Pakistan’s auto sector struggles to compete globally, CCP says

Pakistan’s automobile industry has failed to achieve meaningful export competitiveness despite multiple policy efforts, constrained by an inconsistent policy environment, structural cost disadvantages and limited institutional support, according to a report by the Competition Commission of Pakistan.

The report says the problem “is not about the capability of the private sector but in the weak and inconsistent policy environment, structural cost disadvantages, and lack of institutional support” that have prevented the sector from scaling up and integrating into global value chains.

Tariff cuts alone not enough

The commission challenges what it calls a “famous misconception” in policy debates — that lowering import duties alone can enhance competitiveness.

“Previous policies have shown that reducing tariffs without building the necessary industrial ecosystem such as testing facilities, financing mechanisms, and export incentives only encourages imports and weakens local production,” the report states.

Vendors operate under a fundamental cost handicap due to the absence of domestic production of key raw materials, including automotive-grade steel, plastics and aluminum. As a result, nearly all major inputs are imported.

Additional port and logistics expenses increase input prices by 10% to 15% compared with regional peers, the report says. High energy tariffs and unreliable gas supplies further raise production costs and disrupt manufacturing schedules.

In contrast, countries such as India and Thailand provide subsidized energy and raw material support to their automotive sectors, enabling vendors to become internationally price-competitive.

“Without comparable measures, Pakistani manufacturers cannot match the cost structures of regional competitors,” the commission concludes.

Scale constraints limit exports

The limited size of the domestic market has also restricted economies of scale necessary for export readiness.

With annual vehicle production often below 200,000 units, vendors cannot spread fixed costs over large volumes. By comparison, India produces more than 2 million vehicles annually and Thailand around 1.5 million, the report notes.

Continued used car imports have further dampened demand for locally assembled vehicles, reducing production scale and consistency — both critical for cost efficiency and export competitiveness.

Institutional gaps and lack of incentives

A major weakness in Pakistan’s policy framework is the absence of export-enabling infrastructure and incentives. Unlike countries that offer tax rebates, low-interest financing or testing facilities compliant with global standards such as World Forum for Harmonization of Vehicle Regulations, Pakistan’s manufacturers bear compliance and certification costs on their own.

The report says there are no mutual recognition agreements, dedicated financing mechanisms or government-backed export rebates, creating an “institutional vacuum” that locks capable firms out of global supply chains.

In contrast, India’s Production Linked Incentive program, Thailand’s auto parks and Vietnam’s export-linked policies have actively incentivized localization and export growth.

AIDEP underfunded, poorly implemented

The Automotive Industry Development and Export Policy was introduced to modernize the sector and boost exports. However, the report says the policy could not be implemented “in true spirit”.

Key initiatives, including the Technology Acquisition Support Scheme and the Export Facilitation Program, were not launched due to insufficient government funding. These schemes were intended to help firms upgrade technology and compete internationally, but most planned incentives never materialized.

Poor inter-agency coordination has further undermined progress. Frequent procedural delays and unclear institutional responsibilities have weakened investor confidence and deterred new entrants.

The broader macroeconomic environment also weighed on outcomes. Between 2022 and 2024, Pakistan faced an economic slowdown, exchange rate pressures and strict import restrictions aimed at conserving foreign exchange.

Pakistan still lacks automotive testing laboratories, research centers and formal vendor training programs required to meet global safety and quality standards, the report says. Frequent changes in tariffs and taxes under annual budgets have added unpredictability, reducing confidence among investors and manufacturers.

Although the policy framework was described as comprehensive, its impact has been limited by weak implementation, funding shortfalls, economic challenges and inconsistent policy decisions.

“These issues highlight the need for stronger institutions, steady policy direction, and a more supportive business environment for the automobile industry to grow sustainably,” the commission concludes.