Automotive

Automotive

Saudi Arabia is one of the largest automotive markets in the Middle East, accounting for approximately 40% of total vehicle sales in the region. The automotive market in Saudi Arabia is forecast to increase further in size due to a number of factors, including permission for women to drive as well as from a number of transport and other projects that form part of Vision 2030.
Historically, the local industry has been driven by the import of vehicles and automotive parts, with Saudi-owned entities acting as distributors for international brands. Production in the Kingdom of Saudi Arabia has been mainly concerned with heavy-duty commercial vehicles for global manufacturers, such as Mercedes and Volvo.

The Saudi Arabian government wishes to develop the domestic automotive industry as part of a wider initiative by The National Industrial Cluster Development Program (“NICDP”), a government programme supervised by the Ministry of Commerce and Investment and the Ministry of Energy, Industry and Mineral Resources. The NICDP has developed Industrial Clusters for certain sectors with high-growth potential. The project envisages clustering together companies that have similar requirements for raw materials and expertise, and one of the five clusters is for the automotive industry (the others are Minerals and Metals Processing; Chemicals; Energy & Desalination; and Pharmaceutical & Biotech). The NICDP’s goals include the annual production of 600,000 vehicles in the Kingdom of Saudi Arabia by 2025, the manufacturing of between eight and ten million tyres for local use and export, and the creation of a local automotive supply chain in Saudi Arabia.

The government has established the Saudi National Automotive Manufacturing Company (“SNAM”) as the Kingdom of Saudi Arabia’s first vehicle manufacturing company, with a mission of developing a sustainable and integrated national automotive industry through a strategic partnership with the South Korean SsangYong Motor Company. SNAM’s stated aims, in line with Vision 2030, are to:

  • Serve the domestic demand for motor vehicles by manufacturing various types of vehicles locally through licensing and support from International OEM’s;
  • Produce high quality vehicles at competitive prices;
  • Localize automotive technology and know-how;
  • Develop local Saudi talent; and
  • Provide a new level of distribution support, after-sales service, and spare parts centres for SNAM’s products.

The one-million-square-meter Auto Cluster, including SNAM’s manufacturing plant, will be located in PlasChem Park in Jubail Industrial City II. It was announced in 2019 that the Royal Commission for Jubail and Yanbu had signed a notice to allocate a site for the construction and operation of a SNAM’s vehicle assembly plant in the industrial city at a cost of SR700 million, with a proposed annual production capacity of 10-30,000 cars and the direct creation of 300 jobs.

This allocation of land is in addition to a cooperation agreement signed in 2017 between SNAM and Sadara Chemical Company (a joint venture between Dow Chemical and Saudi Aramco, whose plant is adjacent to the proposed Automotive Cluster). The intention is for tenants in the Automotive Cluster (including manufacturers of automotive parts) to use specialist chemical and plastic products from Sadara’s plant to manufacture automotive parts locally.

A further recent development in the automotive sector in the Kingdom of Saudi Arabia was the 2018 agreement between the Japanese automotive manufacturer Kosei, the Saudi group Abdul Latif Jameel, and the NICDP to explore the manufacturing of aluminium wheels in the Kingdom of Saudi Arabia through a joint feasibility study.
The local distribution market for internationally produced vehicles also remains active, as demonstrated by the August 2019 acquisition of the Ford Motor and Lincoln distributorships in the western and southern regions of Saudi Arabia by Mohamed Yousuf Naghi Motors from Al Jazirah Vehicles Agencies Company.

The Z&Co. team has a range of experience that is relevant to clients engaged in the automotive sector, including:

  • Commercial agency arrangements, acting for both foreign parties and local distributors;
  • Corporate and contractual joint ventures (JV);
  • Industrial projects, including arrangements with local regulatory authorities, such as the Royal Commission of Jubail & Yanbu and MODON; and
  • Licensing of foreign investments.