MG’s take two: Are we in for the long run now?

A car that had everything at the time. Sleek black racing seats. Ambient lighting that shifted colours like a mood board. Massive headlights that cleaved the night. A car that linked its roots back to one of Pakistan’s most treasured tourist havens. All whilst being most routinely found on our roads in a frosted red colour. The MG HS demanded attention. 

It was also a car that seized a once-in-a-generation opportunity. It came at a time when car buyers were hungry for something new, something different, something exhilarating. If the KIA Sportage was the spark that lit the fire at the altar of the sedans, then the MG HS was a pyromaniac. But before it could pour the gasoline, it encountered internal and macroeconomic troubles.

The car vanished. Like the escapade it promised to those who sat in its seats and pressed the bright red super sport button, the MG HS just got up one day and left the scene. Like a ghost, it receded from the spotlight. There were whispers and rumours of what had transpired with the company, and many surmised that they had seen the last of it. Until late last year. The company defied the odds and finally launched its locally produced HS. Perhaps this alone would have been enough to put an end to speculation of its future. However, the company has since been on a charm offensive like no other. So much so that it has literally organised cross-country concerts, amongst other events.

So, the question arises: Is MG back? And are they here to stay this time?

Trip down memory lane

To proclaim that MG hit the ground running would not be hyperbolic. 

MG hit the jackpot with their timing when it stormed into Pakistan in the winter of 2020. The KIA Sportage had dedicated the better part of the year preceding MG’s launch to familiarising automotive customers with the crossover sports utility vehicle (C-SUV) market and prying them away from the sedans that had been omnipresent up until then. When Hyundai revealed its Tucson a mere four months prior to MG’s launch, Pakistani customers had experienced an epiphany: C-SUVs were here to stay. And MG had no qualms about going all in on this realisation. 

Not only did it present the Pakistani market with the regular internal combustion engine variant of the HS, but it also introduced a plug-in hybrid vehicle variant. Moreover, it launched the younger sibling of the HS — the ZS — which was accompanied by its own unique engine combinations. The brand’s launch seemed perfect.

“I am of the belief that their strategy was astute, and shrewd, which is why they sold 12,000 completely built-up (CBU) units in Pakistan,” asserts Suneel Sarfrz Munj, Co-Founder of Pakwheels. 

Whilst the cars sold like hotcakes, MG also hit a wall very early on. 

To begin with, there were delivery issues. Genuine customers faced extensive delays waiting for their cars.

According to Shaheel Shahzad, Co-Founder of BloomBig OverDrive, a perception had been formed in the market that MG was only delivering cars on time to dealers who were perhaps profiteering from this early access to MGs.

Additionally, there were problems with clearing imports. Since all MGs were CBUs, the company was heavily import- dependent. There were news reports as well, suggesting that the hundreds of MGs were standing idle at Karachi port waiting to be cleared. 

The market started questioning whether or not a company that could not produce locally had any future in Pakistan. 

“There was a global shortage in semiconductors, and MG was not immune to the disruptions in the global supply chains,” explains Syed Asif Ahmed, General Manager of Sales and Marketing at MG Motors. “We ensured we were in constant communication with all of our customers 24/7. 

MG was not the only one that had delayed its deliveries because of the aforementioned shortages. However, what was unique was that all the anger customers had for their delayed C-SUVs, irrespective of the brand, was somehow directed towards MG,” Ahmed adds. 

Perhaps a case of suffering from its own success? The honeymoon period was clearly over. In a rather unprecedented move, MG even issued a public apology in May of 2021. It reached out to explain the predicament it was in, and reassure its customers whilst accepting that they had fumbled. 

To follow it up, the company went on record and publicly stated in September 2021 that it would actively combat what it perceived as targeted propaganda against the company by those who sought to leverage its constraints. However, it would take another year, and a half, for the company to come back to its critics. 

What happened in the meantime? 

Shahzad, who professes to be familiar with a plethora of individuals who had purchased an MG, elucidates how MGs did not retain their value in the secondary market as opposed to other vehicles in the same category. According to him, MG cars prices had either dwindled or had not escalated as substantially.

