How does the US tariff policy affect Malaysia’s automotive market? The industry is challenged by the US singling out the car import permit system, among others, as a discriminatory non-tariff barrier.
But even if Malaysia were to waive import duties on US-made cars, those large-engine cars will remain a novelty because they are not relevant to mainstream motoring requirements.
A 10% tariff announced by US president Donald Trump on all US trading partners went into effect on Saturday while higher tariffs on some countries (24% on Malaysian goods) will begin on April 9.
This is the moment for Malaysia to review its national automotive policy to suit the current geopolitical trade war as well as the economic reality that Malaysia’s auto industry never had the scale to go beyond local assembly.
An industry veteran recently said that no Asean country has really progressed in the automotive industry except perhaps in establishing a low-tech supply chain with technical collaboration of manufacturers in Japan, South Korea and now China.
The low volume of the Malaysian automotive industry does not warrant full-scale investment to develop, design and manufacture competitive products for local consumption and regional exports.
Even our two national cars are just rebadged products with certain levels of local content. The only consolation is that the industry provides employment, economic activities and government revenue.
“Looking ahead, we don’t see any improvement in Malaysia’s automotive industry,” said the industry veteran. “Only with serious investment in R&D centres can we begin to take the local industry to the next level, to developing and manufacturing new products,” he said.
Malaysia’s national automotive policy, first introduced in 2006 with minor revisions since then, was designed to position the country as a regional automotive hub.
But two decades later, seismic shifts, like the Covid-19 pandemic that destroyed vulnerable SMEs, the rise of China’s dominance in EV technology, and geopolitical trade uncertainties, force us to question historical assumptions.
With Thailand and Indonesia eclipsing Malaysia as automotive powerhouses, and Chinese EV-makers reshaping global automotive supply chains, Malaysia is confronted yet again with an uncomfortable truth: its small-scale local assembly is sustained only by burdening car buyers with high prices in Malaysia.
Malaysia’s automotive sector, built around national champions Proton and Perodua, has long relied on tariffs, excise taxes, and local content requirements to shield domestic players. But this has not led to global competitiveness.
Thailand, with no national car project, now dominates Southeast Asia’s automotive exports despite car production dropping by 20% to 1.47 million units last year, a four-year low due to weaker domestic sales and exports.
The country is also on the way to being an EV hub because high petrol and diesel prices attract EV makers. It secured US$1.44 billion in investments from BYD, Great Wall Motors, and SAIC in 2023, aided by tax holidays, reduced import duties for EVs, and the setting up of over 3,000 charging stations
Indonesia, meanwhile, is leveraging its vast domestic market and nickel reserves, which make up 22% of the global reserve and has attracted US$15 billion in battery/EV investments to build integrated supply chains.
With a population of over 280 million people, Indonesia prioritises local assembly over exports, reducing dependence on external markets. The micro EV, Wuling Air, is among Indonesia’s top selling cars.
Malaysia’s market remains small and fragmented, with total industry volume comprising 800,000 units in 2024. The two national carmakers dominate 65% of industry volume, while the rest of the world’s major car makers must fight for the remainder.
China’s EV industry, which makes up 60% of global battery production and 50% of EV sales, has rewritten automotive economics.
Firms like BYD and Geely (which owns 49.9% of Proton) now prioritise cost efficiency and vertical integration, rendering Malaysia’s protectionist policies out of step.
Malaysia’s EV Blueprint, part of NAP 2020, lacks the scale and incentives to compete. Our policy framework remains timid in comparison with our neighbours.
Thailand offers tax breaks for infrastructure investments and its tax incentives for EVs extends to all cars with electric propulsion, while Indonesia mandates nickel processing for EV batteries.
Malaysia doesn’t have tax breaks for plug-in hybrids and range-extended hybrids while the tax incentives for EVs are scheduled to expire on Jan 1, 2026.
Worse, some Chinese car makers entering Malaysia often replicate the “low-skilled assembly” model. For example, one Chinese partnership with local firms has yielded limited technology transfer, relying instead on imported components and cheap foreign labour with just a few Malaysians on the semi-knocked down assembly line.
This undermines the NAP’s original goal of nurturing high-value jobs and local innovation.
Meanwhile, Thailand’s open-market approach has turned it into the “Detroit of Asia,” hosting legacy makers as well as new Chinese investors, BYD, Chery, Great Wall Motor and SAIC MG.
US-China trade tensions could increase the price of semiconductors, a key component for EVs. It would be optimistic to think that Malaysia’s large electrical and electronics sector will be unaffected by Trump’s tariffs.
Malaysia must revamp its NAP while outlining a path of transition for legacy investments in local car assembly, recognising the rise of EVs and how automated Chinese plants are taking the economies of scale to a new level.
The government should extend the import tax holiday on EVs beyond Jan 1 to another six years, or more.
The definition of EVs should also include PHEVs and REEVs, because it’s clear that car buyers want a safety net due to range anxiety.
Malaysia should also withdraw or suspend the new excise duty of 10% to 30% on locally-assembled cars, which is due to be implemented in 2026.
It was in 2019 that Malaysia’s finance minister increased the excise duty on locally-assembled cars to 30%. Then Covid-19 intervened and this was put off.
After three extensions, the finance ministry has said it will impose the excise duty based on a wider definition of open market value starting Jan 1.
Through these measures, Malaysia may position itself as a niche player in EV components like semiconductor packaging or battery recycling, and leverage its existing infrastructure.
We need a new policy framework and to move away from protectionism to pragmatism within the Asean bloc.
Malaysia must balance its commitment to national car projects with the need to integrate into the broader markets of Asean and beyond, ensuring resilience and adaptability in an evolving geopolitical climate. - FMT
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.
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