The new finance minister came with several concessions in the budget to spur economic activities. However, the party seems to be short-lived as imports due to increasing demand and higher commodity prices have surged to an uncomfortable level, and now efforts in Islamabad are focused on wanting to curtail imported demand. SBP has already changed its stance on monetary policy through the rate hike.
One area of focus is automobiles. The new auto policy is in the making. And there were incentives offered in the budget such as reduction in FED and other taxes that resulted in car prices reducing. There is a dip in prices for all the cars of any size and form made locally (apart from double cabin trucks). To promote EVs, the duties and taxes on imported (CBUs) cars are reduced as well.
As expected, there is a surge in demand due to this policy which is suggested by a higher number of cars being booked. One of the reasons for higher booking from July onwards was that the anticipation of budget incentives led to fewer cars booked in June. However, demand is not just because of the lower price, there was an inertia of demand as well due to a pick-up in economic activities.
The recent import numbers suggest that there is a visible uptick in demand. The average monthly CBU cars import (PBS data) in Jul-Aug is up by 40 percent to $30 million in Jul-Aug as compared to the average monthly imports in FY21. Import of CKD cars (kits of locally assembled cars) is up by 37 percent to $128 million.
The question is how much of this number is attributed to the pick-up in organic demand due to budgetary incentives. The numbers of cars being imported, or kits being imported are supply-side numbers. The delivery lag is in every car. It is usually low in imported and high in domestically produced cars. The lag is from 1 to 8 months right now. Thus, the recent numbers are to cater to the demand generated prior to the budget.
Nonetheless, market intelligence suggests that there is a sudden increase in booking of imported EVs and both locally manufactured cars. But the numbers are yet to fully reflect in imports. The lag in delivery is for two reasons. One is higher demand and the other is supply shortage of semiconductors (chips). The shortage is global and both CBUs and CKDs exports are rationed from respective suppliers. Thus, the number of cars and kits to be imported may not reach any alarming levels due to supply bottlenecks.
However, the interesting element is the surge in demand (booking) of expensive EVs – like Audi e-tron. Market intelligence suggests that around 450-500 e-tron are being booked in the past two months. But the car is booked till March. This means that around 50 cars are to be imported a month as due to supply shortage the quota for Pakistan is perhaps limited at that number.
And now seeing that long wait, a few might not be booking. Plus, the currency has depreciated by over 10 percent in the past 3-4 months and the perceived price advantage due to low duty and taxes is almost completely washed away in PKR due to currency adjustment. That is another reason people might not book many cars.
The other interesting element is that in EVs, the booking is mainly in expensive cars. For example, MG has imported 194 ready units to deliver units of its ZSEV which is priced around Rs6 million. To-date, only 83 cars have sold. While the booking of Audi, Mercedes and Posh is higher. It’s the rich boys club buying EVs where they can get the comfort of cars priced over Rs40 million for ICE (internal combustion engine) version in the EV comparable in less than half the price.
But that trend will get arrested going forward, as the rich boys’ easy money making is becoming difficult with falling profit margins in respective businesses and currency depreciation. Still the government needs to revisit its EV policy. The objective was to enhance the penetration of EVs in Pakistan for better adoption. With more cars, charging stations were going to be built and local manufacturing would be encouraged.
The incentive for low taxes and duties on EVs was for one year and the booking of top-selling EV is for nine months of it. Not much dent can happen anymore. However, the government is thinking about applying a regulatory duty of 50 percent on EV imports with a battery pack of over 50 KWH. This will restrict the imports to the likes of e-tron and all. But this will not change the price of MG ZS whose battery packing is below 50KWH.
The government must act carefully, and this RD might kill its primary objective in the process. For starters, it could tweak the battery size limit. Smaller EVs have a battery capacity of 65KWH while expensive EVs have a battery packing usually above 70KWH. The RD could focus on only expensive EVs. It seems though that impact of EVs on imports has been over estimated. The power corridors in Islamabad are estimated import of around 3,000 expensive EVs but that number does not seem right.
It is simply not possible for dealers here to supply this number due to supply shortages. The government needs to do better market intelligence and think through its steps before incorporating any new measure as part of the new auto policy which is almost finalized. One teaser for the new policy is that there will be special incentives for locally manufactured and locally branded vehicles. More on that later.
I say to again that entire budget of PTI depends on cars sales and import growth and this can be far far far better by PMLN only on this matter.
PTI is desperate party just tried to win election based on cars sales and import growth.