“I still maintain that there is a degree of disillusionment among these individuals. Those who have invested in an MG are now cognisant of the issues it presents. Nonetheless, when queried about their satisfaction with their purchase, these individuals assert that — given the opportunity to choose anew — they would still opt for an MG,” Shahzad said, based on a survey of MG owners who have been in possession of their respective cars for two to three years. 

Perhaps that is what truly matters. Despite initial missteps, those who had actually bought the car remained enamoured with it, and MG was cognisant of this fact. This brings us to Act Deux.

Going for the jugular 

We’ve covered some history and now find ourselves back at square one. In December, MG unveiled the completely knocked down (CKD) HS, christened the HS Essence. Since then, the company has taken the country by storm, hosting concerts from Islamabad to Karachi. Yet, the trump card up its sleeve is something it has kept under wraps – a move tantamount to bringing a gun to a knife fight amidst the current C-SUV melee in Pakistan’s automotive landscape.

What are we alluding to? The price. 

At present, the MG HS Essence retails for a staggering Rs 87 lakh. A hefty sum indeed — until one realises it is one of the most economical options in its category. The notion of MG being a bargain is nothing short of bewildering. After all, it is an exceptional vehicle and its brand is built upon offering more than its competitors. So, what gives?

When the MG was first introduced, it was a CBU, and therefore more expensive than its competitors. The difference wasn’t a lot; one would have to pay Rs 6 lakhs more for an MG as compared to a KIA Sportage. It was still pricier nonetheless. After introducing the CKD unit, they are more affordable than the Sportage. 

“I believe it’s commendable that they’re offering an affordable vehicle. Had they not done so, it would have raised questions about the very purpose of localisation,” ponders Munj.

If we were to simply examine vehicle prices since the launch of the MG HS, Munj’s argument becomes all the more cogent. The price of the MG HS has indeed benefitted from localisation after traversing its own rollercoaster of a pricing journey. 

However, there is one snag. If we were to disregard the period between December 2021 and December 2022, we would uncover some intriguing price revelations at play. For context, this one-year period is when the MG HS retailed for Rs 89 lakh. Yet, no one actually purchased it at that rate because it was never available in the showroom at that price. This is when MG encountered the aforementioned supply chain issues.

Examining the prices in the C-SUV segment from December 2020 to December 2021, the MG HS (CBU) was pricier than all variants of the Sportage and the Tucson on average. Haval’s H6 was the only vehicle that retailed at a higher price. The H6 was Rs 7.48 lakh on average more expensive than the MG HS (CBU) over that time period.

Now fast forward to December 2022 till now. 

The MG HS Essence (CKD) has been cheaper than three out of six of those vehicles on average. In instances where it is still more expensive, that margin has diminished. It is now only 12% more expensive than the Sportage Alpha compared to its CBU counterpart being 23% more expensive. Similarly, whereas it was previously 14% more expensive than the Sportage FWD, it is now only 3% more expensive.

“Our pricing decision is influenced by our affiliation with SAIC, MG’s global parent company,” explains Ahmed. “Unlike many of our competitors, we are not constrained by a technology licence agreement (TLA). SAIC owns 51% of MG in Pakistan.” Ahmed continues, “While other players have rigid separation of earnings as part of their agreements, sometimes having to just rely on parts sales and other after-sales services for their profit margins, our relationship with SAIC enables us to reap benefits directly from the pricing decision.”

“The principle (SAIC) deems to be the price of the vehicle,” Ahmed adds, “and subsequently this is the price that we will charge.” And therein we might have it.

This is a price that MG is willing to sustain. It is also a price which, based on Ahmed’s comments, is something that MG and its parent are still reaping profits from. However, MG’s pricing decision is not in isolation. When viewed in the broader context of the market, it poses challenges for competitors.

The on-road price for the HS is approximately Rs 90 lakh (comprising taxes and other expenses). The price point is indeed a favourable one, as you could contrast the HS with sedans as well. For instance, the HS might be a feasible alternative, given the price, if you’re looking at the Toyota Corolla Grande, the Honda Civic 11th Generation, the Hyundai Elantra, and perhaps the Sonata as well — its 2.0 variant.

