Why Riyadh’s multibillion EV dream risks crashing into reality

Riyadh has spent billions to try to turn itself into a hub for electric vehicles and overcome obstacles including a lack of infrastructure, talent and raw materials as it seeks to catch up in the global race to reap the profits of the new industry.

As part of a broader plan by Saudi Crown Prince Mohammed bin Salman to wean the economy off oil and create jobs, the kingdom has invested at least $10bon (about R191,469,000,000) in US-based Lucid Motors, set up Ceer, Saudi Arabia's own brand, and initiated steps to build an EV metals plant.

The Public Investment Fund (PIF), Saudi Arabia's $700bn (about R13,400,975,000) sovereign wealth fund, has a goal to produce 500,000 EVs annually by 2030, up from a target of 150,000 in 2026.

Yet by December last year, the kingdom's sole auto factory, opened in September 2023, had reassembled about 800 vehicles, based on kits supplied from Arizona.

Saudi Arabia has failed in the past to attract automotive manufacturing.

Japan’s Toyota declined a deal in 2019, citing high labour costs, a lack of local suppliers and a small local market.

As the world moves away from cars fuelled by the oil that has financed Saudi's economy for decades, analysts said such obstacles remain and competition is intense.

“There is tremendous competition the country will face from established manufacturing power houses and established supply chains,” said Gaurav Batra, EY’s global advanced manufacturing and mobility analyst.

“A lot of things need to come into place before this industry takes shape and really ignites.”

Saudi Arabian officials did not respond to Reuters' requests for comment.

China dominates the new supply chain as well as EV production.

China's BYD became the world's biggest maker of EVs after overtaking Tesla at the end of last year, although the US Inflation Reduction Act, which aims to channel investment into creating a lower carbon economy, could direct tens of billions into EV manufacture.

Need local industry first

For Saudi Arabia, one of the biggest difficulties is attracting producers of auto-components — anything from car doors to engines — when there is no significant local industry to supply.

The domestic EV manufacturer Ceer, a joint venture between the PIF and Taiwanese company Foxconn, plans to launch a car by 2025, but has yet to build its factory.

A source familiar with Ceer, speaking on condition of anonymity, said it was unlikely the company would have a vehicle on the road before 2026.

Analysts were also sceptical of early results.

“We don’t believe in those high (Saudi) production numbers because this high local output will require significant exports from the region,” said Tatiana Hristova, an expert at S&P Global Mobility.

“This is possible, but we don’t see this happening within our forecasting horizon.”

In October, South Korean car manufacturer Hyundai and the PIF announced a joint venture to build a factory for internal combustion engine and electric vehicles that, together with Lucid and Ceer, would create a cluster of factories in Jeddah's King Abdullah Economic City.

That will not be enough to convince “original equipment manufacturers to localise”, Hristova said.

Ceer will source components from Germany's BMW, including batteries, the most costly part of an EV.

Lucid's global vice-president Faisal Sultan in December told Reuters Saudi Arabia needed the presence of critical suppliers and its Saudi plant only reassembled cars previously put together and quality-tested at the company’s Arizona site.

The company's approach — keeping the supply chain and vehicle manufacturing in the US — could spur other companies to set up reassembly sites to access lucrative Saudi incentives for localisation, an executive from the Saudi auto-manufacturing sector said.

But this could hamper the expansion of local manufacturing, as the country would continue to import foreign-made cars, the executive said.

Sustainability credentials and Lucid

At UN climate talks in Dubai in December, nearly 200 countries agreed to begin reducing global consumption of fossil fuels after the Organisation of the Petroleum Exporting Countries, led by Saudi Arabia, objected to stronger language on a phase-out of coal, oil and gas.

The kingdom is keen to burnish its sustainability credentials, and has given Lucid cars prominence at state conferences.

Over the next decade, the Saudi government has agreed to buy up to 100,000 of Lucid's vehicles and the Saudi Industrial Development Fund gave Lucid an interest-free loan of $1.4bn (about R26,826,716,000) in 2022 to help finance the building of the factory.

The PIF owns 60% of Lucid and had invested at least $5.4bn (about R103,481,226,000) into the company as of August 2023.

“I don't think Lucid is a project they (the PIF) got into to make a lot of profits. It’s a more strategic relationship. The automotive ecosystem development in the kingdom is a huge win for them,” said Sultan.

The PIF did not respond to a request for comment

Saudi Arabian officials said last year they hoped the kingdom would become a centre for manufacturing and supplying EV batteries.

But to achieve that, it needs raw materials, notably lithium, which Saudi Arabia's vice minister of industry and mineral resources Khalid bin Saleh Al-Mudaifer told Reuters was one of the metals the kingdom sought to produce, though no reserves have been announced

Robert Wilt, CEO of the PIF-backed mining company Maaden, said attempts to extract lithium from salt water were at the pilot stage.

“We have an automotive industry springing up in the kingdom which will require EV battery material. We will probably not find that in time as the plants are being built so we have to go outside to source it,” Wilt said.

The PIF in January last year launched Manara Minerals, a joint venture with Maaden, to secure minerals abroad.

International industry executives said whatever the hurdles, Saudi Arabia could have the finances to overcome them.

“I don't discount PIF because they've got a huge amount of resources behind them,” said Andy Palmer, a former CEO of Aston Martin. He was also a COO at Nissan, where he oversaw the launch of the Nissan Leaf, one of the first mass produced EVs.

“Money can solve almost anything, but it's going to be a lot more than everybody initially thinks,” he said.