Overview of the Sector

Bangladesh presents a promising market for the expansion of four-wheeled automobiles. Since 2013, the annual registration of automobiles has more than doubled. The passenger car segment has shown a steady growth rate of 5.43% from 2011 to 2020. In 2003, Bangladesh had only 303,215 registered motorized vehicles, but as of 2022, according to data from the Bangladesh Road Transport Authority (BRTA), this number has surged to 578,151. The increase has resulted from the lack of quality public transportation, therefore, individuals have turned to buying private vehicles, leading to a rise in the number of cars, their usage, and a deterioration in traffic congestion. Sedan cars continue to dominate the passenger car market, accounting for nearly 68% of it, while Sports Utility Vehicles (SUVs) cover 12.40%, and microbuses make up 19.27%.

Despite the absence of car manufacturing in Bangladesh, various companies, both public and private, have been involved in car assembly. The first car assembly operation began in 1966 with ‘Pragati Industries Limited’ operating through a joint venture with the government. In 2022, annual sales of imported cars range from 15,000 to 30,000, despite the imposition of high import duties.

In the passenger vehicle segment, imported Completely Built Units (CBUs) dominate, constituting around 95% of sales. Reconditioned vehicles hold an 80% share in this segment. SUVs and hybrid vehicles are experiencing the fastest growth, with all brands focusing on the SUV market. In 2017, SUVs accounted for only 16% of the market share, which increased to 24% by 2020. Hybrid vehicles are gaining popularity due to lower tax rates compared to gasoline-powered vehicles.
The commercial vehicle industry in Bangladesh involves the manufacturing, distribution, sales, and maintenance of vehicles designed for commercial purposes including trucks, buses, coaches, etc. These vehicles are primarily used for transporting goods or providing specialized services and can be classified based on their gross weight. LCVs (Light Commercial Vehicles) are referred to as vehicles having a gross weight of below 6 tonnes. Whereas, Heavy Commercial Vehicles refer to vehicles with gross weight over 6 tonnes. The market witnessed a slight dip during the pandemic after witnessing a growth rate of around 14% to 20% in the last 8 years until 2019. Nitol Motors has a 40% market share in the segment followed closely by Ifad Motors.

The automotive industry’s supply chain comprises four primary stages: Suppliers of components, Manufacturing, Dealerships, and End customers. In the industry, suppliers are categorized into three main tiers: Tier 1 suppliers provide finished parts specifically designed for vehicles. Tier 2 suppliers produce necessary components similar to Tier 1 but their products are not exclusive to automobiles. Tier 3 comprises companies that supply raw materials directly used in car manufacturing. An issue within any of the supplier tiers can halt the entire manufacturing process.
On average, a car comprises approximately 30,000 parts that are integrated into the supply chain for production.

Additionally, by 2025, local vehicle assembly has the potential to lower the overall cost of the automotive industry by a range of 15% to 40%. In 2020, around 15% of commercial vehicles were assembled in the country and 5% of passenger vehicles. If this cost reduction is realized, a significant portion of the middle to lower-middle-class population will have the opportunity to purchase family and personal vehicles. Certain companies have initiated the local assembly of automobiles for foreign brands such as Pragati entered a partnership with Mitsubishi around 2010 for the local assembly of the second-generation Pajero Sport SUV. Rangs Limited, a concern of the Rangs Group, also assembles Mitsubishi Outlander SUVs on their own.

Furthermore, the global automotive industry is witnessing a rapid increase in the market share of electric vehicles while conventional cars are on the decline. Correspondingly, the introduction of electric vehicles in Bangladesh has been on the rise. Various companies, including Nitol Motors and Bangladesh Auto Industries Limited, are actively working on launching locally assembled electric cars. Some of the major foreign brands assembled in Bangladesh are Mitsubishi Motors, Hino, Proton, Hyundai, Eicher, TATA, Ashok Leyland, and Mahindra. Additionally, the Bangladesh government is displaying a readiness to allocate land and resources to support the growth of electric vehicle manufacturing within the country. For instance, Omega Seiki, part of the India-based Anglian Omega Network, had proposed an investment of BDT 116 crore for the establishment of electric vehicle development projects in Bangladesh.

However, currently, the automobile industry in Bangladesh is experiencing a pessimistic sentiment as indicated by the BCI score of -27.70. Given the global and domestic economic turmoil, it has affected the demand for luxury goods including automobiles.

