The Gulf’s automotive industry – why is it so strong and where is it heading?

The health of an automotive market is often said to be a good indicator of a country’s overall economy. The good news is that when it comes to the GCC, and particularly the UAE and Saudi Arabia, all indicators point to a very healthy patient. The numbers back it up: in the forecast period 2021 to 2026, Technavio reports that the region’s automotive market will accelerate at a CAGR of 6.74%.

So why is this? Part of it can be attributed to the growing population and increased disposable income. In addition, there have been sizable investments in road networks across the Gulf as well as an increased focus on electric and hybrid cars. Then there is the well-known love of high-end luxury vehicles, particularly in Dubai.

But who is buying, and what are they buying? What’s the situation with imports and exports? And what role are innovation and the journey to sustainability playing in disrupting the automotive industry?

Let’s look at all these points and take the temperature of the automotive industry as it stands today – and what it might look like tomorrow.

Drivers of the GCC automotive industry growth: Car sales and rental

According to Statista, passenger car sales in the UAE are projected to double between 2021 and 2026 to more than half a billion units. The country is well-known for its luxury cars, and in fact these make up around 15% of the total car market. And the popularity of the luxury car end of the market is pushing not just sales but also rentals, with multiple online marketplaces now offering high-end vehicle rental from one hour up to several days.

There is also a sizable used-car market. Back in 2020, the market for used cars in the UAE was estimated at around USD 12bn, and this is projected to grow to USD 18.3bn by 2027. Much like the growth in rentals, part of this projected growth is down to the ability to browse and purchase through online marketplaces.

With this growing demand, Saudi Arabia and the UAE are both looking to further expand their automobile import market.

Who is dominating the market?

It is Japanese brands that lead the way in Saudi Arabia and the UAE. Toyota has been the market leader in the UAE for several years now, with Nissan and Mitsubishi taking second and third place. Japanese brands’ popularity is largely due to their strong resale value, availability of spare parts and low maintenance costs.

Japanese dominance isn’t limited to the UAE and Saudi Arabia. Statista reports that they come out on top across the entire MENA region, with Korean and American brands in second and third place.

As the market continues to grow, part of it will be driven not just by the vehicles themselves but by automotive logistics. This covers everything from storing vehicles, distributing them to dealerships or customers, transporting automobile components or raw materials, and managing the various processes. Having this infrastructure in place, with a flow of spare parts and vehicles, along with the disposal of vehicles at the end of their life, creates an ecosystem that generates jobs and boosts the economy.

Currently, automotive logistics in the GCC is valued at USD 6.1bn, with a CAGR of 4.5% predicted over the period 2019 to 2028. The key players in the automotive logistics sector include Ceva Logistics, DB Schenker and DHL.

With this growth in mind, the UAE and Saudi Arabia are both investing in research and development as well as constructing manufacturing plans as they increasingly look to home-grown manufacturing and the export business that will accompany it. This is linked closely with the GCC’s overall commitment to sustainability.

The role of innovation in the automotive market

The three key initiatives in boosting the region’s sustainability credentials are Saudi Arabia Vision 2030, Dubai 2040 Urban Master Plan, and We The UAE 2031.

A major component of any movement towards a more sustainable economy is transport. A large part of this will be the development of electric vehicles and the accompanying infrastructure. To that end, the Saudi Electricity Company has signed deals with several Japanese companies (Nissan Motor among them) for an electric vehicle pilot project. This will include the development of fast-charging EV stations.

Meanwhile, in the UAE, the goal is to have 10% of Dubai’s vehicles be electric by 2030. Dubai alone has around 200 charging stations, with the stated goal of the UAE government to have over 40,000 electric cars on the roads over the next few years. The UAE is also moving quickly regarding the necessary charging infrastructure. According to Consultancy-me.com, the UAE’s Green Charger initiative aims to provide free charging stations at DEWA Green charger locations and grant electric vehicles exemption from toll charges. It is thought that the UAE’s electric vehicle market will grow at a CAGR of approximately 24% from 2022 to 2028. And this being the UAE, it’s likely that the key will be emission-free vehicles that still offer the kind of high-end luxury feel that has become something of a hallmark for the country.

In terms of homegrown manufacturing, Saudi Arabia now has 160 vehicle plants that produce cars as well as engine parts and accessories with many of the plants focused on electric vehicles. The same report from Arab News notes that Saudi aims to produce around 300,000 cars by the end of the decade. This trend isn’t just confined to one country. Last year it was announced that Abu Dhabi would build an electric vehicle assembly facility in KIZAD with manufacturing, research and development, as well as electric vehicle testing. A new plant is also opening in Dubai Industrial City for the production of electric vehicles.

Driving into the future

Everything starts with the favourable business environment of the GCC. It’s a region where foreign companies want to invest and do business. Increasingly, rather than just being the recipient of automotive products, the GCC is starting to produce them on its own turf. This will not only help meet high local demand, but also open new avenues for exports.

As mentioned, the associated infrastructure that comes from this industry benefits everyone – from the ease of getting hold of spare parts to encouraging governments to invest in their road networks.

With technology and sustainability the two words on everyone’s lips these days, the automotive industry is a good example of where these two ideas truly meet. The UAE, in particular, has successfully set itself up as a tech hub, and innovations in the area of transport will continue to further establish the region as a place of huge opportunity for manufacturers, suppliers, and investors.