For many people, purchasing a locally produced petrol and diesel-powered vehicle will remain a gigantic task in future due to their skyrocketing prices and unattractive car leasing options. In this scenario, what does the future of locally assembled hybrid electric vehicles hold as one assembler has already launched a hybrid SUV while another is gearing up to roll out soon?

Does it make sense to buy a Pakistani-assembled pricy hybrid vehicle keeping in view its fuel-saving aspects in comparison to petrol or diesel-driven vehicles?

High-interest rates, curbs on auto financing, steep fall in sales and restrictions on imports of parts and kits by the Central Bank in the last eight months have already led to frequent auto plant shutdowns, thus rendering thousands of people jobless in the vending industries, mainly. Moreover, the sale of vehicles through bank financing may shrink further due to another interest rate hike in the first week of April.

The anxiety level of existing assemblers is rising day by day due to unpredictable political and economic situations whose repercussions are now visible in many industries, especially in the auto and textile sectors. However, vehicle assemblers are not missing any chance to increase prices on exchange rate parity.

At current prices, a buyer may save around Rs200,000 worth of fuel per year after spending Rs2.6m to purchase the vehicle

The rolling out of locally produced hybrid electric vehicles seems like a positive step in order to keep Pakistan at par with other countries. However, the timing appears unsuitable in view of uncertain economic indicators and the foreign exchange crisis. The government is already trying hard to squeeze demand for finished imported goods as well as those items on which raw materials are imported for local manufacturing to save dollar outflow.

Cash-rich consumers have shown a good response towards used imported hybrid vehicles in the last few years, but it is premature to say about the promising future of locally assembled hybrid vehicles keeping in view their prices.

It is also unclear as to how much saving the country has made so far in terms of petrol and diesel imports since used imported hybrid vehicles landed in Pakistan. What future savings would be achieved with the start of the local assembly of hybrid vehicles? Time will tell.

An assembler recently launched an SUV in both gasoline and hybrid versions in Pakistan of a renowned Chinese brand. Being one of the new entrants, the project enjoys duty concession for five years.

In addition to concessions mentioned earlier, the hybrid version further enjoys massive concessions in the shape of 8.5 per cent general sales tax (GST) as compared to 25pc on locally assembled gasoline powered vehicles and 4pc completely knocked down kits duty on hybrid specific components like battery and motors etc.

Despite these massive concessions given by the government, the locally made hybrid SUV carries a price tag of Rs11.3 million as compared to Rs8.7m for the gasoline version, which indicates a price premium of 30pc or Rs2.6m.

Certainly, there are some additional specs in the hybrid version. However, it will be interesting to see if customers would actually opt for the hybrid version and pay a 30pc price premium over the gasoline version. Globally, hybrids usually carry a price premium of anywhere between 8pc to 10pc, which is not the case in Pakistan despite massive concessions.

Customers are usually smart as they do a cost-benefit analysis for such a big ticket purchase. In this case, a simple analysis illustrates that it will actually take over 10 years for payback of the additional Rs2.6m that one has to pay to get the Hybrid version.

Taking the current petrol price of Rs276 per litre along with average fuel efficiency of 18 km per litre for hybrid as compared to 12 km per litre for the gasoline version, one may save around Rs200,000 worth of fuel per year only after spending Rs2.6 million upfront which makes it unfeasible.

In an analyst briefing in the second week of March, Indus Motor Company (IMC), the assembler of Toyota vehicles, said that despite the deteriorating economic condition, the company’s plans regarding a $100m investment to build hybrid vehicles are on track.

Top Line Securities, in its note, said that the IMC management had said that the hybrid vehicle launch is also as per the initial stated plan and will only face delay due to external circumstances. IMC may have to address similar concerns as how hybrids will save money for its buyers, which doesn’t seem to be the case for Chinese-assembled hybrid SUVs.

If it’s not making economic sense for customers, the biggest question is why the government is giving massive concessions to such electrified vehicles. It actually costs many more dollars to make a localised hybrid or electric vehicle today than the total fuel savings it will result in its lifetime, perhaps.

When the country is already struggling with its foreign exchange reserves and trying to compress demands for vehicles by increasing all kinds of restrictions through State Bank’s prudential regulations and massive increase in GST, why does it continue to subsidise hybrids and electric vehicles which may not help the economy in any way?

Assuming that only 1pc of Pakistan’s elite can easily buy hybrids and electric vehicles, it is unfair to provide hefty concessions and incentives to facilitate a particular segment of the society. This segment of society already has used imported hybrid electric vehicles (EV) and new electric vehicles in their bungalows along with electronic charging facilities.

In the ongoing FY23, around 20-30 luxury EV vehicles continued to be imported every month despite the dollar crunch, especially after the expiry of Regulatory Duty in November 2022.

Published in Dawn, The Business and Finance Weekly, April 3rd, 2023