Auto sector uncertain as dispute over exports lingers on in Pakistan

A legal challenge to Pakistan’s mandatory export targets for automobile manufacturers continues to cast uncertainty over the sector, even as car sales rebound during the first half of fiscal year 2025.

The dispute stems from Statutory Regulatory Order (SRO) 2069(I)/2022, issued on December 1, 2022, which introduced year-wise export requirements for car makers.

As per the SRO, automobile makers, also known as Original Equipment Manufacturers (OEMs), can obtain concessions on customs duties under SRO 656 of 2006 only if they export a fixed percentage of their import quota.

A major automobile manufacturer challenged the SRO before the Lahore High Court, claiming the export conditions contradict the original intent of SRO 656, which was designed to promote local vehicle assembly rather than impose export obligations, according to the half-yearly report of Honda Atlas Cars.

On December 27, 2023, the court granted interim relief, directing the Engineering Development Board to allow the company to continue importing components at concessionary rates. The petition — and the relief granted — remains in effect as of September 30.

The company has assessed that it could incur a loss of PKR 9.37 billion if the government’s amendments are upheld. However, it says its legal counsel is confident the case will be decided in its favor, and no provision has been recorded in its financial statements.

The report said that the automotive industry navigated a mixed environment in the first six months of 2025.

The year opened with declining passenger-vehicle sales amid logistical disruptions driven by civil unrest in Pakistan’s southern region and a dip in consumer confidence caused by heightened tensions with India.

A subsequent round of international diplomatic intervention helped calm markets, enabling demand to recover by May.

From May to August, easing interest rates and improved availability of auto financing supported a gradual revival in passenger-car sales. New model launches — including Honda’s latest Hybrid Electric Vehicle (eHEV) and updated petrol variants equipped with the company’s advanced Honda Sensing driver-assistance system — further energized the market.

Industry production rose to 93,095 units in the six months ending September 2025, up sharply from 59,146 units a year earlier. Sales climbed to 89,422 units from 62,297 units in the same period last year. The company at the center of the legal challenge produced 11,353 units, compared with 6,655 previously, and sold 10,403 units, up from 6,633.

“Mandated export targets introduce significant compliance risks for automakers already operating in a volatile economic landscape,” said a Karachi-based industry analyst. “While the court’s interim relief provides breathing room, investors will be watching closely for a final resolution.”

He added that Pakistan’s auto market has “a clear pathway to growth” if macroeconomic stability holds, interest rates continue to ease and government incentives for cleaner technologies remain consistent.

Looking ahead, analysts expect Pakistan’s auto industry to benefit from improving economic conditions, continued product innovation, and a more competitive lineup of models. But they warn that policy clarity — especially around tariff concessions and export requirements — will be critical to sustaining the sector’s recovery.