PAKISTAN’S newly announced Auto Policy 2026-31 promises cheaper vehicles, higher localisation, exports, employment, improved safety and cleaner transportation. These are worthy objectives. But can they be achieved simultaneously in an industry constrained by limited scale, proliferating makes and models, and the absence of competitive upstream steel, petrochemical and aluminium industries?

More importantly, does the policy risk undermining one of the few enduring achievements of decades of automotive protection: the engineering capabilities developed by component manufacturers, with applications in agriculture, defence and other industries?

The policy deserves credit for recognising that protection has not delivered internationally competitive vehicles. Gradual tariff reductions, export targets and electric-vehicle incentives signal change. But reducing tariffs without addressing high energy, taxation and financing costs risks weakening domestic manufacturers before they become competitive.

Previous auto policies have produced an insufficiently recognised benefit: the engineering capabilities developed by component manufacturers. Guided by international assemblers, Pakistani firms have acquired expertise in precision machining, sheet-metal pressing, plastic moulding, rubber products, glass, wiring and numerous other components. Industrial clusters around Port Qasim, Lahore-Sheikhupura and elsewhere demonstrate capabilities extending beyond automobiles. Losing them would erode an industrial foundation that Pakistan needs for manufacturing diversification and import substitution.

Competition among brands is desirable, but proliferation of incompatible platforms undermines supplier competitiveness.

Support for technological upgrading, testing and certification is welcome. However, indiscriminate tariff reductions could expose these firms to overseas competitors operating at vastly greater scale, before domestic cost disadvantages are addressed.

Protection should neither be indefinite nor un­­conditional. A differentiated, time-bound appro­ach should preserve engineering capabilities with demonstrable competitive potential, linking support to productivity, quality, scale and exports.

Mandatory localisation targets require scruti­ny. Components manufactured locally using im­­por­ted steel, polymers, machinery and tooling cannot reasonably be counted as entirely indigenous. Pakistan lacks integrated automotive-grade steel, petrochemical and aluminium supply chains. The appropriate measure is domestic value addition after deducting imported inputs, including those embedded in locally purchased components.

Higher local procurement does not necessarily deliver equivalent foreign-exchange savings. Policy must measure genuine indigenous value addition, technological upgrading and net foreign-exchange contribution separately.

Pakistan’s limited vehicle market is increasingly divided among manufacturers, models and variants. Each additional platform can require separate moulds, dies and tooling. Small production runs raise costs and discourage sophisticated manufacturing.

Competition among brands is desirable, but proliferation of incompatible platforms undermines supplier competitiveness. Common components, platform sharing, contract manufacturing and supplier consolidation should be encouraged.

Pakistan’s motorcycle industry offers an instructive parallel. Standardised designs, large volumes, extensive vendor networks and a substantial replacement market have enabled component manufacturers to develop capabilities while making transportation accessible to millions.

Cars require more demanding standards and higher tooling investment, but the lessons of affordability, standardisation and scale remain relevant.

Pakistan should encourage one or more safe, fuel-efficient, affordable small-car platforms through collaboration with established international manufacturers. Shared components and higher volumes could support meaningful domestic value addition, strengthen vendors and eventually create export opportunities.

Encouraging electric vehicles is appropriate, particularly motorcycles, three-wheelers, small cars and public transport. However, concessional imports of completely built-up vehicles and completely knocked-down kits may accelerate adoption without developing domestic engineering capabilities. The transition should include a roadmap enabling existing component manufacturers to enter EV supply chains.

The policy envisages approximately $6 billion in cumulative automotive exports over five years. But who will buy these vehicles?

Complete-vehicle exports depend on foreign principals allocating production and overseas markets to Pakistani operations. Such decisions are scale-dependent and cannot be mandated. Potential African and other markets present additional challenges. Pakistan generally lacks preferential trade agreements with these destinations, leaving its vehicles exposed to tariffs while competing against established Asian manufacturers.

Export incentives introduce another risk. WTO rules restrict subsidies contingent on export performance, while importing countries can impose countervailing duties following investigations establishing subsidisation and injury.

Export targets need identifiable customers, commercial commitments, market access and demonstrated net foreign-exchange earnings.

The proposed Automotive Development Levy, expected to raise Rs232bn over five years, raises another question. Pakistan’s experience with the Export Development Fund offers a cautionary lesson. Financed through a levy on exports, it supported various initiatives, but its effectiveness in delivering sustained competitiveness remains debatable. The government’s subsequent decision to review its utilisation, audit its accounts and abolish the surcharge raises legitimate questions about establishing another dedicated levy.

Public funding for shared testing facilities, technology transfer and skills development has merit. But taxing consumers to subsidise exports that remain uncompetitive risks replacing tariff protection with another permanent support mechanism.

Ultimately, Pakistan must distinguish between assembling vehicles, manufacturing competitive components and providing affordable mobility. These are related but different objectives.

The writer is a former CEO of Unilever Pakistan and the Pakistan Business Council.

Published in Dawn, November 13th, 2026