Protectionism slows EV fast lane

THE recent reports on Chinese electric vehicle (EV) giant BYD Co Ltd’s investment in Tanjung Malim for its complete knocked-down (CKD) assembly plant hitting a snag were due to disagreements with the Investment, Trade and Industry Ministry (Miti) over the terms for licence approval.

It was reported that the government has imposed requirements for the new factory to operate on an 80% export quota and 20% for domestic sales (provided the on-the-road price floor of RM100,000 is applied).

For BYD, which already has assembly plants in Thailand and soon Indonesia for export purposes, it would appear that this new facility in Malaysia would essentially replicate its other manufacturing hubs in the region.

Additionally, with a domestic sales quota limited to 10,000 units per annum, BYD has reportedly reconsidered the merits of its local investment expansion plan.

The uproar led Miti to issue a clarification statement to address misconceptions and justify the policy decision, which aims to prevent disruption to the existing vendor ecosystem and preserve market space for national players like Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd (Perodua).

In simpler terms, the government has taken a stand to ensure local automotive players survive, rather than be decimated by the onslaught of affordable Chinese EVs.

There are two camps when it comes to this policy decision.

On one hand, we have dissatisfaction expressed by consumers who hope to have more affordable EV options beyond Proton and Perodua.

On the other, proponents argue the policy is necessary to protect local brands, which provide employment and support domestic supply chains.

Importance of FDI

In truth, both arguments carry weight. I do not envy Miti’s role as it is not an easy task to balance conflicting priorities.

Of course, we hope foreign direct investments (FDIs) continue to flow into our country, creating employment and promoting knowledge transfer to the locals.

FDI has long been the bedrock of Malaysia’s status as a trading nation and has brought widespread benefits since the early 1970s, when multinational corporations like Intel set up shop in Penang.

Over the past four decades, Intel has invested more than RM14bil and employed 9,000 highly skilled Malaysians.

Its presence also created the entire electrical and electronics ecosystem in Malaysia, laying the foundations for the country’s semiconductor sector.

The spillover effects are immeasurable, demonstrating how FDI can profoundly advance the nation’s development.

However, FDI must align with corporate interests in making profits too.

We know that BYD is a giant not only in terms of EV manufacturing, but also in battery manufacturing and development.

Many are concerned about BYD’s aggressive market techniques to meet its global sales target, which includes selling zero-mileage vehicles as secondhand cars to cut prices and boost sales, which could foster unhealthy competition locally.

That said, we cannot deny the value and quality of BYD vehicles today, especially compared to many other foreign and domestic brands.

Consumers stand to benefit both in terms of product utility and economics, as savings from lower monthly hire-purchase commitments can be redirected toward other daily expenses.

Protectionism stifles competitiveness

There is no doubt that most would agree protectionism is a crutch that can be detrimental to advancement and competitiveness.

It is an artificial barrier set up for the sole purpose of reducing competitors from disrupting the status quo.

In the short term, it may serve its purpose. But over the long term, complacency creeps in, innovation slows, and competitiveness erodes.

Using protectionist policies as a stop-gap measure to buy time in order to catch up – whether for research and development (R&D) or capturing market share – can be justified.

We are witnessing the Japanese government adopting this approach to protect its automotive industry, which has heavily invested in hybrid and hydrogen vehicles development while falling behind Chinese competitors in EV production.

This is not the case for Malaysia. If our government is taking a strong stance on energy transition, it cannot use New Industrial Master Plan considerations to contradict the policy goals of the National Energy Transition Roadmap.

With energy prices out of whack due to the war in Iran, our country’s coffers continue to face fiscal strain from high fuel and diesel subsidies.

The only way out is to hasten EV adoption, so much so if a majority of road users rely on EVs instead of internal combustion engine vehicles, the gradual rollback of fuel subsidies will encounter far less resistance.

In hindsight, our government should not have ended EV complete built-up tax incentives prematurely.

Greater support for setting up CKD EV production locally, combined with stronger incentives, would better align with national EV adoption targets and long-term energy transition goals.

Sustainable investment is paramount

In my view, there are questionable FDIs or foreign businesses setting up in Malaysia that do not live up to their promises or contribute meaningfully to the local economy.

Examples include foreign wedding photographers, daily goods trading companies, building materials suppliers, fashion retail outlets, and food and beverage chains that bring no technology transfer or R&D benefits unavailable locally.

Many enter the market to test the waters, and when they fail, they leave without legal repercussions.

Miti taking a prudent stance and weighing the pros and cons of such investments is crucial.

We want sustainable investments – companies that create lasting benefits – rather than businesses that exploit the local economy and depart without meaningful spillovers.

An “open-for-business” mindset remains necessary to attract high-quality FDIs. But overly protecting an industry because of lobbying efforts of certain quarters, at the expense of public benefit, is unwise.

We should learn from past lessons where we missed the opportunity to build up a regional automotive export hub, the way Thailand has succeeded, simply because we were overly protective of our national car companies.

It is not too late to adapt to the times. Elevated energy prices may provide the government the necessary justification for a policy adjustment.