PAKISTAN’S automobile industry captures the country’s industrial policy dilemma well. As the government considers lower tariffs, manufacturers warn of plant closures, job losses and wasted investment. Critics argue that, despite more than 40 years of protection, consumers until recently faced high prices and limited choice, while exports remained negligible.
Both sides have a point. But the debate is framed wrongly. The question is: can the country’s auto industry build capabilities that can compete in regional and global value chains?
One principle should guide policy. Except in strategically important sectors, any industry seeking protection must offer consumers better value and move towards international competitiveness. Protection should be a runway, not a refuge.
The auto industry deserves credit. It has built assemblers and component suppliers, developed engineering skills, invested in vendors and created skilled jobs despite expensive energy, costly finance, policy uncertainty, cumbersome regulation and weak logistics. But the main goals — saving foreign exchange through localisation and creating large-scale employment — were flawed from the start.
Can Pakistan’s auto industry build capabilities that can compete in regional and global value chains?
The first misconception was localisation. Auto policy assumed that making more components at home would ease pressure on the external account. That ignored how modern vehicles are made. Engines, transmissions, fuel injection systems, electronic controls and software carry much of a vehicle’s value. Producing them competitively requires deep upstream capacity in automotive-grade steel, petrochemicals, specialised alloys, precision engineering and electronics. Pakistan never built those foundations at scale, so localisation became a numerical target rather than a measure of real competitiveness.
Localisation numbers are also misleading. They count components assembled domestically, not domestic value added. Seats, batteries, tyres, wiring harnesses, glass, plastic mouldings and metal stampings may be made locally, but many depend on imported inputs and moulds and use energy generated from imported fuels. A 50 to 60 percent localisation rate can therefore produce far smaller foreign exchange savings than advertised. Better metrics would track net domestic value addition, foreign exchange displacement and exports of locally manufactured components.
The second misconception was jobs. Automobile manufacturing is capital-intensive. It relies heavily on automation because quality and precision leave little room for manual shortcuts. Pakistan’s largest assembler employs fewer than 2,500 people directly, and the three largest together less than 6,000. Suppliers add jobs, but the direct workforce remains small relative to the protection received. Dealerships, distribution and repair facilities would exist even if vehicles were imported fully built.
The third misconception was scale. Competitive automobile manufacturing depends on large volumes that spread fixed costs across millions of vehicles. Pakistan’s market, at fewer than 300,000 vehicles a year, is too small to support that model on its own. Policy made matters worse by treating motor vehicles as luxury goods and taxing demand down. One arm of government protected local assembly while another choked the scale needed to make it efficient. The domestic consumer paid for both.
None of this negates the industry’s achievements. It shows that policy was flawed and measured success against goals the industry’s structure made difficult, and at times impossible, to meet. Technology has now made the old debate even less useful. The global industry is moving from internal combustion engines to hybrids and EVs, changing where value is created. EVs eliminate or simplify many components around which Pakistan’s localisation strategy has traditionally been built. Engines, multi-speed gearboxes, exhaust systems, catalytic converters and fuel injection technologies become less important. Value shifts instead to batteries, electric motors, power electronics, battery management systems, semiconductors, sensors and software.
Pakistan must stop designing industrial policy around yesterday’s technologies. Hybrids are the practical bridge: they cut fuel use and emissions without depending on charging infrastructure or an electricity network not yet ready for mass EV adoption. The policy goal should no longer be higher localisation percentages. It should be higher domestic value addition, exports, lower environmental impact and deeper technological capability. Incentives should favour battery assembly, electric motors, power electronics, charging equipment, automotive software, precision engineering and advanced manufacturing. Pakistan’s IT sector can support connected vehicles, while commercially viable minerals should feed domestic battery material and mobility supply chains rather than leave the country with minimal processing.
Pakistan should position itself as a base for export-oriented investment, especially for Chinese EV producers looking to diversify production and reach regional markets. This will require predictable policy, competitive energy, efficient logistics, easier access to imported inputs and trade agreements that open real market access. Morocco shows what scale and access can achieve — it exports about 500,000 of the 600,000 vehicles it produces to the EU.
Successful automotive producers offer clear lessons. Japan, South Korea, China and Thailand supported their auto industries, but protection was temporary, conditional and tied to exports, productivity, technology transfer and upgrading. India built its auto sector behind restrictions on consumer choice, while Asean and Mercosur countries used regional production networks to achieve scale. Pakistan should draw from these experiences, but it cannot simply replicate them as its domestic market is too small, regional integration is weak and the technology frontier has moved on.
Tariffs in Pakistan should fall through a transparent, predictable schedule that gives firms time to adjust but no excuse to stand still. Government must lower economy-wide costs through energy, logistics and tax reform, while linking any remaining incentives to exports, domestic value addition, engineering depth and high-value hybrid and EV technologies — not production volumes or headline localisation rates.
The real choice is not protection or liberalisation. It is whether Pakistan keeps measuring success by yesterday’s metrics or prepares for tomorrow’s automotive industry. The next auto policy should reward value addition, exports, innovation and technological transformation, and not permanence behind tariff walls. That would serve manufacturers, consumers and competitiveness far better than another decade of sterile debate.
The writer is a former CEO of Unilever Pakistan and of the Pakistan Business Council.
Published in Dawn, August 2nd, 2026