Saudi Arabia - Country Commercial Guide
Automotive Market

This is a best prospect industry sector for this country. Includes a market overview and trade data.

Last published date: 2019-10-13

Overview

Saudi Arabia is the largest new automotive sales and auto parts market in the Middle East, accounting for an estimated 40 percent of all vehicles sold in the region. In 2016, Saudi Arabia imported close to a million vehicles that included passenger cars, commercial vehicles and light trucks. Saudi Arabia remains a very important market for U.S. automakers.  It is the fifth-largest export market for U.S. passenger vehicles and light trucks in the world and the largest in the Middle East. The SUV and luxury cars market remains strong and shows growing demand. Brands such as BMW, Lexus and Mercedes continue to lead the luxury segment in 2018. The Kingdom is also the largest importer of U.S. automotive products and parts in the region, with some of these imports being re-exported. Currently, there is a small amount of local auto parts and truck production, but no light vehicle production. Most vehicles and parts sold in the country are imported. Aftermarket parts for off-road vehicles and SUV’s have excellent potential in Saudi Arabia. To be successful, manufacturers must provide full support for dealers in terms of advertising, sales, and customer service, and training. However, as a result of prevailing economic uncertainties and tight liquidity in the market in recent years, new vehicle sales were reported to be down by over 20 percent in 2017, as was the case in 2016. In addition, the introduction of mandatory five-percent VAT in January 2018 seemed to have been a deterrent to new vehicle sales as customers adapt to the new tax laws.

The Saudi Arabian government (SAG) is seeking to develop a domestic automotive industry and has encouraged global vehicle manufacturers to establish local operations in an effort to create jobs for Saudi’s growing youth and facilitate the transfer of technology and skills. Saudi Arabia’s industrial standards and conformity assessments are a significant market barrier for U.S. exporters. The Saudi Arabia Standards Organization (SASO) has issued numerous industry standards and regulations that create burdensome documentation and complicated import requirements that result in customs clearance delays and enforcement inconsistencies. Most used auto parts cannot be imported into Saudi Arabia, but reconditioned engine and transmission parts are exempt if they comply with certified standards. Enforcement of intellectual property protection and anti-counterfeiting measures are improving in the Kingdom. SASO has directed manufacturers and their agents in the Kingdom to strictly follow new safety regulations for new cars to be marketed in the Kingdom beginning 2017. SASO stated that safety standards should conform to the guidelines set out in the GCC technical regulations for automobiles. Under these new regulations, front seat air bags for passengers, smart braking system and anti-lock brakes are required.

In 2014, SASO also signed memorandums of understanding (MoUs) with many light vehicle manufacturers to establish Saudi corporate average fuel economy (CAFE) standard. The first stage of the Saudi CAFE applies on all imported light vehicles, new or used. The Saudi CAFE system aims to improve the fuel economy average of light vehicles across the Kingdom by four percent annually, from the current level of 12 km per liter of fuel to more than 19 km per liter by 2025. Per industry trends globally, there is growing interest for more energy efficient vehicles including electric vehicles (EVs), PHEVs and hybrid vehicles as manufacturers are increasingly looking at more electrification of vehicles. In addition, global emissions regulations are also motivating major automakers to shift towards electric vehicles.  While the Saudi government may not be overtly interested in promoting EVs in the Kingdom, they are proceeding with implementing regulations.  Fiscal incentives including government subsidies may help to encourage electric vehicle purchases in Saudi Arabia.  However, Saudi Arabia needs to ready the infrastructure for the use of electric vehicles and this is a key obstacle to growth.

There are on-going discussions with the SASO and Saudi Arabia Energy Efficiency Center (SEEC) to adopt and implement standards as followed in the U.S. Per SASO, qualified agents and distributors may be permitted to import electric vehicles, given that they meet regulatory requirements. On that front SASO is planning to issue regulations for the use of electric vehicles in the Kingdom within the next six months. Certain models of Tesla vehicles have been approved on a trial basis and feasibility studies are currently underway on the infrastructure requirements.

