Sunday 19 May 2024
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This article first appeared in The Edge Malaysia Weekly on August 21, 2023 - August 27, 2023

NOT wanting to be left out of growing customer acceptance of electric vehicles (EVs), Perusahaan Otomobil Kedua Sdn Bhd (Perodua) has plans for the local assembly of EV models in collaboration with its Japan-based partner.

Perodua president and CEO Datuk Seri Zainal Abidin Ahmad says jumping on the EV bandwagon is not a question of “if” but “when”, and the company is looking at a variety of ways to introduce EVs to the mass market. He adds that it has to be affordable for most Malaysians.

“To overcome this, we are actively working to bridge this gap with the full support of our partners. We are confident that we will be able to produce something in the near future,” he says in reply to questions from The Edge.

Budget 2022 introduced a slew of incentives for EVs, including exemption from excise and import duties. The incentives have paved the way for foreign EV manufacturers such as Tesla and BYD of China to bring their marques to Malaysia at competitive prices.

The imported EV cannot be priced below RM100,000, however, a move designed to protect the local car assembly operations — which is why the cheapest range of EVs in the market at the moment are priced just above RM100,000.

If Perodua is able to locally manufacture and assemble EVs, they can be priced below the RM100,000 band. Perodua’s partner, Daihatsu Motor Co Ltd, does not, however, have a fully electric car yet.

Daihatsu is a wholly-owned subsidiary of Toyota Motor Corp, which has invested heavily in making more efficient batteries with the objective of producing hybrid models.

On the other hand, Perodua’s nearest competitor in the domestic market, Proton Holdings Bhd, has a partner in Zhejiang Geely Holdings Group Co, which has EV models. Geely has plans for a RM5 billion investment in Tanjung Malim, which industry officials believe is for the manufacture of EVs.

As at end-June, Perodua commanded almost 40% of the total industry volume (TIV) of 144,690 vehicles. In the passenger car segment, it captured more than half of the market. But EVs are seeing stronger growth than vehicles with an internal combustion engine (ICE).

Zainal does not see EVs as a threat for now. But as EVs disrupt the local auto industry, he highlights the challenges that Perodua faces and maps out its strategy to position itself. The following are his answers to questions from The Edge.

 

The buzz on EVs in the domestic market has picked up, with the launch of models by Tesla Inc and BYD. Do you see this as a threat to ICE models?

At the moment, we see EVs as complementary to ICE cars. Moving forward, however, we think EVs will play a greater role in the local automotive industry as the government has pledged its commitment to achieve the carbon-neutral agenda by 2030.

For drivers who are keen to explore EVs, there are several factors to be considered before choosing to own such a car in Malaysia.

First, the price. The government has taken steps [to offer] incentives to encourage a greater uptake of EVs.

This is a good litmus test for the current available recharging infrastructure, plus we are able to benefit from the initial feedback from users to ensure that what we offer is in line with what our future customers need.

Furthermore, while electric chargers are available in big cities, these stations are still scarce in rural areas, making it difficult for EV users to travel beyond urban centres.

Most drivers are not yet ready to face the hassle of recharging their cars and still prefer spending four to six minutes to refuel. But that may change as advances are made in fast-charging and longer-charge storage. We suspect that most potential EV buyers prefer to defer their purchases until after a sufficient number of charging stations is available.

Owning an EV means that the owner or driver must plan ahead before driving. Factors such as available charging ports and time management in between destinations must be mapped out before every journey.

Standardisation of charging fees would also be beneficial for a quicker adoption of EVs, as most consumers are still unsure how the charging cost is calculated.

 

There is a view that, in Malaysia, petrol is subsidised, so the switch to EVs will not happen as fast as in Europe and China. Do you agree?

The answer to this question is complicated because, for now, the government has given tax breaks when buying an EV, and electricity is also subsidised to a certain extent. So, saying that fuel subsidies prevent the advancement of EVs is not accurate.

 

Perodua is the largest manufacturer of cars in the Malaysian market. The waiting period for the Bezza is eight months or more. The waiting period is also long for the Myvi. When did the pickup in orders happen and is it still growing or has it slowed down?

During the first Movement Control Order in 2020, we realised that the entire automotive ecosystem was in danger because, if the total industry volume fell below 500,000 units, the entire industry would collapse.

To prevent this, Perodua presented this scenario to the Ministry of Investment, Trade and Industry (Miti) and the Ministry of Finance (MoF) and proposed a temporary suspension of the sales tax to be included under the Penjana economic stimulus package. This zero sales tax initiative had a tremendous impact on the industry, as demand for vehicles skyrocketed across the board.

Fast forward to 2022, consumers raced to book as many cars as possible within the period to take advantage of the zero tax initiative, up to a point where 2022 TIV reached an all-time high of 720,000 units. We take 2022 as a reference point mainly because the government ended the sales tax exemption on June 30, 2022, and manufacturers wanted to deliver as many cars as possible within that time frame.

