Saudi Arabia’s Logistics Sector Pioneers Global Connectivity

RIYADH: Saudi Arabia’s automotive industry is experiencing significant growth, driven by government initiatives, strategic geographic location and ambitious plans to become a manufacturing hub.

These factors make the Kingdom a key player in the global market for this industry.

According to Karim Henain, partner at Bain & Co., the main drivers of this growth are a young population, more women behind the wheel and a significant influx of expatriates, which translates into sales of more than 600,000 new cars a year.

“The market is poised for rapid growth, outpacing many Western markets,” Henain told Arab News.

He added: “Vehicle ownership rates in Saudi Arabia exceed those in Western markets, driven by larger families, a less developed public transport system and a strong culture of dependence on personal vehicles.”

According to Aly Hefna, manager of Automechanika Riyadh, Messe Frankfurt Middle East, Saudi Arabia’s strategic geographical location at the crossroads of major trade routes further strengthens its position as a regional automotive center. He told Arab News that the Kingdom’s government is taking a unique approach to leading direct investment initiatives in the automotive sector.

“Saudi Arabia, like its international peers, actively embraces innovation, invests in research and development and prioritizes sustainable development. These are key steps that the Saudi Arabian government is taking to ensure long-term viability and competitiveness in the global market,” added the exhibition manager.

Production center

The automotive sector, which includes design, development and manufacturing, as well as distribution, maintenance and repair, and customisation, plays a key role in achieving the ambitious goals of Vision 2030. Henain mentioned that the Kingdom has set itself the ambitious goal of building an automotive manufacturing cluster, with agreements already in place to establish local footprint for original equipment manufacturers as well as first-tier suppliers.

“The industry is still in its infancy and it will take some time before it reaches maturity comparable to other, more established automotive manufacturing clusters,” he said.

He stressed that the Kingdom is investing heavily in autonomous vehicle technology and plans to introduce robotaxi and robo-shuttles in the near future.

Saudi automotive companies actively implement innovations, invest in research and development and focus on sustainable development.

Aly Hefny, show manager at Automechanika Riyadh

“These initiatives demonstrate the Kingdom’s commitment to adopting and integrating cutting-edge automotive technologies, positioning it as a global leader in the future of mobility,” added the Bain & Co. executive.

Industry dynamics

According to Matthias Zeigler, Managing Director of Volkswagen Middle East, the Saudi automotive industry is undergoing a significant transformation. One of the key dynamics shaping the sector is the alignment of global preferences for SUVs with Saudi customers’ preferences for larger, seven-seater family cars.

“The focus on family transport is further strengthened by a solid infrastructure and extensive road network,” Zeigler told Arab News.

He explained that as a result, convenience is becoming a key factor, with increased interest in advanced comfort and safety features as well as in-car connectivity.

“What sets this market apart is the noticeable brand loyalty among Saudi car buyers who prioritize after-sales service and vehicle reliability,” Zeigler revealed.

According to data from Henain from Bain & Co., over 3 percent of vehicles sold are luxury models, which exceeds the global average of 2%.

“SUVs make up about 36 percent of the market – slightly below the global average of 45 percent – ​​with a preference for larger models, reflecting demand for spacious vehicles suited to family use and mixed terrain.”

Henain highlighted that Asian carmakers dominate the market, with Japanese, South Korean and Chinese brands accounting for a remarkable 88 percent of total sales. Remarkably, Chinese brands have experienced exceptional growth, growing rapidly from 7,000 units in 2018 to 100,000 in 2022.

Sami Malkawi, Managing Director, Sales, Ford Middle East, highlighted Saudi Arabia’s uniqueness as a market, noting the significant changes that have taken place in the kingdom’s automotive industry over the past year.

He stressed that new car sales across all original equipment manufacturers in Saudi Arabia increased by 23 percent last year compared to 2022, which is higher than the global average of 10 percent.

“This is a reflection of the country’s impressive growth record in a year where non-oil economic growth was estimated at almost 5 percent, driven by the implementation of the ambitious Vision 2030 programme, supported by significant private and public sector investment,” Malkawi told Arab News.

