Pakistan Auto Sales Surge, But Policy Vacuum Threatens Growth Ahead

KARACHI: Pakistan's auto industry is having a strong year on paper, even as the policy framework holding it up has quietly expired.

Indus Motor Company posted total sales CKD plus CBU of 45,035 units, a 33 percent jump year-on-year. Passenger car sales did the heavy lifting, climbing 56 percent, while commercial vehicle volumes barely moved. Pakistani buyers now choose from 31 brands and more than 100 locally assembled models, a selection that spans every major vehicle segment.

Pakistan Auto Sales Gain Momentum

According to Focus Pakistan, hybrid buyers, though, took a direct hit. General Sales Tax on hybrid electric and plug-in hybrid vehicles jumped from 8.5 percent to 25 percent this year. Prices on those models moved up starting in July 2026. Conventional ICE vehicles and fully electric BEVs kept their existing tax rates. The hybrid segment now carries a tax load close to what ordinary petrol-car buyers pay, minus the fuel-cost advantage that used to make hybrids worth the extra money.

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Used-vehicle imports tell a parallel story. In January 2026, the government scrapped the Baggage Scheme and imposed mandatory pre-shipment inspections under the Gift and Transfer of Residence schemes. Used-vehicle imports dropped to roughly 38,000 units in FY26 from around 42,000 in FY25 a meaningful decline, though those imports still make up 19 percent of total PAMA-reported sales. The policy shift favors local assemblers, but imported used cars haven't disappeared from the market.

Capacity utilization exposes the gap between potential and reality. Pakistan's domestic auto industry runs at less than 50 percent of installed capacity, leaving substantial room for volume growth and deeper localization if demand and policy line up.

Pakistan Auto Policy Vacuum Deepens

That "if" is doing a lot of work right now. The Automotive Industry Development and Export Policy governed the sector for five years, from 2021 through June 2026, setting the tariff structure, localization targets, and incentive regime that manufacturers built their investment plans around. It has now expired, and the government hasn't announced what replaces it. That gap matters more than a routine bureaucratic delay. Assemblers deciding whether to expand a plant, add a new model, or deepen local parts production need to know the tariff and incentive structure they'll operate under for the next several years not just the next few months. Without that clarity, expansion decisions that would otherwise move forward sit on hold, and the capacity Pakistan already has keeps running under half-utilized. Indus Motor itself expects sector growth to slow in FY27 largely because of this policy delay, a warning from inside the industry rather than an outside analyst's guess.

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A separate policy shift adds another layer of risk to that already uncertain picture. The National Tariff Policy 2025-30 could narrow the price gap between locally assembled vehicles and imported CBU units. A narrower gap sounds good for buyers chasing lower prices. It could also erode the cost edge that makes local assembly worth the investment right now, undercutting the very localization push the expired AIDP was designed to protect. Two policy tracks one lapsed, one still taking shape are pulling the sector in directions nobody in the industry can fully plan around yet.

Financing Offers Buyers a Lifeline

Financing offers one genuine bright spot in an otherwise uncertain policy landscape. Financing penetration in vehicle purchases rose to 26 percent from 21 percent, giving more buyers a path into showrooms regardless of what happens in Islamabad. Indus Motor argues that higher financing limits and longer loan tenures could push affordability further, unlocking demand that current lending caps still hold back.

The result is an industry growing fast on today's numbers while waiting on tomorrow's rulebook. Buyers have more choice than ever, financing is getting easier, and factories still have room to expand. Until a new automotive policy actually replaces the one that lapsed in June, though, nobody in the industry knows exactly what they're planning for next.