Revving up the automotive sector

WITH the tabling of Budget 2026 next week, one key sector the government needs to address is the automotive industry, especially in relation to tax breaks and the RM100,000 floor price introduced for the sale of electric vehicles (EVs) in Malaysia.

The automotive sector has seen a dramatic shift in supply and demand equilibrium, driven by the emergence of EV cars in the market, particularly imports from China.

Listed companies have seen severe dips in both revenue and earnings, as increased competition has eaten up healthy margins.

This was further reinforced when Bermaz Auto Bhd recently reported a big drop in quarterly earnings as well as a significantly lower top line.

Slight slip in TIV​

After hitting a record high total industry volume (TIV) of 816,747 vehicles in 2024 – a 2.1% increase year-on-year (y-o-y) increase driven by a surge in passenger vehicles – growth for this year, as expected, has shifted into reverse gear.

Breaking down 2024’s performance, electrified vehicles (xEVs) accounted for 5.6% of total TIV, up from 4.8% the previous year.

In terms of units, xEV sales jumped 19% to 45,562 units from 38,214 units.

Of these, 14,766 units were EV sales, while the remaining 30,796 were hybrid vehicles.

EV sales alone leapfrogged 45% in 2024, boosted by government tax breaks.

Since the start of this year, the automotive market has softened, but not as significantly or alarmingly as made out to be.

In fact, year-to-date (y-t-d) TIV up to August 2025 stands at 516,862, down by just 3.8% y-o-y from 537,532 units in the same period last year.

For passenger vehicles, y-t-d sales up to August this year showed a slight decline of just 2.7% y-o-y, with volumes dropping by 13,521 units.

Based on data for the first half of this financial year (1H25), xEV continues to gain momentum in the market with a total of 30,573 sold, up 35.6% y-o-y from the 22,542 sold in 1H24, and accounting for 8.2% of TIV.

Breaking down the data, EV had seen significant growth, with sales skyrocketing 91.4% y-o-y to 12,733 units from 6,651 in 1H24.

Hybrid vehicles remain popular, as sales were higher by 12.3% y-o-y to 17,840 units.

A word of caution is also warranted on the above figures, as the Malaysian Automotive Association’s TIV data does not include non-members, and as such, vehicle sales from Tesla, Xpeng, and a few others are excluded.

Based on a recent publicly announced statement by Proton that its hot-selling e.MAS 7 has garnered total sales of 5,455 units up to August this year, and has taken a 24% market share of all EV car sales, we could assume that total EV car sales have reached 22,730 units up to August 2025, and are on track to reach 35,000 units for this year, translating to 4.5% of the TIV.

All about taxes

EV sales have gained ground in Malaysia due to the tax breaks granted to non-internal combustion engine vehicles.

Completely built-up (CBU) EVs are exempt from import and excise duties until the end of this year, while locally assembled EVs enjoy exemptions from excise duty and sales tax until Dec 31, 2027.

In addition, there is a floor price for EVs at RM100,000, introduced by the government to encourage locally manufactured EVs from Proton as well as Perodua. This also expires at the end of this year.

While Perodua is yet to unveil its EV model, Proton’s e.Mas 7 has been in the market for a while now, with the Prime model starting at RM105,800 and the Premium at RM119,800.

Proton is expected to launch the new e.MAS 5 today, set to be priced at around RM100,000 as well.

However, due to the competitive nature of the EV market and to ensure it is the most affordable EV, the new e.Mas 5 will likely be marketed with heavy promotional discounts of at least between RM15,000 and RM20,000.

Heavy discounting

It is a known fact that some Chinese EV models sold in Malaysia remain expensive compared to prices in other countries.

For example, three BYD EV models – the latest BYD Seal 6, BYD Atto 2, and BYD Dolphin – are priced from RM100,000.

In contrast, these models are sold much cheaper in their home market and in countries like Thailand, where the BYD Dolphin is priced just under 500,000 baht (around RM65,400).

Due to intense competition and efforts to gain market share, heavy discounting has also become common for several Chinese EV models sold in Malaysia.

Protection?

There are two things to look out for in the upcoming Budget 2026.

First, whether the current tax breaks for CBU EVs will be extended for another one or two years.

If the government chooses not to extend these breaks for CBUs, introducing import and excise duties could encourage more EV manufacturers to set up assembly plants in Malaysia, shifting focus to completely knocked down (CKD) imports.

Second, with the competitive market and the likelihood that Perodua’s upcoming EV will be priced well below the RM100,000 threshold level, it remains to be seen whether the government will remove this floor price in the budget.

After all, given the heavy discounting by many EV makers, the RM100,000 floor price has become increasingly redundant.

As locally produced EVs from Proton and Perodua compete directly with imported EVs from China, the floor price ought to be removed.

In conclusion, while EV sales have yet to reach critical mass, judging by the market share of the TIV, the numbers are rising and set to achieve 35,000 units this year, based on Proton sales data and the introduction of the cheaper e.MAS 5.

Sales of hybrid vehicles too have been gaining significant ground, expected to hit approximately 36,000 units this year.

Overall, the xEV segment is poised for strong growth, with an estimated 9.2% market share.

Budget 2026 proposals for the automotive sector must support this momentum through favourable tax policies and the removal of the floor price for EVs.