PTI Growth= Car sales growth dam wasted entire legacy in just 4 month poor Imran Khan 22 year political career.
One area of focus is automobiles. The new auto policy is in the making. And there were incentives offered in the budget such as reduction in FED and other taxes that resulted in car prices reducing. There is a dip in prices for all the cars of any size and form made locally (apart from double cabin trucks). To promote EVs, the duties and taxes on imported (CBUs) cars are reduced as well.
As expected, there is a surge in demand due to this policy which is suggested by a higher number of cars being booked. One of the reasons for higher booking from July onwards was that the anticipation of budget incentives led to fewer cars booked in June. However, demand is not just because of the lower price, there was an inertia of demand as well due to a pick-up in economic activities.
The recent import numbers suggest that there is a visible uptick in demand. The average monthly CBU cars import (PBS data) in Jul-Aug is up by 40 percent to $30 million in Jul-Aug as compared to the average monthly imports in FY21. Import of CKD cars (kits of locally assembled cars) is up by 37 percent to $128 million.
The question is how much of this number is attributed to the pick-up in organic demand due to budgetary incentives. The numbers of cars being imported, or kits being imported are supply-side numbers. The delivery lag is in every car. It is usually low in imported and high in domestically produced cars. The lag is from 1 to 8 months right now. Thus, the recent numbers are to cater to the demand generated prior to the budget.
Nonetheless, market intelligence suggests that there is a sudden increase in booking of imported EVs and both locally manufactured cars. But the numbers are yet to fully reflect in imports. The lag in delivery is for two reasons. One is higher demand and the other is supply shortage of semiconductors (chips). The shortage is global and both CBUs and CKDs exports are rationed from respective suppliers. Thus, the number of cars and kits to be imported may not reach any alarming levels due to supply bottlenecks.
However, the interesting element is the surge in demand (booking) of expensive EVs – like Audi e-tron. Market intelligence suggests that around 450-500 e-tron are being booked in the past two months. But the car is booked till March. This means that around 50 cars are to be imported a month as due to supply shortage the quota for Pakistan is perhaps limited at that number.
And now seeing that long wait, a few might not be booking. Plus, the currency has depreciated by over 10 percent in the past 3-4 months and the perceived price advantage due to low duty and taxes is almost completely washed away in PKR due to currency adjustment. That is another reason people might not book many cars.
The other interesting element is that in EVs, the booking is mainly in expensive cars. For example, MG has imported 194 ready units to deliver units of its ZSEV which is priced around Rs6 million. To-date, only 83 cars have sold. While the booking of Audi, Mercedes and Posh is higher. It’s the rich boys club buying EVs where they can get the comfort of cars priced over Rs40 million for ICE (internal combustion engine) version in the EV comparable in less than half the price.
But that trend will get arrested going forward, as the rich boys’ easy money making is becoming difficult with falling profit margins in respective businesses and currency depreciation. Still the government needs to revisit its EV policy. The objective was to enhance the penetration of EVs in Pakistan for better adoption. With more cars, charging stations were going to be built and local manufacturing would be encouraged.
The incentive for low taxes and duties on EVs was for one year and the booking of top-selling EV is for nine months of it. Not much dent can happen anymore. However, the government is thinking about applying a regulatory duty of 50 percent on EV imports with a battery pack of over 50 KWH. This will restrict the imports to the likes of e-tron and all. But this will not change the price of MG ZS whose battery packing is below 50KWH.
The government must act carefully, and this RD might kill its primary objective in the process. For starters, it could tweak the battery size limit. Smaller EVs have a battery capacity of 65KWH while expensive EVs have a battery packing usually above 70KWH. The RD could focus on only expensive EVs. It seems though that impact of EVs on imports has been over estimated. The power corridors in Islamabad are estimated import of around 3,000 expensive EVs but that number does not seem right.
It is simply not possible for dealers here to supply this number due to supply shortages. The government needs to do better market intelligence and think through its steps before incorporating any new measure as part of the new auto policy which is almost finalized. One teaser for the new policy is that there will be special incentives for locally manufactured and locally branded vehicles. More on that later.
Love and hate for EVs
The new finance minister came with several concessions in the budget to spur economic activities. However, the party...
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I say to again that entire budget of PTI depends on cars sales and import growth and this can be far far far better by PMLN only on this matter.
PTI is desperate party just tried to win election based on cars sales and import growth.
PTI Growth= Car sales growth dam wasted entire legacy in just 4 month poor Imran Khan 22 year political career.
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