Electric dream

The world has quickly jumped on the proverbial electric vehicle (EV) bandwagon, convincing the less developed economies to also pursue such a novel endeavor as dangers of unclean hazardous air and climate change loom. Pakistan has joined in, aiming to get 30-50 percent EV penetration for new vehicles by 2030, and a whopping 90 percent by 2040. This is line with the global targets set by the “30@30” initiative where economies (including China and India) have pledged to reach 30 percent EV penetration by 2030.

There is no doubt that the case for introducing EV in Pakistan is compelling. The country is critically vulnerable to climate change. Major cities are choked with deadly air pollution. As per a National Economic and Environment Development Study, Pakistan will double its emissions next year and further double it in the next ten years, emitting not only carbon but other hazardous compounds including sulphur dioxide, nitrogen dioxide and so on. Then of course is the oil import bill that can be slashed by shifting to batteries; while EVs will allow excess electricity capacity to be productively utilized.

The long term (potential) impact of a thriving EV industry is creation of new jobs, investment in affiliated industries (charging stations, batteries etc), and entry into export markets and the EV global value chains. So says the EV draft policy published by the Ministry of Climate Change (MoCC). The policy maps out a seven year plan for Pakistan by which time a local EV industry may be ready to start exporting. It claims that government support through tax breaks and subsidies may help the economy eventually save and earn Rs110 billion every year.

The incentives primarily include exemptions for sale tax, import duty, registration fee and annual token tax on all EVs manufactured locally, while no duty or sales tax on motors, batteries, electronics or charging infrastructure for two years to those companies who want to develop these locally. There are a host of other phased incentives including those for conversion kits, CKDs and so on.

Calling the policy ambitious would be an understatement. The savings and earnings estimates may be true but they are based on the expectation that these incentives would translate into volumes. But given the pace of investments in the existing automotive industry, the continued dependence of auto assemblers on expensive imported parts, and near to no plans for them to become competitive enough to export, the EV policy should be considered with a grain of salt. Too ambitious targets and economic instability have not worked in the favor of either new entrants or the market itself in this country. In fact, past automotive policies failed mainly because of their over-expectations.

In an economy where Suzuki Mehran is the most sold car, new technology is barely localized and car volumes in a year have not exceeded 300,000 units, what would it take for new entrants to invest in electric vehicle plants knowing that the market may not even respond—certainly not to the fiscal incentives under this policy. Perhaps this is why the policy hopes to first shift motorcycles and rickshaws onto battery because that’s where demand exists.

Even then, the policy is fighting battles on several fronts. Economic stability being a major one. Reducing purchasing power is not conducive for any cars, battery run or otherwise. Secondly, electric vehicles are not cheap—they will cost at least 50 percent more than existing cars. While battery imports have concessions for the first few years, is it possible that suddenly Pakistan will start manufacturing lithium-ion batteries (lead-acid and nickel metal have become obsolete) which requires cobalt imported worldwide from Congo. What that would do to the import bill and the end-user price of the vehicle, one can only guess.

Meanwhile, there is a mammoth infrastructure investment needed to put EVs on the road. The installation of charging stations every 3x3 km area is do-able if investments come through, but even then, the ease of usage is not there. It takes 4-6 hours for electric vehicles to charge at charging stations. Thirdly, who will make these investments because it’s certainly not existing auto assemblers? Will it be foreign automotive players or investors that have no experience in this field?

When the EV hype first started to gather heat, global automakers and pioneers made many rosy promises which they are now scrambling to keep. Players like Tesla are watching their EV sales shrink while China’s burgeoning growth in the segment is slowing down. There are many reasons for that including, low performance and reliability, unavailability of charging infrastructure and limited models available. And here we are talking about the western economies. Is this an opportunity for Pakistan to get in, or to wait until the more seasoned players figure this technology out and iron out the creases? Undoubtedly, the idea is inspired. But it needs to confront ground realities.