MG’s pricing enables it to vie with both sedans and C-SUVs. This is the same triumphant strategy that the KIA Sportage employed back when it first launched. MG may not have the same brand loyalty as the Sportage does, but neither did the Sportage when it first pulled this off. MG does, however, come equipped with an arsenal that has perhaps everything one could desire except the advanced driving assist braking — for which customers cheered it and the rest of the industry to get rid of.

Furthermore, MG does this at a time when cars are readily available in the market. This, though not as unprecedented as the shift from sedans to CUVs, is an infrequent occurrence. One of the Sportage’s key advantages over the rest of the industry is its manufacturing ability whereby it can provide a car to the customer faster than everyone else due to its deviation from the just-in-time production model. 

This has been one of the keys to its success; however, what happens when your competitors just have stock lying around? With the industry leader having one of its key advantages neutered, and everyone else being either pricier or lacking in features, the MG HS might have its deus ex machina moment.

Now, would it hold a candle to the competition if everything was just lined up and available for immediate delivery? 

Munj did not comment on this particular aspect. Shahzad, however, put it succinctly. “In my opinion, the MG HS is second only to the Haval H6 HEV. Haval’s H6 line is the only one I would also compare it to. However, they are more expensive”.

So, now that we have explored MG’s initial journey, and examined their current strategy, the final question is: are they here to stay? This is a pertinent question, as the one-year crisis did offer them the chance to withdraw from an industry that is no longer as profitable as when they first entered.  It was as good of an opportunity, if there ever was one, to go gently into the night.

Looking beyond the abyss 

“In an industry-wide symposium, we’ve collectively envisioned the trajectory of our sector,” Ahmed reveals, his words echoing the shared optimism. “A unanimous consensus forecasts a surge to 500,000 sales by the dawn of 2030.” He concedes that this is a recalibrated forecast. “Our initial projection anticipated this milestone by 2025. However, the economic tumult of the past year necessitated a refinement of our estimates,” he elucidates. But why does the broader industry data hold significance for MG, especially when it should be primarily focusing on its own figures?

Ahmed perceives an immense potential for expansion within the sector. He cites the motorisation index, a key indicator suggesting a shift from two-wheelers to four-wheelers once a nation achieves a per capita income of $2,500. Currently, Pakistan’s per capita income hovers around $1,500-$1,600.

He is of the firm belief that the industry’s growth is a tide that lifts all boats.

“Escalating volumes will inevitably lead to increased localisation, thereby making vehicles more affordable for everyone. Predominantly, the cost of materials we frequently use will see a downward trend. This, in turn, enhances the viability of offering consumers a wider array of enticing models at various price points,” Ahmed articulates.

Sparks of a longer term future? 

This is where MG puts its money where its mouth is. It has initiated the process of accepting reservations for its pair of entirely electric C-SUVs: the MG4, and the MG ZS MCE. Mirroring the assertive pricing blueprint adopted for its HS, the two vehicles will retail at a price oscillating between Rs 1.1 to Rs 1.5 crore. 

While these figures may initially induce a gasp, it’s crucial to bear in mind that this is the only price range where you can acquire Haval’s hybrid if you’re seeking an alternative to the traditional internal combustion engine. Moreover, it’s worth noting that this was the initial price point for the Audi e-tron when it made its debut in Pakistan. 

It was at this price that the car’s popularity soared, becoming a common sight on the bustling streets of Islamabad, Karachi, and Lahore. However, with the depreciation of the rupee, the e-tron’s value nearly tripled, leading to a noticeable dip in purchases. Currently, MG finds itself in a neck-and-neck race with DFSK to see who can introduce their electric vehicle to the market first. Yet, amongst the two contenders, only MG has started accepting bookings.

At the time of writing this piece, both vehicles are yet to hit roads, so any judgement or commendation is being held in abeyance. After all, MG does have a track record of announcing vehicles that never quite make it to production. Perhaps these two models warrant their own dedicated article upon their official release.

