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Riyadh has spent billions seeking to become a center for manufacturing electric cars and overcoming obstacles of lack of infrastructure, competencies and raw materials, at a time when the Kingdom seeks to join the global race and reap the benefits of the emerging industry.

As part of a broader plan that aspires to reduce the dependence of the Kingdom’s economy on oil revenues, Riyadh invested no less than $10 billion in the US-based electric car manufacturer Lucid. It also launched its first brand for the electric car industry, “Sir,” and established a factory for electric car battery metals. .

The Kingdom's sovereign fund, known as the Public Investment Fund - whose assets exceed $700 billion - aims to produce 150,000 electric cars annually by 2026, then 500,000 electric cars annually by 2030.

However, the only car factory in the Kingdom, which opened in September 2023, was able to reassemble the components of about 800 cars coming from Arizona by last December.

Saudi Arabia has not succeeded in the past in attracting car manufacturing companies to its territory.

In 2019, the Japanese company Toyota refused to conclude an agreement to manufacture cars in the Kingdom due to high labor costs, a lack of local suppliers, and the small local market.

Riyadh invested about 10 billion dollars in the (French) electric car manufacturer Lucid.

Strong competition

At a time when the world is moving away from traditional fuel-powered cars, which has been the source of funding for the Saudi economy for decades, analysts say that the same obstacles still exist, in addition to strong competition.

“Saudi Arabia will face enormous competition from strong manufacturing hubs and existing supply chains,” said Gaurav Batra, global advanced manufacturing and mobility analyst at Ernst & Young. “There are many steps to take before the industry takes shape and takes off.”

China currently dominates the emerging supply chain as well as electric vehicle production.

China's BYD has become the largest electric car manufacturer in the world after surpassing Tesla at the end of last year.

But the US inflation control law, which aims to direct investment towards creating a low-carbon economy, will likely allocate tens of billions to the electric car industry.

Domestic feed industry first

One of the Kingdom's main challenges is the inability to attract the automotive feed industry, from car doors to engines, in the absence of a large domestic automobile industry to feed.

Local electric car manufacturer SIR - a joint venture between the Public Investment Fund and Taiwanese company Foxconn - plans to launch a car by 2025, but has not yet established its factory.

A source close to the company, who spoke on condition of anonymity, said that it is unlikely that the company will have a car on the roads before 2026.

Analysts also doubted whether results would be achieved soon.

Tatiana Hristova, an expert at Standard & Poor's Global Mobility, said, "We do not believe in high Saudi production expectations, because high domestic production will require large exports from the region... This is possible, but we do not see it on the horizon."

China's BYD has become the largest electric car manufacturer in the world (Reuters)

Last October, the South Korean Hyundai Motor Company and the Public Investment Fund announced a joint project to build a factory to manufacture cars that operate with internal combustion engines and electric cars.

Together with Lucid and Sir, the three companies would form an automobile manufacturing conglomerate in the King Abdullah Economic City in Jeddah.

Hristova said that this would not be enough to convince "car manufacturers to localize production."

Sair is scheduled to obtain components from the German BMW, including batteries, which are the most expensive part of the electric car.

Faisal Sultan, global vice president of Lucid, told Reuters last December that Saudi Arabia needs the presence of important suppliers, adding that the company’s factory in the Kingdom only reassembles cars that were previously assembled and sent for testing at the company’s site in Arizona.

An executive in the Saudi auto manufacturing sector said that the company’s approach of keeping the supply chain and car manufacturing within the United States may motivate other companies to establish reassembly sites to obtain Saudi incentives intended to support the localization of the industry.

But the executive added that this approach may hinder the expansion of local manufacturing, as the country will continue to import cars manufactured abroad.

Hyundai and the Saudi sovereign fund announced a joint project to build a factory to manufacture cars powered by internal combustion engines and electric cars (Reuters)

Mineral resources

Saudi Arabia is keen to improve its sustainability efforts, and has highlighted Lucid cars at several government conferences.

The Saudi government agreed to purchase up to 100,000 cars produced by Lucid over the next ten years, and in 2022, the Saudi Industrial Development Fund granted a good loan to Lucid worth $1.4 billion to help finance the construction of the factory.

The Public Investment Fund owns 60% of Lucid, and has invested at least $5.4 billion in the company as of August 2023.

Sultan said, “I do not think that the Public Investment Fund aims to achieve a large profit from Lucid... It can be considered a strategic relationship, as developing the ecosystem for an automobile industry in the Kingdom is an important success

. ”

Saudi officials said last year that they hoped the kingdom would become a center for manufacturing and supplying electric car batteries.

However, achieving this ambition requires raw materials, most notably lithium, which the Saudi Deputy Minister of Industry and Mineral Resources, Khalid bin Saleh Al-Mudaifer, told Reuters that it is one of the minerals that the Kingdom seeks to produce, despite the fact that no crude reserves have been announced.

Robert Wilt, CEO of the Saudi Arabian Mining Company "Ma'aden", which is supported by the Public Investment Fund, said that attempts to extract lithium from salt water have entered the experimental stage.

He added, "We have a nascent automobile industry in the Kingdom, and it will need the necessary raw materials to produce electric car batteries. We may not be able to achieve this in a timely manner with the construction of factories, so we must obtain them from abroad."

In January last year, the Public Investment Fund launched the Manara Metals Investment Company, a joint venture with Ma’aden, with the aim of obtaining metals from foreign markets.

Global industry executives say that whatever the obstacles, Saudi Arabia has the financial resources to overcome them.

“I cannot underestimate the capabilities of the Public Investment Fund, because it has an enormous amount of resources,” said Andy Palmer, former Aston Martin CEO.

"Money can solve almost anything, but the money needed here is much more than everyone thinks," Palmer added.

Source: Reuters