Yet another Auto Show! At the advent of this event, the auto sector stands at a crucial juncture and localization, for sure is no longer a slogan but a survival strategy — one that determines whether Pakistan will remain an assembly-based market or emerge as a manufacturing powerhouse.
As Pakistan’s economy shows early signs of stabilization, the automobile sector is once again finding its footing. After two years of contraction triggered by high inflation, currency depreciation, and import restrictions, the industry is now witnessing a modest rebound — marked by renewed sales, policy discussions on localization, and gradual technological adoption. Yet, the road to self-reliance and sustainable growth remains long and challenging.
Localization — A Critical but Elusive Goal .
For over three decades, localization has been a recurring theme in Pakistan’s automotive policy framework. The idea is simple: increase local production of auto parts, reduce dependence on imports, and ultimately create a globally competitive supply base. However, the reality has been mixed.
According to industry experts, Pakistan’s automobile industry currently achieves 40–45% localization in small cars and 25–30% in larger vehicles and SUVs, while motorcycles have achieved over 90% local content. The progress, although noteworthy, remains far behind regional peers such as India and Thailand, where localization exceeds 80%.
The Auto Industry Development and Export Policy (AIDEP) 2021–26 aims to deepen local manufacturing through tax incentives, localization targets, and support for vendor development. Yet, challenges persist — particularly inconsistent policy enforcement, frequent import-based assembly, and limited technological transfer from foreign partners.
Localization is not just an industrial goal; it is an economic necessity. Every imported component places additional strain on Pakistan’s foreign exchange reserves. Experts estimate that over $1.5 billion annually is spent on importing completely knocked-down (CKD) kits. With the rupee’s volatility, this model has become increasingly unsustainable.
As one auto executive put it, “Localization is the only way forward — not just for industry survival but for economic sovereignty.”
Economic Linkages and Contribution to GDP
The automobile industry contributes approximately 2–3% to Pakistan’s GDP and supports over 4 million direct and indirect jobs. It influences a wide ecosystem that includes auto parts manufacturers, logistics, steel and plastics industries, and financial institutions through car financing.
A vibrant auto sector is often considered a barometer of industrial growth and consumer confidence. In FY25, Pakistan’s passenger car sales jumped by nearly 74% year-on-year, signaling a partial revival of consumer activity. However, this rebound is still fragile and largely dependent on macroeconomic stability, consistent energy supply, and policy continuity.
If GDP growth accelerates beyond 3–4% in the coming years, analysts expect auto demand to rise proportionally, potentially crossing 300,000 annual units in the passenger car segment within the next five years.
Strengths of Pakistan’s Auto Industry
Large Domestic Market: With over 240 million people and an expanding urban middle class, Pakistan offers strong latent demand for vehicles. Car ownership remains among the lowest in Asia — less than 20 vehicles per 1,000 people — indicating vast room for expansion.
Established Vendor Base: The auto parts industry, concentrated in Karachi, Lahore, and Faisalabad, has developed decades of expertise in manufacturing metal, rubber, and plastic components. Companies like Millat Equipment and Thal Engineering have achieved global certifications, supplying even to export markets.
Motorcycle Localization Success: The two-wheeler segment is a model of successful indigenization, with local production exceeding 2 million units annually and localization above 90%.
Policy Support and Investment Opportunities: The government’s EV policy and incentives for new entrants have drawn interest from Chinese and European automakers. Partnerships with BYD, MG, and Changan hint at a more diverse market ahead.
Weaknesses and Challenges
Dependence on Imports: Despite decades of operation, major assemblers still rely heavily on imported CKD kits. This makes the industry vulnerable to currency fluctuations and supply chain disruptions.
Policy Inconsistency: Frequent changes in tariffs, import duties, and industrial policy discourage long-term investment in local manufacturing.
Limited Technological Transfer: Foreign joint ventures often keep advanced manufacturing technology abroad, limiting Pakistan’s ability to develop indigenous innovation and design capabilities.
High Vehicle Prices: Localization has not yet translated into affordability. Car prices in Pakistan remain among the highest in South Asia relative to income levels, restricting mass motorization.
Energy and Infrastructure Bottlenecks: Unreliable power supply and logistical inefficiencies raise production costs, hampering competitiveness.
The Road Ahead — Policy, Innovation, and Green Mobility
For Pakistan’s auto sector to evolve beyond assembly and truly localize, it must align with broader economic reforms. This means stable policies, technology transfer agreements, and an aggressive focus on research and development (R&D).
The transition to electric and hybrid vehicles (EVs) presents both an opportunity and a challenge. If handled strategically — with local battery assembly, charging infrastructure, and skilled workforce development — Pakistan could leapfrog to cleaner mobility while reducing import dependence.
Similarly, regional trade integration under CPEC (China–Pakistan Economic Corridor) could help local manufacturers access advanced technologies, expand export potential, and tap into Central Asian and Middle Eastern markets.
The auto sector stands at a crucial juncture. Localization is no longer a slogan but a survival strategy — one that determines whether Pakistan will remain an assembly-based market or emerge as a manufacturing powerhouse. With consistent policy support, technological collaboration, and an enabling macroeconomic environment, the industry has the potential to become a pillar of Pakistan’s industrial revival and a catalyst for sustainable GDP growth.