However, this time around, things seem different. So, one might wonder: how has MG managed to transition from being virtually absent for nearly two years to potentially outpacing everyone in terms of technological advancement?

Why not stay down? 

“Given our arrangement with SAIC, we feel here at MG that we are especially poised to introduce newer models because we have an opportunity that is not available to most other competitors,” Ahmed declares. 

What is this arrangement that Ahmed has vaunted innumerable times now? It’s the aforementioned lack of a TLA, and 51% shareholding by SAIC. So, what do these two things even mean and why is MG so bullish because of them?

A TLA is a contract that outlines the terms and conditions of a licensing agreement between a company and a party purchasing the use, reselling rights, or rights to modify a particular product or intellectual property of that company. In the automotive sector, TLAs are crucial because they allow companies to use or resell specialised property by another party. 51% ownership means that SAIC International is the primary party operating MG in Pakistan.

The absence of a TLA affects two key aspects in the case of MG: pricing and models. With 51% control of MG Pakistan, SAIC has managerial control and an active stake in MG, fostering a more harmonious relationship between the two — if they so wish. In this instance, it looks like they seemingly do. 

In terms of pricing, SAIC could offset the reduced cost of the HS by participating in the profits from other parts of MG’s operations in Pakistan, in return for assisting MG in managing the cost of the vehicle.

Pricing is a subsequent joint decision between SAIC and MG Pakistan. This allows them to find more common ground for joint profits than would be possible for those of MG’s competitors operating strictly via TLAs. That is because MG’s competitors would not have the support of their parent companies to that degree, and without convincing them would have to bear the costs of competitive pricing on their own and subsequently recoup them as well. In contrast, SAIC and MG Pakistan operate in unison rather than at arm’s length. That is why the pricing is what it is.

Now the latter of the two major points: the models of vehicles available. 

Ahmed explains in simple terms. “A TLA means that I have a licensing agreement, and I can back out anytime. If I don’t have a deal with you, then I won’t bring you the product,” he says. This principle, he explains, directly impacts the availability of certain models in Pakistan. 

To underscore how this impacts the availability of certain models in Pakistan, he highlights  the paucity of diversity in the portfolio of companies operating in Pakistan. Despite the fact that some of these companies possess models that have instigated groundbreaking transformations in their respective domains and are considered trailblazers on a global scale, these innovative cars remain unattainable in Pakistan. The reason? 

The parent company shows no inclination towards a TLA to supply these cars here. This scenario underscores the significant influence of TLAs on the automotive industry and the choices available to consumers.

He then juxtaposes this with MG’s predicament. He asserts that MG’s parent company is more committed to Pakistan than other companies’ progenitors are. “If you were to scrutinise any of the automotive companies in Pakistan, and ascertain where their parent is the most prominent outside of its native country, then it is in those countries where they operate directly — where they have the preponderant shareholding — where they do not depend on a local ally,” Ahmed says. 

He clarifies that he is not dismissing the benefits of having a local partner. “I am not saying that there aren’t any benefits to having a local partner. There are most definitely pros and cons to any arrangement,” Ahmed adds.

Ahmed concludes by reiterating his confidence in MG’s potential in Pakistan. He says that MG and its parent are serious about tapping into this market. “I cannot comment on my competitors, but the principle having direct purview on the Pakistan-based operations speaks far more volume than I can emphasise,” he proclaims.

A point of interjection: It is relevant to note that Suzuki Pakistan is mainly owned by Suzuki International — 73.09% to be precise, based on their latest annual financial statement. However, this is not their story. 

There we have it. The HS Essence has given MG a rare opportunity to atone for their previous missteps and reclaim not only their estranged customers but new ones as well. It is a second chance at life, really. It is a serendipitous twist of fate that a global semiconductor shortage was what crippled their supply chains previously, but the current economic crisis is what has levelled the playing field for them again. The challenge remains the same as before — to lure prospective customers to just take a seat inside the vehicle. However, that is a task that MG knows all too well.