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Saudi Arabia goes electric to launch homegrown car industry
Kingdom sets out ambitious plan to diversify economy from reliance on oil revenues
US electric-car maker Lucid Motors plans to produce 150,000 cars a year in Saudi Arabia in 2025 © Amer Hilabi/AFP via Getty Images
Samer Al-Atrush in Dubai
FEBRUARY 12 2023
For decades, Saudi Arabia has attempted to launch its own car industry with nothing to show for it. It is now trying again — but this time with electric vehicles.
The electric vehicle initiative is part of the kingdom’s ambitious diversification drive to wean itself off its reliance on oil income, which is its main revenue source as the world’s largest energy exporter.
It intends to pour billions into the project to create an electric vehicle manufacturing hub, with the aim of producing 500,000 cars a year by 2030.
The US-based Lucid Motors, in which Saudi Arabia acquired a majority stake costing roughly $2bn, intends to produce about a quarter of that target in the kingdom.
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Saudi Arabia hopes the transition to electric will also give the country a better chance of success as the petrol engine market is extremely difficult to break into because of the dominance of established carmakers in Europe, the US and Japan.
The battery powered market offers a more level playing field than combustion, said one Saudi official, and would pit the kingdom against other big electric vehicle producers such as China, Germany and the US.
In addition, Saudi can use its financial muscle to “buy into” the electric market, helped by its large surplus of petrodollars.
“It’s a sector that’s already been developed,” added Monica Malik, chief economist at Abu Dhabi Commercial Bank.
“They [the Saudis] can buy into it and invest in it rather than build something from scratch. It’s gaining traction in global usage, and it factors into the energy transition story as well.”
There are some doubts over the country’s ability to compete against the likes of China with its strong electric vehicle manufacturing base, robust technology, high productivity and cheap labour costs.
But still, electric vehicle manufacturing is planned as an important pillar of the kingdom’s diversification drive, which is being overseen by the sovereign wealth fund, the $600bn Public Investment Fund.
The aim of the diversification drive is to expand the local labour force, teach workers new skills and create jobs in the private sector, while attracting foreign direct investment.
The country’s broader economic plan includes the creation of the futuristic new city of Neom, a financial centre in Riyadh and tourist resorts.
The Saudis will also continue their spending spree on sports and technology companies abroad.
An electric-car charging point in Saudi Arabia © Rotana Hammad/Alamy
Electric vehicle production is central to the initiative because the kingdom aims to take advantage of the industry’s expected expansion. Electric cars should make up about 60 per cent of vehicles sold annually by 2030, if net zero targets are to be reached by 2050, the International Energy Agency said.
Key to the Saudi electric vehicle plan is the creation of Ceer, Arabic for drive or go, which the country hopes will produce 170,000 cars a year in partnership with Taiwan’s technology group Foxconn and BMW.
The first cars are planned to go on sale in 2025 at the affordable end of the market.
PIF has also acquired a majority stake in Lucid Motors, which plans to produce 150,000 cars a year in the kingdom in 2025, and signed contracts with Hyundai and Chinese electric vehicle group Enovate.
Establishing an electric vehicle industry would substantially cut the kingdom’s import bill, said Tarek Fadlallah, the chief executive for Nomura Asset Management in the Middle East.
“Transportation accounts for about 15 per cent of the Saudi import bill and is the single largest consumer of foreign currency. There is a huge incentive to substitute those imports with domestically produced cars.”
In addition, the electric initiative fits with Saudi Arabia’s target of 30 per cent of all vehicles in Riyadh to be powered by batteries by 2030, while putting it among the world’s top five producers.
However, there are headwinds, said Al Bedwell, director of Global Powertrain at LMC Automotive, as chip shortages and high mineral prices needed for batteries threaten development.
He said recessionary forces across the world are likely to constrain the expansion of the electric vehicle sector.
“By the end of this year, the industry is hoping they will build enough cars, but unfortunately at that point people may not have enough money to buy those cars.”
He added: “The point at which you could produce an electric vehicle for the same cost as a combustion vehicle was thought to be around 2025, but it’s more likely now that it will be towards the end of the decade.”
The electric car industry has also been hit by inflation and supply chain bottlenecks of minerals and components that could disrupt Saudi plans.
With this in mind, PIF has launched a company to invest in mining abroad to secure its supply of lithium and other minerals used in batteries.
At the same time, Australian battery manufacturer EV Metals is planning a lithium hydroxide plant in the kingdom.
For its part, Lucid aims to start the assembly of vehicles in Saudi this year with cars completely built in the country in 2025.
The Lucid and Ceer factories will be based in the King Abdullah Economic City, a Red Sea zone built to attract investment and boost the economy, which will act as a hub for the supply chain, according to the city’s chief executive Cyril Piaia.
“There is a full value chain. The suppliers will be fully integrated. They will be part of the automotive hub. There will be a number of suppliers that will be established here,” he said.
Faisal Sultan, Lucid’s managing director for Saudi Arabia, stressed the importance of the government taking the initiative in building a supply chain.
“The supply chain is going to be a main thing we’re going to go after,” he said. “The supply chain doesn’t come typically for one OEM [manufacturer] . . . that’s why it’s a government driven initiative rather than OEM driven.”
Kingdom sets out ambitious plan to diversify economy from reliance on oil revenues
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Hyundai also recently singed a MOU with KSA to built a CKD plant in KSA, the first in the Middle East. Electric cars as well.
Hyundai Motor Co. is expected to build a completely knocked down (CKD) plant in Saudi Arabia. If the company builds the plant as expected, it will be the first
www.businesskorea.co.kr
KSA is the largest car market in the Middle East according to that Korean article.
@The SC @hamza gareeb
