Softer TIV likely next year for auto industry

PETALING JAYA: After two solid years of gains in total industry volume (TIV) for the automotive sector, analysts are projecting the sector to soften next year.

The lower projection for next year, among others, is due to fuel subsidy rationalisation and the lack of compelling factors which include softer-than-expected orders and deliveries, as well as resurgent supply chain issues.

Kenanga Research, which downgraded the sector to a “neutral” call from “overweight,” said it projects a TIV of 710,000 units in calendar year 2024 (CY24), down 7.8% from an estimated 770,000 units in CY23.

The industry’s earnings visibility is still strong, backed by a booking backlog of 220,000 units as at end-November 2023, it said.

The brokerage firm said more than half of the backlog is made up of new models, alluding to how appealing new models are to car buyers.

It also expects a similar trend in CY24, given an equally strong line-up of new launches during the year.

Meanwhile, Kenanga Research said the excitement is building in the electric vehicle (EV) segment with the recent new launches of BYD Seal and Tesla Model 3 with expected introduction of locally-made first national EV (i.e. Perodua and Proton) in CY25.

“We believe a new car is still an affordable luxury for most Malaysian households, despite the high inflation and a slowing global economy.

“However, we acknowledge that the impending fuel subsidy rationalisation is likely to hurt the demand for mid-market models, while remaining optimistic on vehicle sales in the affordable segment as the buyers, i.e. the B40 group which is its main target market, will be spared the impact of subsidy rationalisation, and also could potentially benefit from the introduction of the progressive wage model.”

Perusahaan Otomobil Kedua Sdn Bhd (Perodua), the maker of the affordable and fuel-efficient Perodua vehicles, would be running at full capacity in CY24 to fulfil in a huge booking backlog of 140,000 units, which is equivalent to almost half its CY24 sales target of 330,000 units.

“As such, based on our estimates, Perodua is poised to expand its market share to 47% from an estimated 42% in CY23,” it noted.

In the space of local brands, both Perodua and Proton models have been selling well, being competitively priced against the non-national brands.

For non-national brands, automakers are shifting away from the highly competitive low-margin segment such as seven seater sport-utility vehicles (SUVs) and focus on premium products that would appeal to the middle-income group such as those offered by Bermaz Auto Bhd (BAuto).

Honda, for instance, replaced its seven-seater variant of Honda BR-V with WR-V (small five seater SUV) which is the brand’s current best-selling car.

Additionally, Kenanga Research said vehicle sales would be supported by new battery EVs that enjoy sales and services tax exemption and other EV facilities incentives up to CY25 for completely built-up and CY27 for completely-knocked-down vehicles.

Commenting on the automotive sector, RHB Research said considering the easing backlog of major marques such as Perodua and Toyota, which have decreased from 155,000 and 40,000 as of end-August to 140,000 and 34,000 as of end-November, this supports the brokerage’s thesis that TIV in 2024 would likely soften year-on-year (y-o-y), especially after the two solid years (2022 and 2023).

“While there are upcoming launches of new EVs within the 2024 pipeline, like for example the BYD Seal, Volvo EX30, and Toyota bZ4X, we do not think this will significantly move the 2024 TIV needle,” it said.

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