Key Factors Driving the Automobile Industry

  1. The growing middle-income population: Over the past decade, sustained economic growth has bolstered consumers’ buying power and affordability, resulting in an increased desire for durable consumer goods. According to the Boston Consulting Group, between 30 and 40 million individuals are expected to join the lower middle-income class by 2025, with an additional 34 million moving into a higher middle-income category, thereby improving their overall quality of life. As local production of cars is set to increase in the future, along with the government’s decision to split 0-1,600 cc single slab into further three categories, automobiles are likely to become more affordable for middle-class consumers. 
  1. The expansion of manufacturing and infrastructure development activities is driving up the demand for motor vehicles. The growth in infrastructure development leads to greater road connectivity, subsequently increasing the need for motor vehicles.
  1. Rising purchasing power and GDP per capita: The increase in purchasing power means that individuals have the resources to access greater comfort, causing luxury items to gradually become necessities.
  1. Government incentives and efforts to promote local manufacturing through various fiscal incentives have facilitated the emergence of more local firms or partnerships with foreign companies.
  1. The expanding agricultural sector and agro-based businesses in the northern regions require increased transportation of goods to and from other parts of the country.

Market Share

In 2020, within the category of newly registered cars, 82% were imported as reconditioned or Grey market vehicles, 16% were entirely new imports, and merely 2% were vehicles assembled locally. Additionally, Bangladesh hosts several local private automobile assembly companies, including IFAD Autos Ltd, Aftab Automobiles, Fair Technology Limited, Bangladesh Auto Industries Limited, Bangladesh Machine Tools Factory, Bangla Cars, Niloy-Hero Motors, PHP Automobiles, Pragoti Industries Limited, Runner Automobiles, and Uttara Motors Limited.

Government Support & Policy Incentives

Automobile Policy 2020: In accordance with the guidelines outlined in the Automobile Industry Development Policy 2021, there is a significant reduction expected in the overall tax and duty burden on completely knocked down (CKD) cars’ import value, aiming to bring it to less than 45% by 2025, provided that car assemblers commence operations by only painting imported body and parts while assembling the car in a modern facility within the country. Beyond 2025, if paint-only assemblers do not invest in a body welding shop, they will be subject to a 5% VAT obligation until 2030.
Additionally, the policy offers several other incentives to the sector, such as:

  1. Encouraging local assembly and manufacturing through tax holidays, fiscal incentives, and favorable import duties.
  2. Providing export subsidies to promote international trade.
  3. Fostering the development of a robust domestic market for brand-new vehicles.
  4. Promoting the local production of parts and components through a progressive localization plan.
  5. Supporting research and development (R&D) and the advancement of design and testing functions.
  6. Implementing and enforcing vehicle standards related to quality, safety, and emissions.
  7. Enhancing the development of industrial human resources.
  8. Improving the overall business environment specific to the automobile industry.
    • Offering reduced Corporate Income Tax (CIT) rates for a duration of 5 to 10 years for both vehicle assemblers and parts suppliers.
    • Lowering import duties and enabling the full repatriation of profits and initial investment amounts.
Engine CapacityTax Structure
Under 1600 CC127.16 %
1600 to 2000 CC212.20 %
2000 to 3000 CC442.60 %

Investment Challenges and Mitigation Strategies

Several investment hurdles include:

  1. Import duties remain notably elevated, and since a majority of components have to be imported, this elevates costs for the assemblers. Consequently, there is a need for the government to reduce import expenses. 
  2. The absence of robust backward linkages and supporting industries results in a significant portion of raw materials being imported, making the industry susceptible to market fluctuations.
  3. The demand for automobiles is still constrained due to the limited availability of financing options, with high bank interest rates being a major impediment for most individuals. Lowering interest rates on loans offered by the Bangladeshi government would stimulate increased car purchases and accelerate the growth of the automobile industry.

Future Trends and Opportunities

The automotive industry in Bangladesh presents significant investment prospects due to increasing demand for both passenger and commercial vehicles, favorable economic policies, and appealing fiscal incentives. It is anticipated that the annual market demand will surpass 100,000 vehicles by 2024. The National Automobile Policy 2020 places a strong emphasis on the manufacturing of parts and components, offering generous tax breaks and fiscal incentives to promote this sector’s growth. Foreign investment can also play a crucial role in establishing the foundation for materials used in metalworking and plastic processing, as well as essential services for parts fabrication.

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