KUALA LUMPUR: Focusing on producing energy efficient vehicles including electric vehicles (EV), together with parts and components, could give Malaysia a big nudge to become the leading automotive hub in Asean, an industry analyst said.
This requires more high tech components for production and hence, does not need labour intensive process.
Simultaneously, Malaysia should start focusing more on research and development (R&D).
"Malaysia used to be at the forefront but Thailand has surpassed us by developing more vendors for the crucial parts," independent automotive analyst Hezeri Samsuri said.
"Tyre companies have built regional R&D facilities in Thailand. We are still ahead of Indonesia and we should be prepared for Indonesia's growing appetite for automotive. We need to see what the industry requires and for the time being, we can see that Chinese companies are making inroads into Asean," Hezeri added.
He said with its labour cost higher than its neighbours, Malaysia needs to focus on high tech components like the computers that control the EV, electric motors and such.
"There is no shortcut to this," Hezeri told Business Times.
In June, Geely chairman Li Shufu said the competitiveness of Malaysia's automotive industry was being restricted by its automotive supply chain costs, whose costs were 30 per cent higher than China's, and 10 per cent costlier than Thailand's.
Hezeri noted that assembling cars for export into other Asean markets is no longer an option because every country wants to have its own completely knocked down (CKD) factories.
"Hence why if we focus on EV components, we can export parts and later on, technology to these countries. Australia is a good example where they have shut down all their car factories and they have turned the country into an R&D centre for Asia Pacific car companies."
He said the talent that the nation has grown thanks to Proton and Perodua should not be wasted.
However, the challenge the country could face is the mindset of focusing too much on domestic sales.
"With a small market, we do not have the volume to make local assembly plants sexy anymore. We are also not really heavy into R&D and with EV technology being so new, investment in R&D will be rewarding in the future," he said.
Hezeri added that more incentives should be given towards making Malaysia into an automotive R&D hub for Asean.
"For example, Proton's old test track facility should be turned into an R&D facility open to any car brands to use.
"Battery tech for Asean's climate and usage should be looked into deeper. In fact, we should push Asean to "protect" the market by making it compulsory for certain EV components to be produced here," said the analyst.
He said Asean must protect its market by making it compulsory to use local tech or components if foreign car brands want to receive incentives, and Malaysia should start focusing more on R&D rather than wasting talent by driving them away to other countries.
"Perodua has been working to develop products for Toyota and Proton's engineers have been moving out from Malaysia as their talent is no longer required here. Our engineers are scattered all over the world now and we should be using them to develop our own country," Hezeri said.
AmInvestment Research said EVs made up 2.6 per cent of Malaysia's total new vehicle sales in the first four months this year, up marginally from 1.7 per cent in 2023.
Although Malaysia's policy offers generous incentives and tax holidays to purchase EVs until the end of 2025, these benefits are primarily accessible to affluent consumers due to a minimum price of RM100,000.
"Essentially, Malaysia's EV policy encourages affluent consumers as early adopters, and for the mainstream market to catch on.
"This strategy, also used in North America and Europe, has yielded unfavourable outcomes given that EV sales decline once incentives expire," the research firm said, adding that Malaysia will face a similar situation in 2026.
According to AmInvestment Research, Malaysia should consider adopting policies like China's, which is the most successful large-scale adopters of EVs where it focuses first on lower-income individuals and later, on the affluent.
The firm, quoting China Association of Automotive Manufacturers, said China banned internal combustion engine (ICE) motorbikes and mandated electrified two-wheelers in 2017, resulting in over 350 million e-scooters zipping across the country in 2023.
It added that diesel public buses were phased out and replaced with electric versions at the same time, and now 80 per cent of public buses are electrified nationwide.
"As a result of these policies, the average Chinese commuter has become familiar with EVs and its merits - air quality has improved significantly, and cities have become noticeably quieter," it said.
AmInvestment Research said China's EV sales in May 2024 reached 43.5 per cent of total vehicle sales, a significant increase from about seven per cent in January 2021, before the incentives for private EVs were introduced.
The firms said the policies clearly worked, which is no small achievement given that it is the biggest car market globally and the third largest country in terms of geographical size.