Overview of the National Industrial Development and Logistics Program: Automotive
In our efforts to keep members informed on the progression of the Saudi Vision 2030, a social, cultural, and economic transformation plan that reflects the strengths, capabilities, and ambitions of the Kingdom, we are publishing summaries of the sections of the “Delivery Plan for the National Industrial Development and Logistics Program (NIDLP)”.
The NIDLP aims to transform Saudi Arabia into a leading industrial powerhouse and a global logistics hub in promising growth sectors (with focus on Industry 4.0), which would generate ample job opportunities, enhance the Kingdom’s trade balance, and maximize local content.
The program focuses on four key sectors: Industry, Mining, Energy, and Logistics, as well as enablers including the development of Policies and Regulations, Financial Enablement, Infrastructure, Industrial Lands, Special Economic Zones, Research, Development, and Innovation.
Section 4.A.7: Automotive
Saudi Arabia is the only country among the top 20 countries (in terms of demand) that lacks a local/regional production center. The Kingdom should develop its automotive sector in order to take advantage of current market conditions, especially as it accounts for over 50 percent of the Gulf demand. Industry forecasts expect Electric Vehicles (EVs) to replace internal combustion engines (ICE)s, rendering ICE factories obsolete. However, the demand for EVs is not high, making them less competitive than ICEs.
Several strategic options were taken into consideration when designing the auto sector strategy, including:
- Technology selection: ICEs vs EVs
- Target market: Local vs regional
- Target products: medium class vehicles to reduce cost competitiveness vs small passenger vehicles
- Cluster development: supplier-driven growth focusing primarily on system developments vs OEM-driven growth focusing primarily on attracting OEMs
There is significant local and regional demand for this sector with no regional production capability to address this demand. Therefore, this sector represents a major opportunity for the Kingdom to create jobs for locals while also contributing to GDP growth. The automotive sector is a job intensive industry and has one of the highest employment multipliers. Sectoral development will also create downstream opportunities for industries such as metals, plastics, and chemicals. Moreover, localization of this sector would have a dual positive effect on the Kingdom’s balance of payments by facilitating a reduction in imports as well as increasing exports, especially to the Gulf region.
The NIDLIP program takes into consideration four important global trends in the auto industry, particularly with regards to the electrification of motor vehicles. These trends include
- Lack of consensus on the market penetration of electric vehicles (EV);
- Lack of consensus on the winning EV technology in the future;
- Batteries, which are a core component of EVs are in the midst of rapid developments that may result in certain technologies becoming obsolete in the future
- Multiple actors are entering this sector, disrupting the traditional OEM landscape, making it difficult to predict which will become the dominant player.
However, despite the aforementioned trends, certain fundamentals in the sector are expected to continue to be applicable for the foreseeable future. In spite of the uncertainties facing the sector, a significant portion of components remains unchanged between EVs and traditional combustion engines, leading to a significant similarity in the value between both vehicles. Additionally, the expansion of the automotive industry will benefit from the support of a strong regional ecosystem.
In addition, Li-ion batteries will also be a significant market in the future, especially given new emerging technologies. With demand expected to rise sharply on hybrid and electric vehicles in the next decade, and with the automotive industry efforts to meet this future demand, Li-ion battery sector is expected to see a significant growth supported by related industries in Saudi Arabia.
Automotive strategic decisions taken after deep-dive analysis include:
- Technology selection: dual strategy focusing on ICEs and EVs
- Target market: regional market focusing on leveraging strong ties with neighboring countries
- Target product identification: light vehicles (within $20K) according to local demand
- Cluster development: OEM-driven approach due to a small supplier system
The Kingdom aims to develop an automotive sector in order to create jobs for locals and to help contribute to a growing GDP.
- Lack of a regional ecosystem within KSA
- Higher labor costs and lower productivity compared to other nations
- Lack of an effective logistics infrastructure
- Saudi Arabia has some of the lowest car import tariffs in the world, thus imports are lower in cost than domestic alternatives.
Given the uncertainty regarding the evolution of EV and ICE technologies, the recommended strategy is to develop both types. This will help optimize short term gains with regards to ICE while making calculated bets on EV over the medium term.
In addition to determining which technology to develop, Saudi Arabia also seeks to rely on a number of key strategic choices that take into account both domestic and global trends. These trends are related to technology, geographical markets, product markets, localization, and Industry structure.
In terms of technology, the focus is on balancing the mature technology of ICEs with the up and coming technology behind EVs.
With regards to geography, the focus is on building upon local demand as a catalyst for the sector while also aiming regional exports.
A focus on product markets will allow the sector to mitigate the impact of lower-cost alternatives, eventually allowing the Kingdom to build upon local and regional demand and to leverage scale.
With respect to localization, the goal is to achieve a high degree of localization in order to increase the value of local industry and facilitate exports to the African market.
Lastly, the strategy for developing this sector will be OEM led rather than supplier led, in order to allow for the development of a wider and more complex range of manufacturing within the Kingdom.
Initiatives include the development of the Automotive Development Program, led by the National Industrial Clusters Development Program, and the Automotive Development Policy that aims to provide investment opportunities and support SMEs to establish supply chains and value-added in the automotive industry
To take advantage of business and investment opportunities in this sector, join the Innovation and Localization Mission to Saudi Arabia, Oct 26-31. The mission will facilitate participation at the Future Investment Initiative (FII), hosted by the Public Investment Fund in Riyadh on Oct 29-31. Themed “What is the next for global business?”, the FII will include in-depth conversations about the next global investment opportunities, analysis of industry trends, and networking with an influential community of top global leaders, investors, experts, and innovators. Mission application: here
For a copy of the NIDLP delivery plan, please visit https://vision2030.gov.sa/en/programs/NIDLP