies of localization and high tariff protection for decades, only to abandon them later due to their detrimental economic effects on the overall economy.
Australia provides a well-documented example. After four decades of trying to boost the competitiveness of domestic industry through high tariffs and localization, they discovered that these strategies led to market fragmentation, higher costs and prices, and lower national income.
Instead of encouraging technical innovation and increasing employment in the automotive sector, these policies stifled technological progress and reduced jobs in the production, distribution and repair of automobiles.
Pakistan has the potential to become competitive in non-automotive sectors, particularly two-wheelers and three-wheelers, tractors and buses, which are relatively easier to convert to electric technology. These sectors have already achieved significant localization and are beginning to penetrate export markets.
For example, Pakistan exported 25,000 motorcycles last year and is projected to export over 4,000 tractors this year. While traditional leading motorcycle exporters such as the US, EU and other developed countries are facing a decline in exports of these vehicles, developing countries such as Vietnam and India are capturing market share.
Pakistan has a promising opportunity to expand into the export market for these vehicles, provided it can significantly enhance its collaboration with Chinese companies to leverage modern technology.
If we aim to turn over a new leaf and optimize our limited resources, it is imperative that we start with a new approach. Instead of persisting with the antiquated car policy of high tariffs and localization, which impose heavy costs on consumers and the overall economy, we need to align our policies with those of other successful countries.
The author is currently serving as a senior fellow at the Pakistan Institute of Economic Development. Previously, he was Pakistan’s Ambassador to the WTO and FAO Representative to the United Nations
Published in The Express Tribune, June 10u2024.
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