KUALA LUMPUR: The government should reinstate and enhance incentives for hybrid vehicles following their exclusion from the recently-announced 2025 Budget, according to industry observers.
They argue that hybrids could be pivotal in bridging the transition to full electric vehicles (EVs), especially in light of the government's decision to rationalise fuel subsidies.
Automotive analyst Hezeri Samsuri said the government should not drop the incentives for hybrid vehicles. Instead, they should again study it and make it even better as when fuel subsidy has been rationalised, fuel efficient vehicles will be important.
"EV cannot replace the usual internal combustion engine (ICE) cars in 10 years or even more and thus, hybrids will be the best option until the country succeeds in its EV transformation," Hezeri told Business Times.
In 2014, the removal of hybrid incentives had a detrimental impact with hybrid vehicle sales plummeting by over 90 per cent.
Major automakers, including Toyota and Honda, subsequently withdrew their hybrid offerings from Malaysia due to lower profitability, resulting in limited options for consumers seeking fuel-efficient alternatives.
The current lack of support, experts warned, could lead to a similar downturn, reducing market accessibility to hybrids and potentially slowing down Malaysia's progress toward a cleaner vehicle ecosystem.
"We are now facing a similar risk. Without incentives, hybrids could become less affordable, which might lead to a drop in sales and fewer options in the market, just like what happened after 2014.
"This situation is worrying because hybrids still play a crucial role in our transition towards cleaner vehicles, particularly while our EV infrastructure is being developed," said Transport analyst Wan Agyl Wan Hassan.
While it is clear the government is prioritising full electrification with a focus on electric vehicles (EVs), Wan Agyl said hybrids serve as an important stepping stone for reducing emissions.
"I still believe the government should reconsider introducing incentives for hybrids, even if on a temporary basis, to keep these cleaner options accessible and prevent another setback in our progress towards sustainable transportation," he added.
Meanwhile, as the government prepares to phase out tax breaks on fully-built imported EVs (CBU EVs) by the end of 2026, the focus is shifting towards building a strong local manufacturing base which comes with both opportunities and significant challenges according to industry experts.
Wan Agyl highlighted that the decision to end tax breaks on imported CBU EVs signals a strategic move towards local EV production to strengthen Malaysia's automotive sector. However, there is a caution that local manufacturers may not yet be equipped to handle EV production on a larger scale.
"Setting up the needed infrastructure and sourcing advanced components, like batteries, is costly and will take time. Without the right support, there's a risk of compromising the quality of locally assembled EVs." he noted.
Moreover, local production could drive up costs, as Wan Agyl explained: "Local assembly could be more expensive, leading to higher vehicle prices, making EVs a luxury that few can afford."
He added that EV adoption in Malaysia remains low, with EV sales accounting for only around three per cent of total vehicles sales.
If local assembly pushes prices even higher, EV adoption could slow down, impacting the industry's overall growth and investor confidence.
Hezeri also provided insights into the government's potential approach, saying that the tax incentives could continue if Malaysia's EV adoption objectives are not fully met by 2026.
"The government seems to be moving towards completely knocked down (CKD) operations for EV in order for companies to continue getting the incentives," he said, pointing to Perodua's EV project as an indicator of this policy direction.
However, Hezeri emphasised that CKD incentives alone may not be enough to establish Malaysia as a regional EV hub and urged the government to fine-tune these incentives to attract foreign companies who could use Malaysia as a regional base.
According to Hezeri, focusing solely on meeting local demand will not fully leverage Malaysia's potential. The government should instead prioritise export rather than just highlighting local sales numbers.
By prioritising exports, Malaysia could position itself as a key player in the regional EV market, potentially attracting more foreign investment and boosting its role in the global EV supply chain.
For Malaysia to succeed in its EV ambitions, the government will need to take a multi-faceted approach, balancing local demand with international appeal by enhancing incentives, expanding infrastructure and supporting both manufacturers and consumers to make Malaysia's EV sector sustainable and competitive on a global scale.