Cover Story: Shifting Tone in Automotive Sector Needs Delicate Balance

Malaysia’s long‑held ambition to transform itself into a leading regional hub for electric vehicles (EVs) is entering a defining phase, as the government moves to recalibrate its industrial policies. The updated framework seeks to strike a careful balance between attracting high‑value foreign investment and safeguarding the long‑term interests of domestic automotive manufacturers and suppliers. However, the introduction of new guidelines has already ignited a lively and divided debate across the industry, with some viewing the measures as necessary for sustainable growth and others warning they could hinder progress, slow adoption, and erode Malaysia’s competitiveness in the region.

Policy Shift Amid Regional Competition

This regulatory adjustment comes at a time when the race to capture a share of the global EV supply chain is heating up across Southeast Asia. Neighbouring nations, including Thailand, Indonesia, and Vietnam, have rolled out generous incentives, tax breaks, and streamlined regulations to position themselves as preferred locations for EV manufacturing, assembly, and exports. In this competitive landscape, major international automakers, particularly Chinese leaders such as BYD and Chery, are rapidly expanding their footprint across the region, drawn by growing consumer demand and access to key export markets.

Malaysia, which has long sought to build a strong, self‑sufficient automotive industry, is now seeking to ensure that the transition to electrification delivers tangible benefits locally, rather than only serving as a market for imported finished goods. To achieve this, the government has unveiled a set of new requirements that will come into effect starting July 2026:

• Imported Completely Built‑Up (CBU) EVs: A minimum retail price of RM200,000, paired with a minimum motor output of 180kW. This effectively restricts fully imported models to the premium segment of the market.

• Completely Knocked‑Down (CKD) Operations: New manufacturers setting up local assembly lines will be required to export up to 80% of their annual production, leaving only 20% available for sale within the domestic market.

While the government maintains that affordable EVs can still be offered through local assembly programmes, industry observers argue that the latest measures introduce significant uncertainty, complicate investment decisions, and may alter the economics of setting up manufacturing operations in Malaysia.

Reactions from Major Players

The policy shift has already drawn attention from some of the largest investors entering the market. BYD, the world’s leading EV maker, has been planning to establish a CKD plant in Tanjung Malim, Perak, a project widely viewed as a landmark foreign investment that would bring capital, technology, and jobs. However, the new rules have prompted questions about the viability of these plans. Market observers suggest the tighter requirements may have led BYD to reassess its timeline and commercial projections.

When contacted, BYD Malaysia declined to comment specifically on the policy changes, stating only: “BYD Malaysia has recently announced its commitment during the launch of BYD Mansion Macalister, and that is currently the only update we can provide.” The project, first announced in August 2025 as the anchor investment for Phase 1 of KLK TechPark, was originally scheduled to begin production this year.

In contrast, Chery has signalled greater confidence, stating that its expansion plans remain firmly on track. Through Chery Malaysia, the company has committed RM2.2 billion to develop a 200‑acre assembly plant at the Beringin High‑Tech Auto Valley in Hulu Selangor. Slated for completion this year, the facility will have an initial annual capacity of 100,000 units, scalable to 300,000 units in later phases.

“Our construction is progressing well, and we have adopted a deliberate, long‑term approach to building our presence here,” said Men Lin Bo, Executive Vice‑President of Chery Corporate Malaysia. “Since our partnership with Inokom began in 2023, we have continued to invest in facilities and talent. This plant will create local jobs, support knowledge transfer, and help nurture a new generation of Malaysian automotive professionals. Our goal is not just to grow our brand, but to become a long‑term partner in Malaysia’s industrial journey.”

Chery already assembles vehicles at its Shah Alam plant, launched in mid‑2024, and has begun exporting to Vietnam, Brunei, and other regional markets.

A “Safe Zone” for National Carmakers

Analysts say the new framework effectively creates a protected space for domestic manufacturers Proton and Perodua, clearing the segment below RM200,000 from direct competition with fully imported EVs.

Andrew Woon, Senior Lecturer at Monash University Malaysia’s School of Business, explains: “This price floor sidelines popular mass‑market models like the BYD Atto 3, MG4, and GWM Ora Good Cat vehicles that are critical for driving widespread EV adoption. Unless these models switch to local assembly, they will face steep price hikes that push them well above RM250,000.”

While the Ministry of Investment, Trade and Industry (MITI) has stated that affordable EVs can still be made available through local production, Woon argues this overlooks a critical gap. “Setting up a CKD facility takes years of planning and investment. These new rules will create a supply vacuum for affordable EVs when they take effect. Furthermore, the current CKD tax exemption expires in December 2027, which makes long‑term commitments far riskier for investors.”

