Saturday 21 Dec 2024
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This article first appeared in Digital Edge, The Edge Malaysia Weekly on July 24, 2023 - July 30, 2023

Over the past year, Malaysia’s adoption of electric vehicles (EVs) has gained traction, with the government actively encouraging the transition to green mobility. Attractive rebates such as 100% tax exemptions have been introduced to make EVs much more affordable to consumers, and companies are being incentivised to develop charging infrastructure.

Looking beyond consumer adoption, the country is now eager to ascend the EV value chain and attract global manufacturers to set up operations within its borders. In this endeavour, it finds itself in fierce competition with its Asean neighbours for investments and opportunities in the burgeoning industry.

Malaysia’s commitment to fostering the EV industry became evident when Prime Minister Datuk Seri Anwar Ibrahim said on July 14 that Tesla Inc CEO Elon Musk had agreed to make “significant” investments in the country, with plans to set up the company’s local headquarters in Cyberjaya, a major technology and innovation hub. 

This announcement came as a part of Malaysia’s broader strategy to leverage the growth prospects of various sectors within the EV value chain, namely renewable energy, energy efficiency, energy storage systems, high value technology and software development.

Despite the enthusiasm to capture market share, the country has a long way to go before it can solidify its position as a regional hub for EV manufacturing and services.

While progress has been made, the adoption of EV could be faster. The biggest challenge appears to be the high cost of the vehicles, which put them beyond the reach of the masses even with the tax incentives and rebates. However, in the last couple of years, the awareness and adoption of EVs have grown exponentially — from just 274 units sold in 2021, to 2,631 units sold last year.

This represents an 860% growth, according to Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad at the association’s annual review press conference in January this year, before her sudden passing the following month. However, MAA’s EV sales figure represents EVs bought through official distribution channels.

The definition of what constitutes an EV locally is rather broad. Azrul Reza Aziz, CEO of Malaysia Automotive, Robotics & IoT Institute (MARii), explains that from the government’s perspective, EVs include transition vehicles, encompassing energy efficient vehicles (EEVs), battery electric vehicles (BEVs), hybrid electric vehicles (HEVs) and plug-in hybrid vehicles (PHEVs).

Taking into account the broad definition of an EV — which Azrul says will eventually transition to a BEV — there were about 7,000 EVs sold in Malaysia in 2021. That number tripled last year to about 21,000. He says of the approximately 2,200 car bookings made at the Malaysia Autoshow 2023 in May, 40% were for EVs, indicating that Malaysians are becoming more receptive to these environment-friendly vehicles.

The target is for EVs to account for 15% of the total industry volume (TIV) by 2030. Last year, they accounted for 3% of TIV and with seven years to go, Azrul is confident the country will hit the target.

“We are anticipating more completely knocked down (CKD) models coming in and our national carmakers are looking into it as well, so we will see more affordable EVs coming into the market. This will definitely help us achieve the 15% target by 2030,” he says.

Datuk Wira Arham Abdul Rahman, CEO of the Malaysian Investment Development Authority (Mida), says the nation has made significant strides in establishing itself as a competitive player in the EV industry. It has witnessed the emergence of local manufacturers specialising in EV components, such as batteries, motors and power electronics.

“Local automotive manufacturers, such as Proton, are developing expertise and the capacity to manufacture EVs, and they are in the midst of identifying a suitable model for the market that fulfils customers’ requirements without compromising the price and quality of the car. In April 2023, Proton announced its plans to introduce its first EV to the market in 2025, two years earlier than its original plan,” he says.

Malaysia managed to draw Tesla — the world largest EV-exclusive carmaker — under the Ministry of Investment, Trade and Industry’s (Miti) Battery Electric Vehicle (BEV) Global Leaders Programme, which allows the US company to invest and sell its EVs directly to consumers, bypassing the approved permit (AP) system for car imports. The AP system is widely viewed as a protectionist policy that limits competition in the automotive industry. 

Mobility’s net-zero transition 

Over the last couple of years, conversations on sustainability have become louder, especially after the government set the target of becoming a net-zero greenhouse gas emissions nation by as early as 2050. To realise this goal, the automotive sector needs an overhaul.

Emissions from the transport sector were recorded as the second-highest sub-category at 25.05% (64,973.10 gigagrams CO2 equivalent) of the total energy sector emissions, according to Malaysia’s Fourth Biennial Update Report under the United Nations Framework Convention on Climate Change submitted in December 2022.

Given that Malaysia is currently the third-largest automotive producer in Southeast Asia after Thailand and Indonesia, the government has also set an ambitious target of having 100,000 EVs on the road by 2030. It has introduced various initiatives, including tax incentives, to support the development and adoption of EVs in the country.

