The Looming Crisis in Pakistan's Auto Manufacturing Sector: Implications for Local Assemblers and Auto Parts Makers

Pakistan’s auto manufacturing sector, once a cornerstone of industrial policy, now teeters on the edge of collapse due to the National Tariff Policy (NTP) 2025–30. This policy, framed as a step toward trade liberalization and IMF alignment, has triggered a cascade of risks for local assemblers and parts manufacturers. For investors, the sector presents a paradox: a crisis-laden landscape riddled with policy-driven volatility, yet one that could also unlock opportunities for strategic restructuring and export-led growth—if stakeholders navigate the turbulence with foresight.

Policy-Driven Risks: De-Industrialization and Fiscal Erosion

The NTP 2025–30’s core measures—phasing out Additional Customs Duties (ACDs), reducing Regulatory Duties (RDs), and liberalizing used vehicle imports—threaten to dismantle decades of protectionism that sustained Pakistan’s auto industry. By 2030, the 40% premium tariff on used vehicles will be eliminated, directly undercutting local assemblers who rely on demand for new cars [1]. Industry data reveals that annual production has stagnated at 150,000 units since 2004, a figure now under existential threat as used imports flood the market [1].

The Pakistan Association of Automotive Parts and Accessories Manufacturers (PAAPAM) warns that these reforms could erase one million direct and indirect jobs, alongside Rs878 billion in annual industry revenue and Rs302 billion in tax collections [1]. For context, the sector employs over 2 million people, many in small and medium enterprises (SMEs) that supply components to assemblers like Suzuki and Toyota [4]. The phase-out of ACDs and RDs will further erode margins for local parts makers, who already face a 30% decline in new vehicle sales due to used car competition [2].

Strategic Opportunities: Export Potential and Policy Reforms

While the NTP 2025–30’s immediate impact is destabilizing, it also creates a window for strategic investment in companies that can pivot to export markets. The policy’s emphasis on reducing customs duties and aligning with global standards could lower production costs for firms targeting regional and international markets. For example, Indus Motor Company and Honda Atlas Cars Pakistan reported a 12% growth in Q3 2025 deliveries, suggesting that firms with robust supply chains and export-ready models may thrive [4].

Investors should also monitor calls for policy revisions. Industry leaders, including the Indus Motor CEO, have urged the government to introduce tax exemptions for overseas Pakistanis purchasing locally made vehicles and extend financing tenure for buyers [4]. Such measures could stabilize domestic demand while incentivizing exports. Additionally, the Engineering Development Board (EDB)’s push for "industrial modernization" hints at potential subsidies for green manufacturing or technology upgrades, which could benefit firms investing in electric vehicles (EVs) or hybrid models [3].

Investment Thesis: Navigating the Crossroads

For investors, the key lies in balancing short-term risks with long-term opportunities. The sector’s volatility demands a dual strategy:
1. Hedging Against De-Industrialization: Avoid overexposure to SMEs reliant on domestic demand, particularly in the auto parts subsector. Instead, focus on large assemblers like Suzuki and Toyota, which have diversified supply chains and stronger capital buffers [1].
2. Capitalizing on Policy Shifts: Target firms adapting to export-oriented models. For instance, companies integrating EV technology or securing partnerships with regional markets (e.g., Afghanistan, Bangladesh) could benefit from the NTP’s trade liberalization agenda [3].

The government’s replacement of the Auto Industry Development and Export Policy 2021–26 with a new framework in July 2026 will be a critical inflection point. If the new policy includes safeguards for local manufacturers—such as temporary import restrictions or R&D incentives—it could mitigate the NTP’s worst effects [1]. Conversely, a lack of such measures may accelerate the sector’s decline, leaving investors with stranded assets.

Conclusion

Pakistan’s auto sector is at a crossroads. The NTP 2025–30’s liberalization agenda, while politically expedient for IMF compliance, risks triggering a de-industrialization crisis. However, for investors with a long-term horizon, the sector’s challenges also present opportunities to back resilient firms capable of navigating policy shifts and capitalizing on export growth. The coming months will test the industry’s adaptability—and its ability to influence a policy environment that remains in flux.

Source:
[1] Pakistan's auto industry says it's now 'on the brink of collapse' [https://www.brecorder.com/news/40379608/pakistans-auto-industry-says-its-now-on-the-brink-of-collapse]
[2] NTP 2025–30: Tariff Reforms or Industrial Weakening? [https://automark.pk/ntp-2025-30-tariff-reforms-or-industrial-weakening/]
[3] Auto sector seeks long-term policy [https://tribune.com.pk/story/2548183/auto-sector-seeks-long-term-policy]
[4] Pakistan's auto industry orchestrates a strong rebound in 3QFY25 [https://profit.pakistantoday.com.pk/2025/04/22/pakistans-auto-industry-orchestrates-a-strong-rebound-in-3qfy25-report/]