Saudi Arabia: Drive time

Plans to roll out full car production in Saudi Arabia, part of a broader programme to expand the kingdom’s industrial base, appear set to pick up a gear, with one of the world’s best known marques moving to establish a local manufacturing facility at a time when sales of imported vehicles are rising.

Jaguar Land Rover (JLR), a unit of the India-based Tata Group, is in the process of evaluating a proposal to set up a production line in the Red Sea city of Yanbu, having signed a memorandum of understanding in December last year to conduct a study on whether the project was feasible. The Saudi proposal came hard on the heels of a deal between JLR and Chinese car maker Chery Automobile to produce Jaguar and Land Rover models at a plant in Shanghai, which will open in 2015.

Under the plan put to JLR, Saudi Arabia would construct a $1bn automotive production centre at the industrial city of Yanbu, which is already home to refineries, a petrochemical complex and other manufacturing businesses. The plant would be leased to JLR, doing away with high set-up costs, and could be in production by 2017, turning out up to 50,000 units, mainly for the regional market. Another factor that would keep costs down would be access to aluminium from the Ma’aden-Alcoa joint venture plant. The smelter is scheduled to begin producing aluminium specifically for the automotive sector by the beginning of next year.

The push into Saudi Arabia would be part of a wider campaign by JLR to establish production facilities internationally, according to Phil Popham, the company’s sales and marketing director. “We are looking at the feasibility of expanding our manufacturing footprint all over the world, which we need to do to become a truly global company,” Popham said in a late June interview with Australian motoring magazine Drive. “We recognise that engineering, manufacturing, purchasing in more areas than we do at the moment is a necessity.”

Alaa Nassif, executive president of the Royal Commission for Jubail and Yanbu – the state agency tasked with overseeing the area’s development – is confident contracts for production plant can be finalised by the end of in 2013. “We plan, once we have finalised the deal with Jaguar, to have the first batch of cars out of Yanbu by 2017,” he said while attending a conference on downstream industrial production in Abu Dhabi in May. “That agreement, once it’s there, will move Saudi Arabia to another level of industry.”

If JLR follows through on the proposal to begin production in Saudi Arabia, it would be positioning itself to tap into a rich vein of demand. A report issued by the National Commercial Bank late last year forecast new car sales to reach 884,000 by 2015, and break through the 1m barrier by 2018. While other studies suggest it may be a year or two after 2018 that sales will top the million mark, all studies point to the kingdom’s youthful and expanding population with a rising per capita income as being a prime market for the automotive industry, with similar demographics to be found across the region and beyond. A plant at Yanbu would also give a manufacturer easy access to markets further afield, especially to the south in Africa.

While automotive manufacturing in Saudi Arabia may be anchored by JLR, officials hope that the prestige producer’s entry will attract side industries and possibly other brands. It is intended that if JLR does open a production line in Yanbu, as appears increasingly likely, most of the components for its vehicles will be manufactured locally. There are a number of original equipment manufacturers already operating in Saudi Arabia, including Johnson Controls and Denso, while commercial vehicle producer Isuzu opened an assembly line for light trucks in 2012.

The development of an automotive production and parts sector would also open up local and regional opportunities for the plastics industry, which could benefit from access to raw materials from the Kingdom’s petrochemicals sector.

A JLR facility in Yanbu would serve as a magnet for other investors in the sector, as well as provide a ready client for existing materials producers, adding drive to the kingdom’s industrial push.