Hybrid vehicles have become hybrid electric overnight without any investment, technology improvement, or environmental benefits, only to attract policy benefits for EVs

Before the final unveiling of the New Energy Vehicle Policy (NEVP) 2025-2030, a sort of dispute among the auto stakeholders is going on in which many of them feel that the government has ignored hybrid electric vehicles (HEV) in the draft, focusing more on incentivising and promoting battery electric vehicles (BEVs), plug-in hybrid vehicles (PHBVs) and fuel cell vehicles (FCVs).

The average cost of technology and the average CO2 emissions suggest that HEVs remain the cheapest available technology, followed by BEVs, while PHEVs and FCVs are the most expensive technologies at the moment for many consumers.

They believe better duty concessions for PHEVs and BEVs already exist in the Auto Industry Development and Export Policy (AIDEP) 2021-2026. More duty and tax concessions to PHEVs equivalent to BEVs will not only increase the import bill, since PHEVs are more expensive than HEVs and BEVs but will also make the latter two uncompetitive in the market.

Consequently, the experts believe that no assembler will ever invest in the local assembly of the BEV project as it will not make any commercial sense, and those who have already invested in HEVs will incur losses.

Considering this cost-benefit analysis, industry experts suggest that tariff concessions and general sales tax (GST) incentives, as extended in the Auto Policy 2021-2062, should continue unchanged until 2030, except for the GST on BEVs, which may be reduced to one per cent across the board, regardless of battery size.

On the contrary, a car assembler said the Japanese perfected the hybrid technology and Toyota has taken the lead in the global Hybrid Synergy Drive, while others, especially Nissan Motor Company of Japan, who neglected the HEV option, are now in deep crisis and struggling for their survival.

To be eligible for such benefits exclusive to EVs, automakers with only ‘hybrids’ in their catalogue started labelling them ‘hybrid electric’. So, hybrids have become hybrid electric overnight without any investment, technology improvement, or environmental benefits, only to attract policy benefits for EVs. The objective is to utilise tax benefits to remain cost-competitive. Developing nations are more susceptible to this deception due to greater external influence over policy framework.

In Pakistan, AIDEP 2016–2021’s green field duty benefits facilitated the entry of new investment through new players. These benefits — with a deadline of June 2026 — brought new entrants at par with the existing automakers enjoying localisation advantage. Now, new entrants have to localise to the level of existing players by June 2026 to remain competitive.

A separate policy benefit was formulated for electric vehicles. This is where the term hybrid electric kicks in. As part of the global plan, the benefits allocated for electric vehicles have to be shared with hybrid electric vehicles, even though the environmental impact of HEVs and internal combustion engines are the same.

A closer look reveals that only EVs and PHEVs with external charging are independent of emissions during urban mobility and thus environmentally friendly.

Pakistan allows one per cent customs duty on EV-exclusive completely knocked down parts and 3pc custom duty on PHEV-exclusive parts, while HEVs enjoy 4pc custom duty on HEV-exclusive parts. The parts include batteries, motors, BMS systems, etc.

The assembler said Pakistani consumers end up paying at least Rs1 million to Rs3m more for an HEV in comparison to a petrol-driven car of the same size and specification. That is almost 2,000 to 11,000 litre of fuel cost built into the price of HEV. The fuel saving will come in six to 25 years if the vehicle is driven 15,000 km per year on average.

In the world market, HEVs are costlier by 8pc to 19pc than regular petrol cars but in Pakistan, HEVs are 8pc-35pc pricier despite massive tax and duty benefits, he added. This means that the duty benefit is only helping the assembler and parts and accessories suppliers/manufacturers abroad. In this situation, both the national exchequer and the environment will be lost.

An assembler said in summary that EV/PHEV with pure electric range should be classified separately from petrol/hybrids, which run only on petrol. A collaborative effort is required by all related government departments to ensure an environment-friendly and economically viable policy that is win-win for the regulator, investor, buyer, and future generations.

Pakistan Automotive Manufacturers Association has also urged the government to include Hybrid in the definition of NEV and extend equitable concessions to it till 2030.

Pama said PHEVs and HEVs function similarly, except the former has an extra plug-in socket, and both types of vehicles are not carbon emission-free. The association said that in the above situation, the best course of action is to exclude PHEV vehicles from the new policy, owing to the fact that PHEVs are not emission-free. As such, both PHEVs and HEVs will be allowed to continue to be within the domain of current AIDEP 2021-2026.

A Chinese assembler also suggested the government include HEVs within the definition of new energy vehicles, as HEVs also qualify as new energy vehicles and contribute significantly to achieving our National Climate Goals and conserving foreign reserves by reducing petroleum imports.

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