The Policy With Relevant Concessions Eyed For Setting Up Hybrid Electric Vehicles And EV Plants May Invite ‘Japanese 3’ And ‘Korean 2’.

By Javed Mirza

The Auto Industry Development Plan (AIDP 2026), which is expected to be finalised by the first week of August, enables grounds for an expansionary cycle for the sector with new entrants coming in and existing players undertaking expansion.

“The Policy With Relevant Concessions Eyed For Setting Up Hybrid Electrical Vehicles (HEV) And Electrical Vehicles (EV) Plants May Invite ‘Japanese 3’ And ‘Korean 2’ to venture into HEV effectively increasing the industry capacity by 54 per cent in our view. We eye sector volumes to reach 264,000 units and 291,000 in FY22 and FY23, respectively,” Asad Ali at KASB Securities said.

The policy does not signify a distinction between a new entrant and an existing player making a level-playing field for all. That said, the concessions are focused on hybrids and electrical vehicles where Indus Motor, Pak Suzuki, and Honda Cars are ready to make strides.

“[The] PSMC had previously intended to expand by 100,000 units for a cost of $450 million. We think the plan is likely to be adopted with some inherent changes. On the other hand, INDU is expected to capitalise the AIDP 2026 with first-mover advantage into HEVs. The company has declared intentions to utilise the concessions for venturing into HEVs that can add to the company’s existing lineup and add to valuations.”

Lastly, HCAR may likely follow the footsteps with City Hybrid and capacity expansion. Kia and Hyundai may likely to roll out their electrical vehicles and PHEV line up, which is the core focus of the company strategy globally. Analysts expect the AIDP 2026 should set grounds for long-term investment. It can further bring in renewed focus to HEVs and EVs from the conventional Internal Combustion Engine (ICE) vehicles. “This should come in courtesy of large concessions for HEVs and EVs that are expected to be finalised by the first week of August 2021,”Ali added.

The Electric Vehicles Policy could prove to be a game-changer for the automobiles sector, as this will attract new players to set up automobile manufacturing plants in Pakistan. “We believe [the] launch of more than 15 new cars are expected, going forward, together with [the] arrival of new names in the automobile industry, which can become a key catalyst for some companies along with [the] demand of auto parts to increase drastically,” Arsalan Hanif at Arif Habib Limited said.

The automotive sector is abuzz with the concessions in duties and taxes. The federal excise duty is slashed 2.5 per cent across-the-board effectively eliminating it for vehicles under 1000cc; sales tax is being lowered to 12.5 per cent from 17 per cent for the same category. New vehicle prices have been revealed by assemblers, extending customers the relaxations announced as a part and parcel of the budget.

The government has targeted the affordability of entry-level vehicles by shaving off excessive taxation (taxes make up to 40 per cent of the vehicle price) on the auto sector. Citing the concessions, the manufacturers have reduced car prices by 85,000 to 155,000 for cars up to 1000cc. This has brought an indirect benefit of 9 per cent lower prices to the segment. This does not hamper the manufacturer’s margins and can likely translate to an uptick in volumes.

Interestingly, the major framework of the policy has been introduced as part and parcel of the Federal Budget 2021/22. This includes a marked reduction in the import of Completely Knocked Down (CKD) duty for new vehicles introduced under 850cc to 15 per cent from 30 per cent, reduction in the Customs duty on sub-assemblies to 10 per cent from 20 per cent previously, and reduction in the sales tax to 8.5 per cent for HEVs under 1800cc and 12.75 per cent for 1800cc plus vehicles.

The hybrids would also attract a reduced duty rate of 4 per cent from 30 per cent on HEV-specific parts. The main takeaways further include 1 per cent Customs duty on local assembly/manufacturing of electrical vehicles parts, reduced general sales tax of 1 per cent on electrical vehicles and zero duty on the import of plant and machinery for the electrical vehicles.

“Our understanding from available information with regard to AIDP 2026 is that it would prompt expansion from the domestic Original Equipment Manufacturers (OEMs),”Asad Ali at KASB Securities said.

This news was originally published at Bol News.