The debate over the new auto policy, which will determine the government’s plans about which route — electric or hybrid — it intends to take for developing the automotive industry and reducing carbon emissions and fuel imports from now onwards, is getting a bit intense.
The government has already approved and announced its electric vehicle (EV) policy for the next five years, allowing significant tax concessions for potential Chinese investors intending to set up their assembly plants in Pakistan. This has prompted existing Japanese manufacturers to demand more or less the same incentives for their hybrid technology in the new Automotive Industry Development and Export Policy (AIDEP) 2021/26 being formulated by the Engineering Development Board (EDB).
While certain federal ministers, including Hammad Azhar, Fawad Chaudhry and Malik Amin Aslam, are ambitiously pushing electric technology, the auto parts industry and the EDB seem to be anchoring for the inclusion of concessions in the next AIDEP 2026 policy for encouraging hybrid technology.
The tax incentives for electric car assemblers include one per cent customs duty/federal excise duty on new technology parts such as batteries, motors and other electric parts, 10pc on all non-localised CKD (completely knocked down) parts and 25pc on all localised CKD parts. Sales tax on EVs has been cut from standard 17pc to 1pc.
The hybrid car manufacturers are also demanding the same customs duty/federal excise duty concessions. Besides, they are asking for a reduction in sales tax from 17pc to 8.5pc, which is still much higher than 1pc allowed for electric vehicles.
These concessions have prompted several Chinese automotive companies to start looking at the Pakistani market for bringing their electric cars to Pakistan, with calls from some for additional incentives for local production of new technology parts. Official sources told Dawn that the Chinese government is also pushing Islamabad in support of its car manufacturers, who are opposing tax concessions for the hybrid technology as it will out them from the market in spite of incentives given to the electric vehicular technology.
A small electric car from any non-Chinese, reputed brand will cost at least $30,000 per unit, which means an outflow of $600 million in case of 20,000 units per year against potential fuel import savings of approximately $23m
“Automotive policymaking in Pakistan has become very political because of competition for market share among carmakers from different countries,” an auto parts vendor and exporter commented. Speaking briefly with this scribe he emphasised the need for the government to consider all available technology to boost competition in the interest of consumers.
The whole situation appears to have dismayed Japanese carmakers as the government, for the time being, does not appear inclined to favour their hybrid technology in spite of some valid arguments advanced by them. The government, which is targeting a 30pc share for the battery electric vehicles (BEVs) in the total automobile sales in the country by 2030, hopes to save a significant amount of dollars on fuel imports, reduce carbon footprints and increase demand for the unutilised excess generation capacity through the promotion of electric technology.
BEV is generally considered the most efficient and environment-friendly technology among all available technologies the world over. But its share in global sales is slow to pick up because of excessively high upfront cost, economic value loss owing to rapid degradation of batteries, range anxiety, and absence of the pricey charging infrastructure.
A September 2020 Bloomberg report suggests that EV share in the global passenger vehicle sales powertrain mix will still be less than hybrid vehicles (mainly because of costs and other factors).
Nonetheless, it expects EV share to jump to 31pc in the global fleet and 58pc in global sales in 2040 (on advancement in battery technology, reduction in prices and availability of charging infrastructure).
According to an EDB board member, who didn’t give his name because of his involvement in the formulation of the new AIDEP 2026, the cost of electric technology at present does not make sense for Pakistani consumers, especially when the country does not even have the charging infrastructure. “Nor will it help the government much in saving fuel imports and increasing electricity consumption. A small electric car from any non-Chinese, reputed brand will cost at least $30,000 per unit, which means an outflow of $600 million in case of 20,000 units per year against potential fuel import savings of approximately $23m,” he said, referring to the different workings done at the EDB. Likewise, he argued, since 70pc of the country’s actual generation comes from fossil fuels, including coal, a BEV will emit roughly 120 grams of CO2 per kilometre against around 200 grams by the internal combustion engine and 100 grams by a hybrid engine.
Further, the 3-5pc annual degradation in EV battery will result in more charging cycles, higher carbon emissions and less mileage with 30,000 BEVs consuming less than 1pc of existing idle generation capacity. At the current electricity rate, the EV owners pay Rs11/km based on the price of Rs50 per unit being charged at an Islamabad charging station.
Speaking about policy alternatives, Dr Nadeem Javaid, Pakistan’s former chief economist, argues that hybrids remain the most feasible technology at present as it offers the best of both worlds by delivering in terms of fuel efficiency, low emissions, and affordability. “For these reasons, there is a much higher global acceptability of HEVs compared with BEVs.”
However, he agreed that BEV is the future of automobiles once the improvements in the battery technology increase battery lifetime and slashes cost. “I think a prudent policy alternative is to also give hybrid technology an even playing field along with BEVs for fair competition, letting the consumers decide which technology they prefer. Let us gradually adapt and move towards it the way the rest of the world, including Europe and America, is doing.”
A senior EDB official weighs in: “We are discussing concessions for hybrid technology in our next auto policy. But I can’t say if the government will agree with us and approve them given the heavy tilt of some for BEVs. Given their 30pc lesser cost than BEVs, 100pc higher fuel economy compared with internal combustion engine vehicles and lower carbon emissions (it is claimed that strong hybrid runs as a zero-emission vehicle or in EV mode 60pc of time during urban driving cycle) make a good case for adoption of hybrid powertrain side by side with electric vehicles as it delivers adequately against both the objectives of environment and fuel conservation at a much lesser cost to consumers and the economy.”
Published in Dawn, The Business and Finance Weekly, March 29th, 2021