New auto makers to increase local production capacity by 60 percent

A growing demand for automobiles, coupled with a conducive policy environment for new entrants, has seen an influx of new entrants into the local industry, increasing industry capacity by more than 60%.

So far, eight companies have been granted Greenfield status, bringing in an estimated total investment of about $530 million. Two companies have been granted Brownfield status, contributing an estimated investment influx of $180 million while a number of companies have their cases pending for approval with respect to Greenfield status. Those with pending cases are expected to bring in about $110 million to the local economy, bringing the combined cumulative expected investments from these new entrants to a total of $820 million.

Of the eight companies already approved under the Greenfield and Brownfield status, five are expected to begin operations in the second half of 2018, two in the second half of 2019 while one in the first half of 2020. Most of these new foreign entrants hail from either China or South Korea and are partnering with big names like the Nishat Group and Lucky Group for instance.

Pakistan’s automotive industry has, so far been dominated primarily by three Japanese assemblers namely Pak Suzuki Motors (PSMC), Indus Motor Company (INDU) and Honda Atlas Cars (HCAR). To bring about a change in the current dynamics of the market structure, in the year 2016, Economic Coordination Committee of the Cabinet approved the new Automotive Development Policy 2016-21. The purpose of this policy was to attract new entrants into the sector by incentivizing them through significant relaxations in taxes and duties. Ultimate aim for the policy was to create an environment of effective competition within the industry that could eventually lead to consumer welfare.

With the arrival of new players, the market share of these existing Original Equipment Manufactures (OEMs) is likely to decrease in the foreseeable future.  According to research by Ahmed Lakhani of JS Global Capital, these existing OEMs are likely to employ a strategy of product diversification in order for them to protect their market share.

As per Mr. Lakhani, total additional capacity from these new entrants is estimated at 185,200 units, which would bring the total automotive capacity of the country to around 465,000 units within the next 2-3 years from its current capacity of an approximate 280,000 units. The bulk of this additional capacity is expected to directly target the market dominated by existing players indicating tougher times for these companies that have had a foothold in the local auto industry for a long time now.