Auto Sales Expected to Accelerate in Second Half of 2026

Malaysia's automotive sector is poised for stronger vehicle sales in the second half of 2026, supported by new model launches, year-end promotional campaigns, and a stable overnight policy rate, according to RHB Research.

The research house has increased its 2026 total industry volume (TIV) forecast by 3% to 805,000 units from 780,000 units, following stronger-than-expected first-half sales. It now expects full-year vehicle sales to range between 806,000 and 844,000 units, broadly flat to up 3% year-on-year based on historical seasonal trends.

Despite the upward revision, RHB Research has maintained a "neutral" stance on the automotive sector, citing policy uncertainty, inflationary pressures, and a softening vehicle replacement cycle as factors that could temper growth.

Strong June Performance Boosts Outlook

The revision follows a steady June performance, with the Malaysian Automotive Association (MAA) reporting total industry volume of 67,879 units, up 10% month-on-month and 23% year-on-year. Total production volume also rose 20% from May, as the higher number of working days lifted output.

The strong June figures have bolstered confidence in the sector's trajectory for the remainder of the year. Historically, the second half tends to see increased sales activity driven by year-end promotions and the introduction of new models.

Upcoming Launches to Drive Demand

Several highly anticipated vehicle launches are expected to fuel consumer interest in the coming months. These include the Proton e.MAS 7 Premium Plus EV, the BYD Atto 3, and the Mazda CX-5. The introduction of these models is expected to attract buyers across various segments, from mass-market to premium electric vehicles.

The Proton e.MAS 7 Premium Plus EV represents Proton's continued push into the electric vehicle market, while BYD's Atto 3 has already established itself as a popular choice among EV buyers in Malaysia. The Mazda CX-5, a well-established nameplate in the compact SUV segment, is expected to maintain its strong appeal among traditional internal combustion engine buyers.

Electric Vehicle Momentum Continues

Electric vehicle registrations continued to gather pace in June, according to Road Transport Department data. Proton remained the top-selling EV brand in June with 1,888 registrations, followed by BYD and Tesla. Total EV registrations rose 23% from May to 6,215 units, accounting for 7.8% of total vehicle registrations in the first half of the year.

RHB Research noted that the stronger EV demand was likely driven by consumers bringing forward purchases ahead of the implementation of Malaysia's new EV policy on July 1. The policy is expected to provide further clarity on incentives, infrastructure development, and regulatory frameworks for the growing EV market.

Top Sector Pick: Sime Darby

RHB Research continues to favour Sime Darby Bhd as its top sector pick, supported by the group's diversified exposure across automotive distribution and other businesses. Another analyst with a local brokerage echoed this sentiment, noting that Sime Darby stands to benefit from the continued shift towards EVs and mass-market vehicles.

The analyst viewed the stock's valuation as attractive, noting that it was trading at about 8.7 times forecast 2027 earnings, below its historical average valuation. In addition, the stock is expected to offer a dividend yield of 6.8% in 2027. The analyst also remains positive on Sime Darby's industrial business, which provides additional diversification and revenue stability.

Challenges on the Horizon

Despite the positive outlook, the automotive sector faces several headwinds that could moderate growth. Policy uncertainty, particularly regarding the implementation of new EV regulations and potential changes to fuel subsidy schemes, could affect consumer purchasing decisions. Inflationary pressures continue to weigh on household budgets, potentially dampening demand for big-ticket items like vehicles.

The softening vehicle replacement cycle is another factor that could limit upside. Many consumers who purchased vehicles during the sales tax exemption period in 2020 and 2021 may not be ready to replace their vehicles just yet, potentially leading to a lull in demand.

Malaysia's automotive sector is on track for a solid performance in 2026, with stronger-than-expected first-half sales prompting an upward revision to full-year TIV forecasts. New model launches, year-end promotions, and growing EV adoption are expected to drive sales momentum in the second half of the year.

However, the sector is not without its challenges. Policy uncertainty, inflationary pressures, and a softening replacement cycle warrant caution. Investors and industry players will be watching closely to see how these factors play out in the coming months.

For now, the outlook remains cautiously optimistic, with a stable OPR and continued consumer interest in new models providing a foundation for growth. Sime Darby, with its diversified business model and attractive valuation, appears well-positioned to navigate the evolving landscape.