The foundational policy is the National Automotive Policy 2020 (NAP 2020) under the purview of the Ministry of Investment, Trade and Industry (Miti). Its objective is to drive Malaysia to become a regional leader in manufacturing, engineering, technology and sustainable development in the automotive sector.

In addition, there is the Low Carbon Mobility Blueprint (LCMB) — aimed at lowering carbon dioxide emissions, and phasing out the use of fossil fuel internal combustion engine (ICE) vehicles — which is aligned with Thailand’s and Singapore’s commitments as well as global best practices. The LCMB is under the purview of the Malaysian Green Technology and Climate Change Corporation, under the Ministry of Environment and Water (KASA).

Moreover, in June, Anwar said the National Energy Transition Roadmap (NETR) and Hydrogen Economy and Technology Roadmap (HETR) were expected to be launched in the second half of this year. These are aimed at ensuring that Malaysia achieves long-term energy security, with environmental and economic sustainability in mind.

While the government’s commitment to and consumer interest in adopting EVs are clear, there is still a lot of market share left to capture, both in the manufacturing and consumer segments. It seems only logical that Malaysia’s current EV conversation includes transition vehicles, since the country is facing a three-pronged challenge — consolidating siloed policies, the lack of infrastructure and the lack of affordable EVs in the market.

“We have a lot of policies [under different ministries and agencies], but how do we talk to each other? That is why Miti has established the National EV Task Force to make sure that all the ministries and stakeholders involved are aligned to [ensure] that EV adoption is faster,” says Azrul.

On investment in the EV industry, Azrul says 54 projects were created between 2018 and 2022, with EV-related foreign direct investment (FDI) and domestic direct investment (DDI) amounting to RM22 billion.

In July last year, Samsung SDI Energy Malaysia Sdn Bhd (Samsung SDIEM) opened an EV battery cell manufacturing facility in Seremban, Negeri Sembilan. It was reported that a cumulative RM7 billion investment was injected by the company into the facility, its first production location in Southeast Asia and the first EV battery cell facility in Malaysia.

In 2021, South Korean energy and chemical company SK Group committed more than US$700 million in Malaysia. The first investment was via SK Nexilis, which announced a capital expenditure of RM2.3 billion to set up a copper foil manufacturing facility in Kota Kinabalu, Sabah, which will be part of the group’s EV value chain.

This is just the tip of the iceberg, says Azrul, as he anticipates more investment inflows in the coming years. “We’re targeting [an inflow of] RM40 billion FDI into Malaysia’s EV landscape. We are seeing good growth on the investment side.”

The NAP 2020 and LCMB are expected to be catalysts in the effort to make the Malaysian automotive industry more competitive. It is projected to contribute a significant RM104.2 billion to the nation’s gross domestic product (GDP) by 2030.

Industry players and stakeholders are confident that Malaysia’s EV adoption will pick up. With the anticipated entry of Perodua and Proton into the EV landscape and LCMB’s target of having 10,000 charging points in the country by 2025, all players believe that EVs will soon be affordable and accessible to everyone. Given the electrifying growth expected, Digital Edge takes an in-depth look at the automotive industry.

 

Infrastructure to address range anxiety and scepticism

Range anxiety, the concern that a vehicle will run out of battery before reaching a destination, is a major consumer hurdle and remains one of the top reasons people are hesitant to drive electric vehicles (EVs). This is also why many may flock to hybrid electric vehicles (HEVs), says Patrick Tay, deals partner, economics and policy at PwC Malaysia.

It is closely linked to the lack of infrastructure such as public charging stations, he adds, especially since Malaysia has a “balik kampung” season where they prefer to drive to their hometowns instead of taking public transport.

“Three or four occasions a year, our cities empty out because people drive back to their hometowns and it’s anywhere between 150km and 350km. On the highways, there are charging stations, but the limitation is that each charge takes 20 to 30 minutes, and that is bound to create congestion,” Tay explains.

For Malaysians to be comfortable driving EVs, more charging stations are needed, says Azrul Reza Aziz, CEO of Malaysia Automotive, Robotics & IoT Institute (MARii).

In 2021, the global average was 10 EVs per charger. The China market is pulling the global average downwards with seven EVs per charger, with 40% of those being fast charging. Malaysia’s EV-to-charging station ratio currently stands at 22, he adds.

Malaysian Investment Development Authority (Mida) CEO Datuk Wira Arham Abdul Rahman notes that charging infrastructure, regulatory policies, vehicle service points and road infrastructure are important factors that influence the car-purchasing behaviour of Malaysians, particularly in the context of shifting from vehicles with internal combustion engines (ICE) to EVs.

