Local factories can expand car market by ten times

Highlights:  

• The govt earlier this month offered to waive all taxes and duties, except customs duty (CD), on imported components for up to 2,500cc cars

• Welding and painting car bodies would further reduce the total tax and duty burden to around 30%, which would be over 40% for mere painting

• Those are around 90% for local screw driving of car bodies, while a completely built unit of an imported gasoline and hybrid car is subject to at least 128% and 90% of total tax and duties respectively

The new progressive manufacturing policy and incentives offered for car-making are smart moves by the government which have unleashed the potential to expand the local market by ten times, industry players said at a webinar hosted by The Business Standard.

"If we can bring down the price of a car to Tk7-8 lakh and middle-class people avail of car loans, the existing car market of 15,000-16,000 units per annum can grow to as high as 1-2 lakh units a year," said Mir Masud Kabir, managing director (MD) of Bangladesh Auto Industries, a company investing toward manufacturing electric vehicles locally.

The government earlier this month offered to waive all taxes and duties, except customs duty (CD), on imported components for up to 2,500cc cars if a company invests in a local modern plant for assembling cars and painting car bodies.

Welding and painting car bodies would further reduce the total tax and duty burden to around 30%, which would be over 40% for mere painting.

Those are around 90% for local screw driving of car bodies, while a completely built unit of an imported gasoline and hybrid car is subject to at least 128% and 90% of total tax and duties respectively.

Cars are set to replicate the motorcycle industry localisation success story, as the policy would help Bangladesh attract investments from global car giants, alongside local companies like PHP Automobiles, Bangla Cars, Nitol-Niloy, Uttara Motors, Rangs, Fair Technologies, and Maa Enterprise, according to PHP Automobiles MD Mohammed Akhter Parvez.

The country would get a car manufacturing ecosystem in the long run with the gradual development of the component industry, and brands can source their components locally, he added.

PHP, around four to five years back, began assembling Malaysian Proton branded cars at its Chattogram plant and gradually added painting and assembling of completely knocked down cars. It also began manufacturing some metal parts on its own under quality control by its technology partner or principal.

The glass manufacturing giant of the country, PHP, now plans to make vehicle windshields and that is how localisation takes place, said the speakers at the webinar, hosted by TBS Executive Editor Sharier Khan.

Owing to high tariffs, cars are very expensive in Bangladesh, and in order to let the local industry flourish, they must be affordable for people, said Khan.

Local plants should be protected against imports, said Zakir Hossain, managing director of Bangla Cars, which sold 165 locally painted and assembled cars last year to mostly first-time car buyers.

The growth of middle class consumers in the last several years has been unprecedented in Bangladesh. They are likely to be the growth driver of the car industry in the coming years, Hossain added.

Taxes and duties should be announced for at least five years, in consultation with the industry players, instead of making some changes in each budget if Bangladesh wants global car brands to have their plants here, he opined.

The duty benefit offered would help reduce car prices, but the reduction would not be in proportion to the duty cut due to the soaring costs of raw materials, freight, and the dollar exchange rate, while local plants would also need huge investments for machinery, technology and skill development, said the entrepreneurs.

They requested reducing the CD of primary raw materials to as low as 3% and intermediary raw materials to 10%, in line with that for the motorcycle industry.

To inspire the local industry, the government also should waive value added tax on after-sale services and spare parts.

Mir Masud Kabir said the incentives offered to carmakers should be offered to local component makers too, for the sake of localisation of the automobile industry.  

Electric vehicle yet to get supportive policy

At a time when the world is aggressively moving towards electric vehicles (EV), Bangladesh is yet to offer the needed policy for local manufacturing of EVs, said MD of Bangladesh Auto Industries Mir Masud Kabir.

Even in the matter of imports and registration, the government is treating EVs improperly, considering 50 KW equivalent to 1000, he added.

He expects the government will accommodate EVs with the supportive policy measures proposed in the announced budget before it is finalised in the parliament.

No emission and a very low running cost will attract a large number of EV customers if local plants can bring their unit prices down.

In Bangladesh only 5 of every 1000 people have a car, while the global average is 120 and the average is at around 800 in the developed world, Kabir said, indicating that Bangladesh has a significant headroom to grow its car market.

Affordability would be the crucial factor to the growth, which would need incentivising and facilitating investments both in car manufacturing and component manufacturing.

Kabir said important EV components like lithium ion batteries, motors, controllers and chargers manufacture should be heavily incentivised.

If Bangladesh offers a supportive policy for several decades, global EV giants might well choose to make Bangladesh their manufacturing hub, he added.