King Salman Automotive Cluster a major opportunity for chemical value chains

With the announcement of the King Salman Automotive Cluster, Saudi Arabia is shifting gear in its ambitions to become a global leader in automotive manufacturing. A key upstream sector for automotive, the groundbreaking initiative will also have significant spill-over effects for KSA’s chemicals industry, writes Aparajith Balan from Frost & Sullivan.

Unveiled at the start of this month by Crown Prince Mohammed bin Salman, the King Salman Automotive Cluster in King Abdullah Economic City (KAEC) will serve as a pivotal center for the region’s automotive industry, housing the headquarters and manufacturing facilities for both local and international companies.

Notable brands, such as Ceer – the first Saudi electric vehicle brand – and Lucid Motors, which opened its first international factory in Saudi Arabia in 2023, are set to be key players in the cluster. The site will also host multiple Public Investment Fund joint ventures with global manufacturers, including a highly automated factory with Hyundai Motor for car production in Saudi Arabia and a partnership with Pirelli to establish a tire factory.

The impact for chemicals

The automotive sector plays a critical downstream role in the chemicals value chain, with estimated global sales of $730 billion, per Frost & Sullivan analysis. The launch of the King Salman Automotive Cluster will therefore have significant implications for the chemicals industry across segments:

Plastics
The Kingdom is a major producer of Polypropylene (PP) with a proven track record of world-class assets and performance. Polypropylene, being the primary plastic form used in ICE passenger cars by volume, will help local Polypropylene resin manufacturers and compounding units to generate domestic demand and collaborate with OEMs and tier 1-2 suppliers.

Saudi Arabia also has local manufacturing capabilities for Polyamide (6 and 66), PC, ABS and POM, and serves as a supply-chain enabler for under-the-hood, interior and exterior applications, providing opportunities for conversion value chains. The localization of this ecosystem could also unlock opportunities for performance polymers and thermoset resins.

Rubber
The Kingdom has manufacturing capabilities for certain synthetic rubber grades, such as SBR and PBR, while other forms such as NBR, isoprene present new opportunities to explore for applications ranging from tyres and seals to belts, and beyond.

Battery Chemicals and Materials
With a growing focus on electrical vehicles, the localization of the battery value chain will be a critical enabler, with choice of several chemistries for cathode active material including LFP, NMC and NCA. The local availability of key raw materials, such as phosphate and manganese, serves as a major investment driver, in a value chain currently dominated by China.

This shift could also create investment opportunities in electrolytes like the Ethylene carbonate chemistries.

Steel
The Kingdom currently has limited presence in automotive-grade steel, presenting an opportunity for local producers to expand their portfolio for developing steel with varying physical properties – such as strength and lightweighting – including alloys for specific application, providing opportunities for new product development and value creation.

Aluminium
The Kingdom currently has limited presence in automotive-grade aluminium, presenting an opportunity for local producers to expand their portfolio. This includes developing aluminium with varying physical properties such as strength, lightweighting - through processes like extrusion and casting.

Conclusion

With critical enablers such as an integrated ecosystem, robust supply chains, sectoral incentives, and policy interventions – including Free Trade Agreements and duties – the King Salman Automotive Cluster could be an exciting phase in the development of what has long been considered a strategic project for the Kingdom.

About the author: Aparajith Balan is Associate Partner in the Chemicals & Materials Growth Advisory practice of Frost & Sullivan.