This article first appeared in The Edge Malaysia Weekly on August 14, 2023 - August 20, 2023

LAST year was a bumper year of sorts for the local automotive industry. Total industry production (TIP) jumped to its highest level of 702,275 units.

This represents a sharp turnaround from 2021 when TIP was 481,651 units because production was fraught with problems due to the Covid-19 pandemic and disruption to the supply chain. So far this year, the going has been good for the industry.

From assemblers to auto parts manufacturers, the plants are busy. Perusahaan Otomobil Kedua Sdn Bhd (Perodua), which is the largest assembler of cars in the country with an installed capacity of 320,000 units, has a nine-month waiting period for its popular Bezza model.

The financial results of auto parts manufacturers — APM Automotive Holdings Bhd and MBM Resources Bhd — are evidence of the roaring business the industry is enjoying although the excitement has lessened since 4Q2022. MBM, which has 22.6% equity interest in Perodua, is seeing double-digit growth in its auto parts business.

APM has performed even better. The group does a lot of original equipment manufacturer (OEM) work and saw its profit before tax for the first quarter of the year rise 60%. APM attributed this to its clients rushing to fulfil the bookings made by customers last year.

In the past, the automotive sector was built around engines. But with the advance of electric vehicles (EVs), the focus has switched from manufacturers to battery systems.

Despite the global move to EV adoption, in Malaysia, assemblers and auto parts manufacturers do not see a threat from EVs in the next few years due to the lack of infrastructure such as charging stations and battery services.

At the present time, sales of EVs only make up a fraction of total annual sales in Malaysia. A total of 274 EVs were sold in 2021 while some 2,631 were sold in 2022, accounting for less than 1% of annual new car sales.

On a global scale, among the challenges the automotive industry faces in the transition to EVs is dealing with local assemblers that are very much focused on combustion engine cars, local vendors for auto parts and how the transition will affect thousands of jobs across the industry.

UMW Toyota Sdn Bhd, which is a leading manufacturer of cars in Malaysia with an assembly capacity of 100,000 vehicles per annum, does not see the transition to and embracing of EVs happening so soon in the country.

In response to a question from The Edge on whether UMW-Toyota sees the advancement of EVs as a threat to its assembly operations, the company states “not in the near future”.

Toyota, the world’s leading manufacturer of combustion engine cars, is lagging behind in the race to make fully electric models. Toyota of Japan is more inclined to make battery-operated energy-efficient vehicles, including hybrids, and alternative-fuel vehicles, as the world veers away from combustion engine vehicles.

In Malaysia, Toyota has partnered UMW in locally assembling and distributing Toyota cars. It has two plants in Selangor that not only assemble vehicles for the domestic market but also for the Asean market.

UMW is also the single largest shareholder in Perodua, hence cementing its position as a leading player in the domestic market. UMW, through Perodua and UMW-Toyota, accounted for almost half of the country’s sales of 702,275 vehicles last year.

Meanwhile, Sime Darby Bhd says EVs have started to change the automotive landscape with brands such as Tesla and China-based BYD coming out with new products. The company is positioning itself to be a leader in the EV sector, and had sold 14,724 EVs as at June 2023.

“In Malaysia, the EV trend is experiencing exponential growth with strong government support, a Sime Darby spokesperson tells The Edge.

“We have developed our EV strategy to leverage this trend and will continue to work with our principals on the introduction of more EV models in Malaysia.

“Our after-sales ecosystem is evolving with our service advisors and technicians being trained, and plans have been made to reconfigure showrooms and service workshops,” the spokesperson adds.

“We are also looking to create a stronger network of EV charging infrastructure to support the adoption of EVs.”

At present, Sime Darby has 10 brands under its belt, including BMW, Jaguar, Land Rover and Porsche, as well as mass-market brands such as Ford and Hyundai. It also has four distributorships with over 89 dealers nationwide and 26 wholly-owned franchise retail outlets in Malaysia.

It is worth noting that Sime Darby has partnered one of the world’s largest EV manufacturers, BYD, for its EV segment and has set aside RM500 million to establish BYD nationwide.

Sime Darby owns an assembly plant through its controlling 51% stake in Inokom Corp Sdn Bhd. The plant has the capacity to produce 38,000 units a year, according to Sime Darby’s website.

There is room for expansion as the current facility only takes up 75% of the capacity at the 200-acre site. In 2022, the total number of vehicles assembled at the Inokom plant was 28,176 units.

Currently, Inokom assembles BMW, MINI, Hyundai, Kia, Porsche and Mazda vehicles, among others. It recently roped in China-based Chery Automotive to assemble its SUV models.

It is estimated that the installed capacity for car assembly in Malaysia now is more than 800,000 vehicles.

According to the Malaysian Investment Development Authority, there are currently 28 manufacturing and assembly plants in Malaysia for passenger vehicles, commercial vehicles, motorcycles and scooters, as well as automotive parts and components. 

Given the growing popularity of EVs, what will be the impact on local assemblers that are focused on combustion engine vehicles?

Despite government incentives of import duty and excise duty exemption for imported EVs, the EV market is not yet ready for the mass market, say automotive analysts.

Maybank Investment Bank Research analyst Loh Yan Jin says the EV is not “perceived” as a threat to local assembly operations at the present time because of government policies that safeguard the local automotive industry.

“Import duty and excise duty exemptions apply to completely built-up (CBU) battery electric vehicles (BEVs), but there exists a minimum price floor of RM100,000 for EVs until 2025.

“This ensures that no imported BEV can be sold in Malaysia below this price until that time. The policy serves to protect local car manufacturers and provide them with a transitional phase to prepare for the shift to Next Generation Vehicles (NxGVs). It is noteworthy that national car brands like Proton and Perodua are actively engaged in developing their respective NxGVs,” Loh tells The Edge.

She points out that the success of this transition depends on its execution, and that it’s still “early” to make comprehensive predictions about the industry’s medium- to long-term landscape.

“Initiatives like the Automotive High Technology Valley (AHTV) are underway and set to establish a holistic ecosystem to position Malaysia as a regional production hub for NxGVs and rejuvenate the domestic automotive sector.

“This involves comprehensive development across the value chain, from R&D centres to manufacturing clusters and support services, as well as talent development. If these initiatives prove effective, the local automotive industry will have an opportunity to strengthen its manufacturing capabilities and facilities to meet future demand,” she says.

Nevertheless, she adds, the success of individual companies will depend on their strategies for positioning themselves within the future mobility value chain.

“Despite increasing investments in the EV sector, we remain in the early stage of development, with substantial growth potential before capacity limitations become a concern, given the vast prospects within the EV market,” Loh notes. 

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