Despite the June 30 deadline, the government gave manufacturers until March 31, 2023, to deliver the remaining bookings collected within the sales exemption period. When the sales tax exemption ended, car prices reverted to normal.

Owing to rising costs of raw materials and foreign exchange, however, some companies were forced to increase their prices. Perodua was spared because 95% of our parts are sourced locally and most of our foreign exchange exposure was in yen. We also protected our vendors from rising material costs because they also import raw materials and child parts internationally by absorbing the cost hike.

That has helped to preserve our prices. We had to make several announcements that we would not increase car prices. This helped attract customers to our brand and also sustained the demand for our cars, and we are currently increasing our production target by 14.2% this year to 330,000 units to meet this demand.

As for current bookings, we continue to receive healthy demand for most of our models and we expect this trend to continue until the end of the year.

 

What is Perodua’s current assembly capacity? Are there any expansion plans?

Overall, we have a combined annual capacity of 320,000 vehicles. This total is based on a two-shift cycle, which means we still have room to increase this number by implementing overtime.

We can also increase productivity by improving the tact time, which refers to the time it takes to produce a vehicle. At this moment, our Perodua Global Manufacturing plant (PGMSB) tact time has been reduced from 1.35 minutes to 1.25 minutes.

We are looking at further improving the potential production of our existing manufacturing plants. Investments are made to modernise and improve productivity throughout the automotive ecosystem.

 

Lastly, does Perodua have any plans for the local assembly of EV cars?

We believe that being on the EV bandwagon is not a question of ‘if’ but ‘when’, as the government has already set its KPIs on EV.

To this end, we are looking at a variety of ways to bring the Malaysian automotive ecosystem up to speed on how to produce the car and deliver it to the mass market by enhancing our vendors’ capability in producing EV related parts.

Another challenge is to price the cars so they are affordable for most Malaysians. We do not have the capability to do this on our own.

To overcome this, we are actively working to bridge this gap with the full support of our partners, we are confident that we will be able to produce something in the near future. 

 

Intricacies involved in unlocking value of most profitable auto company

The commendable performance of Perusahaan Otomobil Kedua Sdn Bhd (Perodua) can be attributed to its shareholding, which is also an obstacle to its public listing.

Perodua is currently Malaysia’s most valuable automotive company. It chalked up a profit of RM748.2 million on a turnover of RM15.2 billion for the financial year ended December 2022, far higher than any other automotive group in the country.

This year, Perodua is increasing production to meet demand. The waiting period for its passenger cars is up to eight months and its factories are operating on extended shifts. Perodua commands 52% of the passenger car market and accounted for close to 40% of the total industry volume of 366,037 vehicles for the first half of this year.

Its closest listed proxies are UMW Holdings Bhd and MBM Resources Bhd.

UMW and MBM have direct interest of 38% and 20% respectively in Perodua. MBM also has an additional 2.8% indirect stake in Perodua while Permodalan Nasional Bhd (PNB), the parent company of UMW, has a 10% direct stake in Perodua.

Assuming Perodua’s profit grows by another 5% this year, its valuation at 10 times price-earnings multiple is easily about RM8 billion. The figure is far more than UMW’s and MBM’s market capitalisation, which means both companies are sitting on an unlisted gem.

The reason for Perodua staying unlisted is believed to be its intricate shareholding and the conditions stipulated by its Japanese partner.

According to an executive familiar with the founding of Perodua, when the company was established, one of its Japanese partner’s conditions was that it wanted a majority stake in the assembly and manufacturing units.

Another condition was that Perodua should have a diverse shareholding so that no single entity controlled it. Perodua’s partner is Daihatsu Motor Co Ltd, which is wholly owned by Toyota Motor Corp.

“The partner from Japan did not want a situation like at Proton. The reason for wanting control of assembly and manufacturing is to control the built quality of the cars. On the shareholding, it did not want any one single entity to have a majority stake in Perodua to ensure governance,” says the executive.

The conditions imposed have borne fruit. For instance, the built quality of Perodua’s cars is much better than that of some of the other locally assembled vehicles.

The company’s diverse shareholding structure is also seen at MBM where the major shareholder is Med Bumikar Mara Sdn Bhd.

Mara Holdings is the single largest shareholder of Med Bumikar with close to 30%. The remaining 70% is held by six families. The shareholding agreement grants existing shareholders right of first refusal should any one of the families or Mara decide to exit Med Bumikar.

“Previously, Mara was not keen on increasing its stake in Med Bumikar and was open to a sale. But now it wants to increase its holding given the strong performance of Perodua,” says the executive.

Perodua’s listing will easily be one of the country’s biggest and probably a solution for its diverse shareholders who have yet to monetise their investment.

 

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