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Published in Jan-Feb 2021

Preparing for an Electric Future

Is Pakistan ready to leapfrog into the EV revolution?

The future of cars in Pakistan, like elsewhere in the world, is electric. So the question is, how soon is this future? The government, which recently approved Pakistan’s first five-year Electric Vehicle (EV) Policy for cars, thinks it will be sooner rather than later. But will it?

EV technology has long been considered a game changer for the environment. In countries like Pakistan, where fossil fuel imports constitute a major burden on an already weak external account, the adoption of this technology can bring additional benefits by significantly cutting oil imports, given that the electricity costs of running an electric car is almost a third of that of fuel in a comparable ICV (Internal Combustion Vehicle) and almost a tenth of a gasoline-run version of a two or three-wheeler.

Despite these advantages, EV adoption is painfully slow across many countries and this is as true for developed economies such as the US and Europe as it is for developing nations like India, where governments have been trying to speed up EV adoption through policy interventions aimed at cutting emissions and forcing carmakers to shift to cleaner technology or by offering cash handouts and subsidised financing to buyers or giving attractive tax concessions to both.

“In Europe, EV penetration is less than five percent,” says Almas Hyder, Chairman of the Engineering Development Board (EDB), which designed the EV policy framework. “China remains the only outlier, because it has embraced the technology more rapidly than the rest of the world, with electric bikes and scooters laying the ground for EV market growth. Similarly, Finland and California are the other exceptions.”

Like the rest of the world, the adoption of EVs in Pakistan could be constrained by weak customer demand due to limitations in the technology, lack of charging infrastructure and more importantly, a 30 to 40% higher upfront cost in spite of the huge headroom for growth.

Hyder says that initially, demand for EVs will flow from households that require a second car for use. A second source of demand could come from a segment of the population who want to graduate from two-wheelers to small, affordable cars with minimum maintenance and running costs. He adds that EV adoption will go only so far unless the necessary infrastructure is made available across cities and on the highways.

The government, at the initiative of the Ministry of Climate Change, introduced a raft of incentives in June 2020 in the EV policy for two and three-wheelers, buses and trucks in order to encourage manufacturers to start local production. The government has excluded cars and SUVs owing to strong opposition from the three Japanese carmakers in Pakistan as well as from local auto parts manufacturers and drew up a separate framework for this segment in December. The policy will be part of the Automotive Development Policy (ADP) 2021-2026.

According to media reports, the EV policy aims to bring half a million electric motorcycles and rickshaws along with over 100,000 electric cars and 1,000 buses and trucks into Pakistan’s transportation system over the next five years. By 2030, the policy envisions that 30% of all new cars, big and small trucks, vans and jeeps, and 50% of all two, three and four-wheelers to be electric vehicles. By 2040, 90% of all vehicles on the roads will be EVs.

The EV policy for four-wheelers seeks to boost demand and make local assembly profitable. The duty structure on CKDs (Completely Knocked Down Kits) for non-EV parts is similar to those given in the ADP 2016-21, which imposes a duty of 25% on localised parts and 10% on parts not produced locally. Duty on EV parts such as motors and battery controls, which account for 40 to 60% of the cost of a car, have been slashed to one percent; in other words, duty on EV CKDs will be in the range of six to eight percent compared with 15 to 18% for ICVs. Smaller cars with battery capacity of 50kWh or below or light commercial vehicles with battery capacity of 150kWh have been given an additional concession, whereby the sales tax rate has been slashed to one percent from 17% (bigger EV cars will continue to attract the normal sales tax rate). In addition, importers of CBUs (Completely Built Units) will continue to pay 25% duty to keep their prices up, a step aimed at supporting local manufacturing and discouraging EV imports. The rate of duty will be halved to 12.5% on the import of 100 vehicles (in single batch).

To encourage investment in the charging infrastructure (the most important factor to speed up EV adoption) only one percent duty will be charged on the import of charging equipment. Furthermore, the power tariffs for charging stations will be lower than regular rates and the government plans to have fast DC charging stations in all the major cities and motorways.

According to Hyder, “the duty and tax structure for electric cars is kept lower in order to bring consumer prices down to the same levels as those for ICVs. Smaller cars with battery capacity of or below 50kWh have been given an additional incentive in the shape of a reduced sales tax rate in order to promote entry level, smaller cars of upto 1000cc engine capacity.”

However, the companies interested in launching electric cars in Pakistan do not agree. “The restrictions on battery capacity above 50kWh… is intentionally done to protect the (Japanese) car manufacturers from EV competition,” says Ahmed Jaudet Bilal, CEO, Premier Cement and Director Strategy, Sapphire Fibre.

Bilal is overseeing Sapphire’s project to bring electric cars to Pakistan in partnership with China’s BYD. “This is an average policy and a lot still needs to be done.” In his opinion, EV technology has evolved and bigger, better quality cars and SUVs can do up to 500 to 600 kilometers in one charge and the entry of such cars and SUVs could pose a serious threat to existing ICV players in the market.

The policy incentives are meant to support domestic assembly of EVs. Chinese EV players like BYD and SAIC (which brought the MG brand to Pakistan) are already expressing interest in Pakistan’s EV market and seriously thinking of building assembly plants here.

However, Bilal is not sure if the incentives in the EV policy will attract investment in local assembly. “It takes between $80 and 100 million to set up an EV assembly plant and investors don’t make this kind of decision on the basis of incentives alone.”

Syed Shabbir Uddin, Director, Master Changan Motors, agrees. “For petrol engine CBU cars, duty is charged according to engine capacity in the passenger car segment. The higher the capacity, the more the duty. In the CKD business of petrol cars, however, the government wants more cars to be locally assembled to generate more jobs and economic activity, which is why custom duties are set according to the type of car. For example, all passenger cars attract 30% duty regardless of engine capacity. Had this not been the case no carmaker would have come to Pakistan.” In his opinion, the same categorisation should be used for battery capacity and not limit battery size to 50kWh, which he says does not have any objective basis. “Why 50kWh? Why not 40kWh? Or 60kWh? We do not have charging stations in Pakistan, so a bigger battery will give a longer range. For the EV revolution to succeed in Pakistan, companies should be allowed to bring their best models in CKD with longer range batteries rather than shorter range batteries.”

Is Pakistan’s EV story one of promise? We will not have to wait long to find out.

Nasir Jamal is Chief Reporter, Dawn Lahore.