Prime Minister Shehbaz Sharif has approved the Autos and Auto Parts Manufacturing Policy 2026-31 after obtaining a go-ahead from the International Monetary Fund (IMF), setting an export target of $6 billion over the policy period, with sources telling The Express Tribune that the policy draft was shared with the IMF, which raised no objection. The government will introduce a money bill in Parliament, to be termed a mini-budget, after seeking the federal cabinet's approval. Adviser to the Prime Minister on Industries and Production Haroon Akhtar Khan said the policy represents a comprehensive shift, moving away from import-dependent assembly towards export-oriented manufacturing, greater localisation and internationally competitive production, and reflecting the prime minister's vision of an export-led, self-reliant economy with emphasis on empowering local manufacturers, strengthening domestic parts production, creating employment and integrating Pakistani industry into global automotive supply chains. The adviser said the new policy introduces binding localisation requirements to ensure progressive growth in domestic value addition. Highlighting the domestic vendor industry, he said Pakistan currently has approximately 2,200 auto parts manufacturers whose capacity, technological advancement and integration into international supply chains are essential for the sector's long-term competitiveness. A Vendor Upgradation and Technology Transfer Programme (VUTTP), with an allocation of Rs2.1 billion, will be implemented through the Engineering Development Board (EDB) and the Small and Medium Enterprises Development Authority (SMEDA) to facilitate technological upgradation, full access to common manufacturing facilities, skills development, quality certification and export readiness, with at least five anchor firms targeted for investment during the policy period. OEMs will also be obligated to support local vendors in technology transfer, quality assurance and manufacturing capability development. Salient features The policy prioritises domestic auto parts manufacturing in the country over the import of completely built-up (CBU) vehicles, recognising that a competitive and technologically advanced parts base is essential for sustainable industrial development, and moves beyond conventional tariff protection by introducing binding localisation requirements, mandatory export targets, technology transfer obligations and dedicated support for domestic vendors. Sources said the policy requires all original equipment manufacturers (OEMs) to maintain their existing domestic value addition for each model, so manufacturers already achieving 50% to 65% localisation cannot reduce levels merely because lower minimum thresholds apply to others. Existing OEMs must increase domestic value addition by an annual 2% on the previous year's base, a cumulative 8% over the policy period, with minimum targets by 2030-31 of 40% for internal combustion engine cars and SUVs, 45% for light commercial vehicles, 80% for tractors and 90% for motorcycles and rickshaws. NEV localisation The policy prescribes progressively increasing requirements for new energy vehicles (NEVs), reaching 25% for cars and SUVs and 30% for motorcycles and rickshaws by 2030-31, and failure to achieve applicable targets attracts an additional three percentage points of customs duty on relevant non-localised completely knocked-down (CKD) imports in the subsequent financial year, subject to the prescribed legal process. Export promotion Mandatory export targets and financial incentives aim to transform the sector into an export-oriented industry, with cumulative exports of about $6.01 billion targeted during 2026-31, comprising $3.29 billion, or 55%, from auto parts manufacturers and $2.72 billion, or 45%, from automobile manufacturers. A Drawback of Local Taxes and Levies (DLTL) scheme provides eligible exporters 5% support on net free-on-board export value and an additional 10% on qualifying incremental exports. OEMs face penalties ranging from 1% to 3% of annual factory-gate sales value for non-compliance, and two consecutive years of failure may result in cancellation of the manufacturing certificate except in cases of force majeure, with manufacturers required to secure export opportunities within the global supply chains of their international principals. This clearly shows the policy emphasises auto parts manufacturing and export capability over assembly alone. Import concessions Customs duty reductions are being implemented progressively over five years alongside mandatory domestic value addition and export obligations. The concessional 5% customs duty on imported battery electric vehicles (BEVs) valued up to $15,000 during the initial two years is conditional on establishing domestic assembly or manufacturing facilities, and importers must submit a surety bond and irrevocable bank guarantee covering the customs-duty differential. Companies must commence commercial production of the imported BEV variant by September 30, 2028, failing which bank guarantees will be encashed, while OEMs that fail to enter into agreements with EDB covering localisation, exports and other performance obligations will not qualify for concessionary tariffs on imported parts. Import concessions are therefore accompanied by specific manufacturing commitments and enforceable obligations rather than being unconditional. Foreign exchange, industrial development The policy projects cumulative foreign exchange savings of about $17.7 billion during 2026-31 relative to importing equivalent vehicles in CBU condition. Export targets and incentives are also intended to generate additional foreign exchange earnings. Increased NEV adoption is projected to avoid imports of about 1.823 million tonnes of oil over the policy period. Contract manufacturing provisions will facilitate use of existing industrial capacity, currently estimated at 41% to 80% idle, thereby supporting production efficiency, investment and employment. The policy envisages periodic monitoring, a mid-term review in 2028 and corrective interventions where necessary to achieve its industrial development objectives.