KSA Car Rental Market Outlook to 2030

KSA Car Rental Market Overview

• The KSA Car Rental Market is valued at USD 1.01 billion, based on a five-year historical analysis. This market is driven primarily by the countrys expanding tourism sector, the increasing number of business travelers, and the growing urbanization in major cities like Riyadh and Jeddah. The Kingdoms Vision 2030, which promotes tourism and hospitality, also fuels demand for car rental services, especially for short-term and leisure rentals. The presence of affordable car rental options and the rising middle-class population further contribute to the markets growth.

• Riyadh and Jeddah dominate the KSA car rental market due to their roles as major commercial hubs and gateways for both domestic and international tourists. Riyadh, being the capital, attracts a large volume of business travelers, while Jeddahs proximity to Makkah makes it a key center for religious tourism. Furthermore, these cities have well-developed transport infrastructure, including airports and highways, which facilitate higher car rental demand compared to other regions.
• In 2023, Saudi Arabia implemented stricter emission standards for vehicles as part of its efforts to reduce air pollution. Car rental companies are required to comply with these regulations by ensuring that their fleets meet the prescribed emission levels. The Saudi Green Initiative, launched in 2021, aims to cut carbon emissions, and rental companies are being incentivized to adopt low-emission or electric vehicles. Failure to comply with these standards can lead to penalties, pushing rental companies to transition to cleaner technologies

KSA Car Rental Market Segmentation

By Vehicle Type: The KSA Car Rental market is segmented by vehicle type into economy cars, luxury cars, SUVs, and electric vehicles (EVs). Economy cars dominate this segment due to their affordability and widespread preference among both business and leisure travelers. Budget-conscious consumers, including tourists and short-term renters, tend to favor economy cars for their fuel efficiency and cost-effectiveness. Additionally, many corporate rentals and long-term leases also prefer economy cars, as they offer lower overall costs, thus sustaining their dominant market share.

By Rental Type: The market is segmented by rental type into short-term rentals, long-term leasing, business rentals, and leisure rentals. Short-term rentals hold a dominant market share due to their flexibility and convenience for tourists, visitors, and locals needing temporary transportation solutions. The high frequency of tourist arrivals, especially during religious seasons, and the growing demand from residents for weekend trips or errands make short-term rentals the most popular option.

KSA Car Rental Market Competitive Landscape

The KSA car rental market is dominated by both local and international players. Companies like Budget Saudi and Theeb Rent a Car have established a strong presence through extensive networks, affordable pricing, and high-quality service. On the other hand, global brands like Hertz and Sixt have gained market traction by offering premium and luxury rentals, appealing to high-end customers. The market is witnessing growing competition, especially with the integration of digital platforms and mobile booking apps, which have become a key differentiator for companies.

KSA Car Rental Industry Analysis

Growth Drivers

• Growth in Domestic Tourism: The growth in domestic tourism in Saudi Arabia is a major driver for the car rental market. In 2023, Saudi Arabia saw 75 million domestic tourists, driven by the government's promotion of internal tourism through Vision 2030 initiatives. Tourist sites like Al-Ula and Neom have become key attractions, increasing the demand for car rentals. The Ministry of Tourisms efforts to invest USD 810 million in tourism infrastructure, along with improved road networks, have made car rentals an essential service for travelers, further accelerating growth in the sector.
• Increasing Number of Business Travelers: Business travel is also a significant contributor to the growth of the car rental market in Saudi Arabia. In 2023, the country hosted around 3.5 million business travelers, a result of the country's rising profile as a business hub in the Middle East. With Riyadh and Jeddah becoming key destinations for corporate meetings, the demand for rental vehicles surged, particularly for short-term rentals. Government initiatives promoting foreign direct investment (FDI), coupled with the increase in international events, have further boosted business travel.
• Rising Popularity of Ride-Sharing Apps: The rise of ride-sharing apps like Uber and Careem in Saudi Arabia has influenced consumer behavior, increasing the adoption of on-demand mobility solutions. In 2024, Uber reported 8 million active users in the country, showing a significant shift in transportation preferences. While this has introduced competition, it has also opened avenues for car rental companies to partner with ride-sharing firms, allowing them to offer hybrid services like long-term rentals for ride-hailing drivers. This collaboration has expanded the potential customer base for car rental services.

Market Challenges

• High Operating and Maintenance Costs: Car rental companies in Saudi Arabia face significant challenges with high operating and maintenance costs. The average cost of maintaining a fleet in 2023 reached approximately SAR 120,000 per vehicle annually due to the harsh desert environment, which accelerates wear and tear. These costs include repairs, insurance, and routine maintenance. Additionally, rising fuel pricesaveraging SAR 2.33 per liter in 2024add to operational burdens, forcing companies to reevaluate their pricing models and fleet management strategies to remain competitive.
• Regulatory Compliance and Licensing Challenges: Car rental firms must navigate complex regulatory frameworks and licensing requirements in Saudi Arabia. The Ministry of Transports guidelines in 2024 have tightened safety and insurance standards, requiring compliance with updated vehicle maintenance protocols and licensing requirements. This includes regular fleet inspections and ensuring adherence to emission standards. The increasing cost of compliance has added a layer of complexity for smaller operators, who struggle to meet the regulatory demands without incurring higher operational costs.

KSA Car Rental Market Future Outlook

Over the next five years, the KSA Car Rental market is expected to witness sustained growth driven by the expanding tourism sector, increased business travel, and the governments ongoing investment in infrastructure development. The rise in domestic travel, particularly during religious events, will continue to generate demand for short-term rentals. Furthermore, advancements in electric vehicles and the push for greener alternatives in the Kingdom could open new avenues for car rental companies to offer sustainable vehicle options, fostering long-term growth.

Future Market Opportunities

• Expansion of Electric Car Rentals: Electric vehicle (EV) adoption is opening new opportunities for the car rental industry. In 2023, the Saudi government set a target of having 30% of all vehicles in Riyadh be electric by 2030. Rental companies are capitalizing on this trend by expanding their EV fleets. In 2024, car rental companies like Lumi introduced EVs, aligning with government sustainability goals. The recent introduction of charging stations across major cities provides infrastructure support, making it easier for rental companies to cater to the growing demand for electric vehicles.
• Increasing Government Support for Sustainable Mobility: Government initiatives to support sustainable mobility are encouraging rental companies to transition to greener fleets. In 2024, the Saudi government announced USD 2 billion in funding to promote electric vehicle infrastructure, including charging stations across key regions. The Saudi Green Initiative, which aims to cut emissions by 50% by 2030, is further incentivizing car rental companies to adopt EVs. This push towards sustainability offers rental firms an opportunity to cater to environmentally conscious consumers while benefiting from government-backed incentives.