He said Ford is “deeply committed” to Saudi Arabia and is making joint efforts to help develop the Kingdom’s automotive sector.

The managing director added: “Our target – which includes a strong strategy to develop our product offering while continuing to improve the customer experience – combined with the Kingdom’s impressive growth, ended 2023 with a sales increase of 77 percent compared to 2022.”

Electric vehicles

Meanwhile, adapting to global trends, Saudi Arabia has implemented ambitious vehicle electrification plans under Vision 2030, which aims to achieve 30% electric vehicle penetration by 2030.

These plans include local production of Saudi electric vehicle brands and the creation of an entity to develop charging infrastructure in the country.

The emphasis on family transport is further reinforced by a solid infrastructure and extensive road network.

Matthias Zeigler, Managing Director of Volkswagen Middle East

“KSA’s EV sector is in its infancy with penetration of less than 1 per cent, lagging behind the UAE at around 3 per cent, China at around 22 per cent and Europe at almost 10 per cent, which is attributed to cheap fuel, underdeveloped charging infrastructure and lower appetite among consumers,” Henain revealed.

Volkswagen’s Zeigler agreed that the shift to electric vehicles is in its early stages, with internal combustion engines still preferred. He emphasized, however, that this does not negate the growing interest in electric vehicle technology.

“Like China and the United States, the Kingdom is implementing CO2 regulations, aligning with international sustainability efforts,” Zeigler described.

These actions are in line with Saudi Arabia’s Vision 2030 strategy to achieve net zero emissions, which aims to reduce emissions by 278 million tonnes per year.

Referring to sustainable mobility, Malkawi said: “The growing demand for fuel-efficient and electric vehicles is paving the way for a cleaner future, in line with Vision 2030, which focuses on sustainable development.”

He added that Ford intends to offer a broader range of hybrid and electric vehicles in Saudi Arabia and introduce vehicles to the market that support this transformation.

Impact on Vision 2030

Industry leaders emphasize that the development of the automotive sector is key to achieving the goals of Vision 2030, which include economic diversification, job creation and technological progress.

“By promoting localization, innovation and sustainable practices, the automotive industry contributes to economic diversification, job creation and technological progress,” commented Hefny.

He also highlighted that initiatives to increase women’s participation in the labor market have broadened the consumer base, stimulating demand for vehicles and related services.

He also emphasised that by achieving the goals of Vision 2030, the automotive sector plays an important role in shaping a vibrant and resilient economy for future generations.

Speaking on behalf of Volkswagen Middle East, Zeigler reiterated that a thriving automotive market is key to Saudi Arabia’s economic diversification goals outlined in Vision 2030.

“By promoting localization, job creation and technology adoption, the industry is stimulating economic growth and positioning the Kingdom as a leader in future mobility solutions,” he concluded.

Partner Bain & Co. expressed the view that by developing local production, the sector enables the growth of non-oil gross domestic product, stimulates job creation and promotes technological progress.

“The drive to transition to electric vehicles and autonomous technologies aligns with Vision’s goals for environmental sustainability and innovation,” Henain added.

He noted that international partnerships in the automotive and mobility industries will enhance Saudi Arabia’s global reputation by driving innovation and strengthening trade links with leading economies.

“I believe that the development of the automotive industry will be of key importance for achieving the country’s development goals set out in Vision 2030,” he concluded.

Ford’s Malkawi emphasized that the automotive industry drives diversification, economic growth, sustainable mobility, infrastructure and connectivity.

“The thriving automotive sector creates jobs, supports local business and attracts foreign investment, all of which is in line with the economic diversification goals included in Vision 2030,” he explained.

Malkawi concluded by emphasizing the importance of infrastructure and connectivity: “A robust automotive market requires improved infrastructure, including better roads and a focus on smart technologies. This is in line with the Vision 2030 goals of developing modern infrastructure and supporting a digitally connected society.”