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Perodua in the frame to make Malaysia's best selling EV

Malaysia's motor industry has been a cornerstone of the nation's industrial ambitions since Volvo and Tan Chong-Datusn started their local assembly plants in the 1960s. National car makers Proton and Perodua came on the scene in the 1980s and 1990s, and a National Automotive Policy came into being in 2006. However, the sudden rise of China's car industry as a global powerhouse has necessitated an overhaul of strategies. The government set up a council of automotive eminent persons with the critical task of charting a viable path forward to recognise world trade disruptions and recent geo-political tensions. The council is expected to present its findings by August, marking a significant moment in Malaysia's industrial evolution, as indicated by Tengku Zafrul Aziz, the investment, trade and industry minister, It must, however, be noted that the council's mission could be strengthened if the finance minister was the co-chair. Otherwise, how could the council reasonably expect its suggestions on incentives and tax policies to be not whittled down by the Treasury? Change of vision The automotive industry in Malaysia began with the vision of transitioning from a commodities economy to a modern, high-value manufacturing economy. Over time, however, this vision has shifted. The sector is increasingly seen as a source of tax revenue, rather than solely a driver of industrial progress, as pointed out by FMT columnist Rosli Khan. This change is particularly evident in the impending implementation of a new excise duty on locally assembled cars based on their open market value. Starting Jan 1, this excise duty will add approximately RM500 to the price of entry-level Perodua models and up to RM30,000 for entry-level premium German cars. Initially postponed in 2020 due to the Covid-19 pandemic, its enactment may possibly reshape the automotive landscape. With locally-assembled premium cars becoming almost as costly as their CBU (completely built-up) counterparts, the premium car marques may abandon local assembly altogether and opt to import built-up cars assembled in Thailand. This potential shift poses significant challenges for the industry, requiring the eminent persons council to address key concerns surrounding competitiveness, tax policy, and industrial sustainability. Investment incentives A second factor enriching the council's deliberations is Malaysia's approach to attracting foreign direct investment in the automotive sector. Last year, menu-driven incentives were introduced, to attract global car companies. While the initiative represents progress over the opaque customised incentives it replaces, industry participants have noted that these incentives are less favourable compared to those already offered to low-volume manufacturers. For Malaysia to remain competitive, the council must explore strategies to refine and optimise these incentives to attract some of the biggest Chinese car companies which are not already heavily invested in Thailand and Indonesia. Despite these challenges, optimism remains. The global automotive industry can be reasonably expected to remain powered by three complementary drivelines — internal combustion engines, battery electric vehicles, and hybrids, including plug-in hybrids and range-extenders — well into 2050. This provides Malaysia with a few options in terms of being a regional hub in the automotive supply chain. Electronics and rare earths One strategic opportunity lies in the conversion of ADAS software from left-hand drive to right-hand drive vehicles. According to Chinese industry sources, this process is significantly more complex than simply shifting the steering wheel and controls. By incentivising Malaysia's electrical and electronics industry to expand further into automotive electronics, the country could become a hub for specialised research and development as well as automotive chips. Additionally, Malaysia's rare earth resources offer a promising avenue for growth. By consolidating these resources and promoting the manufacturing of super magnets and electric motors, Malaysia can position itself as an integral player in the global electric vehicle supply chain. Sustaining the energy transition Finally, to ensure Malaysia fulfils its commitments under the Paris agreement on climate change, the government should consider implementing an end-of-life vehicle system or cash-for-clunkers programme. Such initiatives would boost the energy transition by encouraging the replacement of older, less efficient cars with newer, greener alternatives. Since the major Chinese companies BYD, GWM, SAIC-MG are already invested in Thailand as their regional hub, Malaysia's fortunes as a car exporter will probably lie with Perodua, Proton, Chery and possibly Changan. Perodua's role Of these four, I would wager that Perodua offers the best hopes for Malaysia to reduce its severe trade deficit in cars assuming that its Japanese partners permit export sales. When Perodua as a national car maker was tasked by the government to make an EV, its technical partner and shareholder Daihatsu, which had little EV technology, gave permission to Perodua to integrate components and make its own EV. Allowed this latitude, Perodua has put in the R&D to integrate off-the-shelf electric motors, high-voltage battery pack and electrical control systems and launch the EV for sale later this year. And who knows, with the Myvi being Malaysia's best selling car for several years consecutively, Perodua's EV might well be Malaysia's best selling EV, if not Asean's best selling EV. The views expressed are those of the writer and do not necessarily reflect those of FMT.