Arham says, however, that efforts are being made to address these challenges. “Ongoing R&D is focused on improving battery technologies, exploring alternative materials and streamlining manufacturing processes to reduce the cost of EV manufacturing.”

Shah Yang Razalli, deputy CEO and chief green mobility officer at clean energy company Gentari, says access to home charging at non-landed residential properties, such as condominiums and apartments, as well as to charging facilities along interstate routes also need scrutiny.

In the past year, progress has been made in the development of the charging infrastructure network along a few interstate routes, particularly to the north, south and east of Peninsular Malaysia. However, more needs to be done in the East Coast and in Sabah and Sarawak in the short term, Shah Yang adds.

“As a country, we will need to do more to address issues regarding the rights of residents in non-landed properties to access charging infrastructure right on their doorstep. Based on our analysis, 80% of charging needs can be met at home.

“We are actively collaborating with government agencies to help secure residents’ rights to access charging facilities at their premises. We are also engaging with relevant authorities to establish a balanced approach that enables charging access at multilevel parking spaces,” Shah Yang says.

As the government’s goal is to have 10,000 charging points by 2025 from 978 currently, he notes that the number of charging points will need to increase in tandem with the sustained adoption of EVs. He adds that a balance must be struck to ensure access to adequate charging infrastructure for EV users, as well as good utilisation of the infrastructure.

Over just nine months, Gentari has deployed more than 160 charging points in Malaysia and has become the largest fast-charging direct current (DC) network in the country. Its goal for 2025 is to have 9,000 alternating current (AC) and 1,000 DC chargers.

However, the deployment of charging infrastructure requires substantial investment. Almost 75% of the investment cost is for charging equipment and upgrades to the power infrastructure. Therefore, Shah Yang says it is important for costs to be kept as low as possible.

“Support from the government in the form of infrastructure funds to shore up the capital needed for the power facilities upgrade will definitely help with the growth of the charging infrastructure network,” he adds.

“Efforts to streamline and shorten the approval process will ensure that our deployment timelines are efficient, as well as keep project costs at an optimum. The approval process efficacy and timelines can be further improved. There are initiatives currently undertaken by the National EV Task Force driven by Miti and Malaysia Productivity Corporation (MPC) that we hope will improve the efficiency of the process further.”

Mida’s Arham says the task force is actively working to streamline EV agendas, propose comprehensive policies and attract investment to position Malaysia as a preferred regional hub for automated EV manufacturing.

Its key performance indicators include targeting RM20 billion of investments in EVs by 2025 and RM40 billion by 2030. To date, Malaysia has already achieved the 2025 target with RM22 billion in approved investments between 2018 and 2022.

 

Developing an EV manufacturing hub

Malaysia’s strategic location in the Asia-Pacific region and Asean means that it has the potential to be a major hub for electric vehicle (EV) manufacturing and export. Malaysian Investment Development Authority (Mida) CEO Datuk Wira Arham Abdul Rahman says the country has signed 16 free trade agreements (FTAs) with other nations, giving it access to a market of over four billion people.

“Malaysia’s FTAs with Asean offer up to 98% import duty exemptions on most products. This favourable trade environment makes Malaysia an attractive destination for EV manufacturers seeking to export their products globally,” he explains.

In addition to being a signatory to these agreements, Arham says Malaysia possesses other strengths such as political stability, strong economic fundamentals, pro-business policies, an advanced ecosystem, a robust supporting industry and a talented workforce. These factors enhance the country’s attractiveness as a destination for foreign, local and start-up companies, particularly in high-tech and value-added industries, looking to optimise their operations in a dynamic market.

“Malaysia’s incentives, strategic location and participation in trade agreements position the country as a promising hub for EV manufacturing and trade, while fostering a conducive business environment for various industries,” Arham says.

Development of talent is another area to focus on, as the aftercare and handling of EVs are different from that of internal combustion engine (ICE) vehicles. Looking at the talent heat map, Malaysia definitely has a shortage of talent, and while it might take some time to upskill talent with ICE expertise, it is not difficult to do so, says Azrul Reza Aziz, CEO of Malaysia Automotive, Robotics & IoT Institute (MARii).

MARii is working with the Department of Skills Development under the Human Resources Ministry to develop the National Occupational Skills Standards (NOSS) and Malaysian Skills Certificate or Sijil Kemahiran Malaysia (SKM) to include EVs as well as develop standardised educational modules that can be used by industry players to upskill their workers. Azrul says industry players are being consulted as well so that talent gaps will be narrower.

But one area that is often overlooked is educating first responders to address incidents involving EVs. Safety is a very important component of upskilling, says Azrul, especially when the vehicle is involved in an accident.

