One of every four cars sold worldwide is now an electric vehicle (EV). In Pakistan, grappling with still high interest and inflation rates, buying a car is a challenge, even if the vehicle is a traditional fossil fuel-powered car with an internal combustion engine (ICE). So the flurry of EV launches — a big ticket item at the best of times with a string of challenges — comes as a surprise.

Perhaps the most excitement is around Chinese auto giant BYD, which plans to introduce new energy vehicles (NEV) in partnership with Mega Motor Co. Dewan Farooque Motors and Sazgar Engineering Works have also announced plans to wade into the EV sector.

Given the lack of charging infrastructure and the dearth of mechanical understanding, green vehicles are rare and reserved for the uber-rich. Changan launched two EV variants of its brand Deepal with this exact strategy. “We are aiming for the top one per cent,” explains Danial Malik, CEO of Changan Motors, part of the Master Group.

Among its range of businesses, the group most known for MoltyFoam has been in the auto sector since 1988. Procon Engineering, Changan’s sister concern, supplies parts to major brands and original equipment manufacturers in Pakistan. With its extensive backward integrated linkages, the company hopes to localise about 15-20pc of EV parts ‘quickly’, making it more accessible to customers.

At least 10,000 units need to be sold for localised electric vehicle production to become commercially viable, says Changan

Priced in the ballpark of Rs14-16 million, Changan’s EV strategy currently is to aim for the rich — those with sprawling bungalows, a couple of SUVs in the driveway and solar panels on rooftops. They will purchase the flamboyant cars as status symbols and charge them at home with wall adapters provided by the company.

Over time, as more entrants join the market and charging infrastructure becomes a viable stand-alone business on its own, the company hopes to expand into smaller hatchback NEVs for the masses.

“In a decade, every new car in Pakistan will have to be powered, at least in part, by electricity,” says Mr Malik, a tall claim to make. However, he explains that Pakistan does not have local manufacturers; it has partnerships with international manufacturers. When parent companies shift to EVs, as they are now doing, local businesses will have no choice but to follow suit.

However, this remains an ambitious target, especially considering the existing infrastructure challenges and consumer hesitancy toward hybrid and electric vehicles in Pakistan. BYD, in an interview with Reuters, predicted a less ambitious target of electric vehicles accounting for up to half of auto sales by 2030.

While local businesses may eventually have to move towards hybrid vehicles and EVs, government policy has added impetus to it. A hundred units of EVs can be imported, with the duty slashed in half to 12.5pc till 2026 under the current auto policy, allowing the companies to test the market and the mix of models.

However, there is a caveat, explains Mr Malik. Duty will have to be paid in full on models that are not eventually locally produced to prevent businesses from setting up new companies to import EVs and sell them without the intention of moving towards domestic manufacturing.

With a planned investment of $50m over the next two to three years, Changan intends to shift from the import of completely built units to the import of completely knocked-down kits in a year. For the first year, it targets 3,000 EVs on the road but needs about 10,000 units to make the business viable. For context, about 4,500 units of the similarly priced Toyota Hilux and Fortuner were sold in FY24, according to Pakistan Automotive Manufacturers Association.

Better for the environment, EVs are greener and cost-effective in the long run. Changan’s vehicles can provide up to 500km range on a single charge of about 60 units, costing roughly Rs3,500 using a 7kW charger. Commercial fast chargers, hardly any available, cost about Rs6,000-7,000 and charge in less than an hour. Compared to that, an ICE SUV consumes about Rs15,000 in fuel but takes about 10 minutes at the abundantly available petrol pumps.

Changan has 18 dealerships across the country that are ‘EV ready’ with after-sales and spare parts available, according to Mr Malik. The company has also sent technicians to China to get the necessary training to service and maintain EVs. While this may be a drop in the city for mass adoption of EVs, it sets the ground for other entrants to set up the required infrastructure.

Even so, there are multiple challenges. The auto sector has struggled with localisation for decades despite the protection afforded to it. The reception to hybrid vehicles, however, has been lukewarm. Currently, the only hybrid vehicle manufactured locally is the Toyota Corolla Cross of Indus Motors.

Another challenge is in the pricing of charging infrastructure. Commercial chargers can charge a fixed price due to the National Electric Power Regulatory Authority pricing policy. Mr Malik points out that the policy needs to be revisited because it is only when chargers are profitable that there will be widespread distribution.

Furthermore, the incentive of lower duties ends in 2026, which may stem the tide of EV adoption as they get more expensive. The current Rs3m financing ceiling also does not bode well for easy financing options and is deterring even the purchase of ICE vehicles.

In the long run, the price of EVs will come down. Currently, a battery costs $139 per kilowatt globally, but it is expected to fall below $100, which will enable a faster transition towards EVs. However, the current chicken and egg problem for Pakistan remains.

Without a critical mass of EV adoption, localisation will not be feasible. Without the existence of an extensive, affordable network of charging infrastructures and the general know-how of the auto mechanic around the corner of EVs, mass adoption is not feasible. Though EVs might lead to a greener future, until there is mass adoption, they will remain a toy for the rich.

Published in Dawn, The Business and Finance Weekly, September 23rd, 2024