Woon proposes a model of “conditional protectionism”, with clear timelines and performance targets. “The government can continue supporting Proton and Perodua in the sub‑RM100,000 segment, but the RM100,000 to RM200,000 range should remain open to competition. Over‑protection risks reducing the incentive for local firms to innovate and invest in real research and development.”

He notes that while Proton’s e.MAS platform shows strong progress; much of the core technology, including batteries, powertrains, and software, still comes from China. “Protection must be time‑bound and tied to measurable milestones. If not, we risk entrenching reliance on foreign technology rather than building independent capability.”

Concerns Over Export Quotas

The requirement that new CKD entrants export 80% of their output has drawn particular criticism. An industry analyst who spoke on condition of anonymity called it a potential “deterrent” in a market that had only recently opened up to foreign EV investment.

“Malaysia is viewed as a secondary destination compared to Thailand or Indonesia, which have clearer, more consistent policies. Forcing companies to export 80% of production is commercially difficult, as they come here partly to access our domestic market, not just to use Malaysia as a base for re‑export. This sends a message that rules can change abruptly, which undermines investor confidence.”

Woon agrees: “Neighbouring countries are offering tax holidays, infrastructure support, and stable regulatory frameworks. If Malaysia’s requirements are too rigid, capital and technology will simply flow across the border instead.”

Perspectives from Local Industry

Proton Deputy CEO Datuk Abdul Rashid Musa argues that the policy direction is part of a natural evolution. “As the industry matures, it is logical to shift focus toward local assembly, supply chain development, and technology transfer. This ensures we capture more value, create high‑skilled jobs, and build resilience.”

He acknowledges, however, that the local EV ecosystem remains in its early stages. “Critical components like battery management systems, power electronics, and advanced software are not yet produced at scale here. This is why strategic partnerships and gradual localisation are essential. We need time and investment to build these capabilities.”

Impact on EV Adoption

Analysts also warn that the policy shift could slow the pace of EV adoption. Malaysia’s EV penetration rate stood at just 3% in 2025, far below Singapore’s 45% and Thailand’s 18%. Under the National Energy Transition Roadmap (NETR), the target is to reach 20% of new vehicle sales by 2030 and 80% by 2050.

“Demand in the mass‑market segment is highly price‑sensitive, especially with rising living costs and cautious spending,” noted TA Securities in a recent report. “Limiting the availability of lower‑cost EVs will reduce choice and slow the transition, even if sales continue to grow from a low base.”

In 2025, Malaysia recorded 30,848 EV sales, more than double the 14,766 units sold in 2024. Proton’s e.The MAS series has emerged as the best‑selling model, with nearly 10,000 units delivered in the first four months of 2026.

Outlook for Stocks and Suppliers

The year 2026 is expected to be more challenging for the broader automotive sector. After four consecutive years of growth, the Malaysian Automotive Association projects total industry volume (TIV) to ease slightly to 790,000 units, down from 820,752 in 2025, due to slower economic growth and changing regulations.

Most research houses maintain a neutral to cautious outlook. TA Securities has an “underweight” rating, citing fading order backlogs and rising competition. CGS International favours Sime Darby Bhd with its stake in Perodua, while Kenanga Research recommends Bermaz Auto and Hong Leong Industries for their resilience and dividend yields.

For local component suppliers, however, the shift toward localisation opens new opportunities. Connie Go, CEO of Feytech Holdings, explains: “Stricter rules are not just protectionist; they ensure more of the economic value stays in Malaysia. Our electrical and electronics sector is already world‑class; we only need to connect that strength to the automotive supply chain.”

Feytech has formed a joint venture with Chinese firm Wuhu Ruitai to supply seats and interiors for Chery vehicles. Similarly, MCE Holdings, which produces automotive electronics and control systems, sees demand growing as more OEMs seek local partners.

“Malaysian suppliers can compete globally,” said Dr Goh Kar Chun, Group Managing Director of MCE. “We just need clear policies that encourage partnerships and allow us to scale up.”

Pecca Group Executive Director Hugo Teoh Zi Yi added: “The new rules make it clear that local assembly is the only way to serve the mass market. Foreign brands now need reliable local partners to meet requirements, and we are ready to deliver that.”

Ultimately, the debate is not about choosing between protecting domestic industry and attracting foreign investment but about finding the right balance. While stronger localisation can help build long‑term industrial strength, the risk lies in making policies too rigid or unpredictable.

As Malaysia competes with its neighbours to become a regional EV hub, the key will be to offer clear, consistent rules, reasonable incentives, and a roadmap that allows both local and foreign players to grow. The success of this transition will depend not only on regulation but on whether the policies encourage innovation, investment, and the development of a truly sustainable automotive ecosystem.