Per recent industry reports, Saudi Electricity Company (SEC) signed an agreement with the Japanese firms Tokyo Electric Power Company, Nissan Motor Company and Tecaoca Coco Energy Solutions Company to implement an electric vehicle pilot project in Saudi Arabia. This agreement will see Saudi electricity Company (SEC) cooperate with Japanese companies to study the operation of electric cars and adapt them for use in Saudi Arabia. Part of the deal also includes the implementation of a project to develop an electric charging stations. Nissan will also lend SEC three electric cars, while Tecaoca Coco Company will provide the company with three charging stations. Developments such as these will provide impetus to this trend and with Saudi Arabia looking to develop its auto industry in line with its goal of diversifying the economy beyond oil.

Additionally, other manufacturers such as Ford, Chevrolet, and GM have plans to expand production and manufacturing towards electric vehicles. For Saudi Arabia’s hybrids vehicle market, in recent years, the Toyota dealer, Abdul Latif Jameel launched the Toyota Prius in Kingdom. Hybrid vehicles may have an advantage and given rising fuel prices, they have the potential to offer a practical advantage and gain popularity, especially in the urban market.

Saudi Customs has a mandatory directive applicable to all imported products that requires country of origin marking, either by embossing/engraving or a non-removable label (marking on packaging material is insufficient). Certificate of Origin must include similar information and is required for all shipments arriving at Saudi ports. In addition, Saudi Customs requires that imported cars and other light vehicles shouldn’t have a manufacturing date more than five (5) years. For big/heavy trucks, it requires manufacturing date of less than 10 years. The Saudi Customs requires that imported cars and other light vehicles cannot have manufacturing date older than five years and big/heavy trucks cannot have a manufacturing date older than 10 years. The Saudi Customs also prohibits the importation of salvaged cars and vehicles formerly used as police/emergency cars, taxies, and rental cars.

 

Opportunities

Recent increases in gas prices have not affected car prices. The Saudi Government is working on legislation to create a healthy balance of SUVs and passenger vehicles (Saudi roads are awash with SUVs). The Saudi government is also working on an incentive program for dealers to encourage them to import fuel efficient vehicles, such as sedans and mid-size SUV’s. With the advent of women driving initiative that was rolled out in June 2018, the market is upbeat, and dealers believe this move will spur growth in the sector in the long term and will also drive up new vehicle sales. Industry analysts forecast that 2018 will see a revival of growth in the sector at approximately two to four percent. The Kingdom’s high per capita incomes will continue to generate strong demand for new vehicles over the long term.

Also, there are definite signs that interest in local commercial vehicle assembly capabilities are growing. Initiatives by industry majors such as Toyota who are considering local production, may pave the way in the future for a more sizeable vehicle manufacturing industry and auto parts supply chain in Saudi Arabia. Furthermore, demand for spare parts has grown considerably over the years, not just to meet a growing need for repair and overhaul, but also due to increasing number of Saudi consumers looking to make performance modifications to their vehicles, in addition to customizing and enhancing looks of their vehicles that has picked up in recent years. SASO is currently studying standards from the Emirates Authority for Standardization and Metrology (ESMA) in the UAE and considering adapting the same standards in Saudi Arabia. Once new regulations are in place, this will pave the way for U.S. aftermarket suppliers particularly, performance and customized vehicles and provide a boost to the industry.

 

Sub-Sector Best Prospects

There are good opportunities for U.S. companies in the following sub-sectors:

  • Tires and tubes

  • Workshop tools

  • Service equipment

  • Body and chassis parts

  • Automobile transmission and drive train and spare parts

  • Automotive chemicals, lubricants, oils, adhesives

  • Car batteries

  • Maintenance and diagnostic equipment

  • Brakes and emission systems tools

  • Car accessories, electronics & electrical components
     

Web Resources

Saudi Ministry of Commerce and Industry
Saudi Arabia General Investment Authority

For more information, contact the following Commercial Specialists at the U.S. Commercial Service in Saudi Arabia:
Zaina Konbaz, U.S. Embassy Riyadh, Email: Zaina.Konbaz@trade.gov, Tel: +966-11-488-3800, Ext 4119
Mohammed Shujauddin, U.S. Consulate General Dhahran, Email: Mohammed.Shujauddin@trade.gov, Tel: +966-13-330-3200, Ext 3137
Anwar Shaqhan, U.S. Consulate General Jeddah, Email: Anwar.Shaqhan@trade.gov, Tel: +966-12-667-0080, Ext 4259