This article first appeared in Forum, The Edge Malaysia Weekly on April 6, 2026 - April 12, 2026

Malaysia appears to be turning away cheaper electric vehicles (EVs). That is the easy conclusion from its dispute with China’s BYD.

But this is not, at heart, a story about consumers. It is a story about production — who makes the next generation of cars and who merely buys them.

The Ministry of Investment, Trade and Industry (Miti) has imposed clear conditions. Foreign EV makers that want to assemble locally must export 80% of their output. They must also keep domestic prices above RM100,000. BYD has pushed back and is now reconsidering its plans to build a plant in Tanjung Malim, Perak.

Critics see a policy mistake. They argue that Malaysia is denying itself cheaper cars and faster electrification. Without restrictions, BYD could offer EVs well below RM100,000. Adoption would rise. Fuel subsidies, which cost billions each month, might fall.

All of this is true. And yet it misses the point.

The more relevant question is structural: what happens to Malaysia’s industrial base if it opens fully to a firm like BYD?

The country’s automotive sector is not marginal. It contributes 5% of gross domestic product (GDP), equivalent to RM82 billion annually. It supports around 700,000 jobs across assembly, components and services. It sits at the core of the manufacturing base, which itself is a major pillar of the economy.

This is not a sector Malaysia can afford to casually lose.

The automotive industry is more than car production. It is a “systems industry”. It integrates engineering, electronics, materials, software and logistics. It forces firms to coordinate across complex supply chains. It develops capabilities that spill over into other sectors, from machinery to advanced manufacturing.

Countries that master such industries tend to grow richer. Those that lose them struggle to move up the value chain.

History makes the point clearly.

South Korea built firms like Hyundai Motor Co under protection before exposing them to global competition. Japan did the same with Toyota. China followed a similar path, nurturing its EV sector until firms like BYD could compete globally.

In each case, industrial policy came first. Competitiveness followed.

Malaysia is still in that transition.

Its automotive sector, led by Perodua and Proton, has built a domestic ecosystem over decades. But the shift to electric vehicles resets the playing field. EVs rely less on traditional components and more on batteries, electronics and software. Local capabilities are still catching up.

At the same time, Malaysia faces competition from firms like BYD. But BYD is not a typical competitor. It operates on a massive scale. It benefits from deep supply chains and vertical integration. It produces its own batteries and draws on a vast domestic market.

This shapes prices. When BYD offers cheaper cars, it does so from a position built on scale and sustained government support. Malaysian firms cannot replicate these conditions. The competition is not symmetrical.

Open the market fully and the effects would be swift. Prices would fall. Consumers would switch. Domestic firms would lose volume. Suppliers, dependent on that volume, would shrink or exit.

What disappears is not just production. It is capability. And this is the second, often overlooked, reason the automotive sector matters. It anchors Malaysia’s broader industrialisation strategy.

The country’s ambition to become a high-income, industrialised economy depends on moving into more complex activities. Automotive manufacturing sits at the centre of this shift. It links upstream industries — steel, plastics, electronics — with downstream services. It creates demand for skilled labour. It drives investment in technology. In short, it acts as a platform for industrial upgrading.

Remove that platform and the path to high-income status becomes harder. The economy risks tilting further towards consumption and lower-value services. Growth may continue but it will be shallower. Productivity gains will be harder to sustain.

This is the risk Miti is trying to manage.

The RM100,000 price floor keeps foreign EV makers out of the mass market. It prevents a sudden price shock that could overwhelm domestic producers. The export requirement ensures that foreign firms contribute to production for global markets, rather than simply competing for local demand.

These measures impose real costs. Consumers pay more. EV adoption slows.

But the alternative carries deeper risks. If Malaysia opens too quickly, it may find itself locked into a weaker position in the global economy. It would import advanced vehicles rather than produce them. Domestic firms would stagnate or exit. The country would move further from, not closer to, high-income status.

This pattern is familiar. Many middle-income countries liberalised early, gained access to cheap imports and saw their industries hollow out. They became markets rather than producers. Malaysia cannot afford that outcome.

To reach high-income status, it must build and retain industries that generate learning, scale and technological capability. Automotive manufacturing is one of them.

This does not mean shutting out foreign firms. Companies like BYD bring capital, expertise and access to global markets. The question is not whether they should enter but how.

Here, Miti’s policy shows both intent and limitation.

The intent is clear: to preserve space for domestic firms while they adapt. The limitation lies in execution. The 80% export requirement is especially demanding. It assumes a scale Malaysia has yet to achieve. It risks deterring investment altogether.

A more calibrated approach would better serve the same goal. We could phase in export targets incrementally and place greater emphasis on local sourcing, partnerships and technology transfer. The aim should be to shape participation, not prevent it.

Still, the broader direction is sound. Malaysia cannot compete with larger economies on scale or subsidies. It cannot outproduce or outspend. What it can do is manage how and when its industries face global competition. It can create the conditions for learning before exposure becomes overwhelming.

This is not about resisting change. It is about sequencing it.

Consumers may have to wait longer for cheaper electric cars. That is a visible cost. The less visible risk is losing an industry that contributes up to 5% of GDP, supports hundreds of thousands of jobs and underpins the country’s industrial future.

In the end, the dispute with BYD is not about denying Malaysians access to affordable EVs. It is about ensuring that Malaysia remains a country that makes complex products — and one that has a credible path to becoming a high-income economy.

Nazim Rahman is an investment manager and adviser to the plantation and commodities minister of Malaysia

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