EVs and Pakistan

While wealthier countries have the luxury of providing subsidies for EVs, poor countries are stuck in a corner

Electric vehicles (EV) and hybrids continue to gain popularity abroad, especially in wealthier countries. Their advantages are obvious. They are, theoretically, less polluting, easier to maintain, and can be equipped with several features that traditional cars and trucks cannot. Many of the downsides are being addressed in realtime, as maximum range and battery life have increased dramatically in recent years. Meanwhile, battery prices and overall car prices are also falling, coming closer to traditional internal combustion vehicles.

However, while wealthier countries have the luxury of providing environmental and other subsidies to encourage citizens to buy EVs or clean hybrids, poor countries such as Pakistan are stuck in a corner. Here, heavy taxes on cars are an important revenue source for the government, making a ‘negative tax’ such as a subsidy impossible. The fact that they are not locally manufactured also raises the amount of taxes involved in the final price. Indeed, EVs currently cost about two-and-a-half times as much as their equivalent conventional counterparts, despite a recent reduction in taxes. Proposals to significantly reduce the tax rate for clean cars would also face significant opposition, even when weighed against the potential environmental gains from using EVs and reducing demand for imported oil. Local carmakers also have little incentive to mass-produce EVs when demand is so low and tax incentives are non-existent.

At the same time, there is one avenue that bears examination. In many countries, demand for EVs is relatively low because of range limits for larger cars. The best-selling cars in Pakistan are not SUVs or even large sedans, but smaller hatchbacks and coupes. EV versions of these available abroad actually have substantial maximum range, and for most commuters who use them only for in-city driving, daily charging is not a significant issue. Stripped-down versions designed to lower the pricepoints may actually be competitive in the local market. And while the big local car manufacturers appear to oppose EVs, it is mostly because there is not enough demand to encourage them or their parent companies to design cheaper stripped-down versions of their EVs for the relatively small Pakistani market. More competition and incentives could change that.

Published in The Express Tribune, January 21^st, 2021.

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