Policy delay may moderate industry growth in FY2026-27 despite significant recovery potential, rising financing penetration and lower used-vehicle imports
KARACHI: Pakistan’s automotive sector has significant room for growth, but policy uncertainty and delays in announcing a new automotive policy could moderate industry expansion in FY2026-27, according to Topline Securities Limited.
The brokerage said Pakistani consumers currently have access to 31 vehicle brands and more than 100 locally assembled models across major vehicle segments.
For Indus Motor Company (INDU), total sales, including completely knocked-down (CKD) and completely built-up (CBU) units, increased 33% year-on-year to 45,035 vehicles, while passenger car sales rose 56%. Commercial vehicle sales remained broadly stable.
The increase in general sales tax (GST) on Hybrid Electric Vehicles (HEVs) and Plug-in Hybrid Electric Vehicles (PHEVs), from 8.5% to 25%, led to vehicle price adjustments from July 2026. Tax rates on Internal Combustion Engine (ICE) vehicles and Battery Electric Vehicles (BEVs) remained unchanged.
Used-vehicle imports decline
The government abolished the Baggage Scheme for used-vehicle imports in January 2026 and introduced mandatory pre-shipment inspections under the Gift and Transfer of Residence schemes.
Topline Securities termed the measures positive for Pakistan’s local automotive manufacturing sector.
Used-vehicle imports subsequently declined to around 38,000 units in FY26, from approximately 42,000 units in FY25.
Despite the decline, used vehicles still accounted for around 19% of total PAMA-reported sales, indicating continued competitive pressure on local assemblers.
The domestic auto industry is also operating at less than 50% of installed capacity, highlighting substantial potential for higher production volumes and localisation if demand recovers.
New auto policy remains pending
The Automotive Industry Development and Export Plan (AIDP) 2021-26 expired in June 2026, while its successor policy remained pending.
The delay has created uncertainty over production planning, investment decisions and future sector growth. INDU expects automotive sector growth to moderate in FY27 amid the policy delay.
Meanwhile, the National Tariff Policy 2025-30 could reduce the price gap between locally assembled vehicles and CBU imports.
This may put additional pressure on domestic manufacturers and influence future localisation decisions.
Vehicle financing supports demand
Consumer financing remains an important driver of vehicle demand, with financing penetration increasing to 26% from 21%.
However, the company believes higher financing limits and longer repayment tenures could further improve vehicle affordability and support demand.
Auto industry retains recovery potential
Overall, analysts see considerable recovery potential for Pakistan’s automotive industry, but the pace of growth will depend heavily on the new automotive policy, tariff measures, consumer financing conditions, capacity utilisation and localisation.
With the industry currently operating below half of its installed capacity, a recovery in demand combined with greater policy clarity could provide significant scope for higher production and investment in the sector.