“Compared to ICE, EVs have batteries and [different parts of the car] will be conducting high-voltage electricity. First responders need to be equipped to handle road accidents on the highway if we want more EVs on the road.”

Shah Yang Razalli, deputy CEO and chief green mobility officer at clean energy company Gentari, says while the government’s policies are leading the country in the right direction, what is also important now is a clear execution road map with more granular leading and lagging targets that are tracked to drive results.

“In order to drive sustained adoption and supporting infrastructure deployment, the road map needs to also be able to address how the policies can drive the increase of GDP, investment and economic growth via the creation of a local EV industry that will create jobs.”

 

Taking different routes to drive affordability

Malaysian Investment Development Authority (Mida) CEO Datuk Wira Arham Abdul Rahman says one of the biggest challenges for the electric vehicle (EV) industry, both from the manufacturing and consumer perspectives, is the high cost involved, largely attributed to battery and EV technologies. The price of medium-range EVs in the Malaysian market is between RM100,000 and RM200,000.

On top of that, the production of lithium-ion batteries involves complex and resource-intensive procedures. Raw materials such as lithium, cobalt and nickel need to be extracted, which can result in negative environmental effects like habitat disruption and ecosystem degradation, says Arham. The manufacturing process itself consumes substantial energy and emits greenhouse gases.

Supply chain constraints continue to be a major challenge. From a global market standpoint, the prices of materials had increased for the automotive industry as a whole, says Shah Yang Razalli, deputy CEO and chief green mobility officer at clean energy company Gentari. In 2021, the price of steel rose 100%, aluminium around 70% and copper more than 33%.

Specific to EVs, the price of lithium carbonate increased by 150% year on year, graphite by 15% and nickel by 25%. While some of these constraints will ease, battery supply chains and EV production capacity will have to expand rapidly to continue on the current trajectory.

“We have also seen automakers facing the issue of microchip shortages, and this has held back production output and slowed down delivery schedules especially in 2022. The shortage is problematic for EVs, which require around twice as many chips compared to conventional vehicles,” Shah Yang says.

He highlights that after the introduction of tax incentives, more EV models came on the market. “Recently, we saw the announcement of the lowest-priced EV, the Neta V, being introduced at just below RM100,000. This is a step in the right direction as the sub-RM100,000 [level] is where the mass-market segment lies.

“We hope to see more models introduced within this price segment, which will drive higher EV penetration.”

Touching on the tax breaks and incentives announced, Shah Yang says while this is a good start, more can be done. Currently in Malaysia, with regard to the price of an average EV versus that of a vehicle with an internal combustion engine, there is a total cost of ownership discrepancy that needs to be solved.

The incentives help bridge this discrepancy. However, Shah Yang points out that more incentives are needed to achieve parity towards the adoption of EV.

“From the example of other countries that we have seen with a good adoption trajectory, further incentives such as direct vehicle purchase subsidies as well as preferential rates for toll, parking and electricity were introduced.

“As a nation, we will need to continuously look at creative ways to educate and encourage our consumers towards modern yet sustainable transportation, and Gentari can help in this. These policies and incentives need to be sustained, with clear socioeconomic benefits in return arising from the growth of the local EV manufacturing industry and other supporting industries.”

One of the more significant tools is the Green Technology Financing Scheme (GTFS), a special programme introduced by the government to support the development of green technology.

Through the GTFS, Shah Yang says start-ups will be able to secure capital to develop and assemble EV technologies, invest in research and develoment, as well as create the supporting infrastructure required for their widespread adoption. This could include focusing on designing and manufacturing affordable EVs that cater to the needs of the local population.

“This will involve developing advanced battery systems with longer ranges, faster charging capabilities and improved energy storage capabilities. By pushing the boundaries of EV technology, these start-ups will not only elevate the standards within the local market but also position Malaysia as a hub for cutting-edge low-carbon transportation solutions,” Shah Yang says.

He adds, “As a result of the GTFS support, we hope to see the growth of the local industry. This effort will contribute to the creation of numerous high-skilled jobs, stimulate economic development and position Malaysia as a regional leader in green technology.”

Companies seeking R&D support in Malaysia can engage with Mida for manufacturing and selected services activities. The authority can facilitate collaborations with local universities and research institutions to enable access to expertise, says Arham.

“Mida’s Domestic Investment Collaboration Programme (DICP) provides comprehensive support for domestic companies engaged in R&D activities in Malaysia. DICP collaborates with banks to offer financing facilities, connects companies with venture capital and private equity firms, and assists in preparing for IPOs (initial public offerings). This holistic approach ensures that companies receive the necessary financial support to drive their R&D initiatives.”

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