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EV can become key economic contributor

EV can become key economic contributor

23 May 2022

Malaysia has an opportunity to develop its electric vehicle (EV) industry and turn it into a significant economic contributor, according to economists.

Malaysia University of Science and Technology professor Geoffrey Williams said the Malaysian automotive industry does have the potential to make a massive contribution to the economy through sales, employment, supply-chain and training for high-skilled people.

“The EV side will become an important contribution to this over time but it may be slow to replace conventional vehicles because of subsidies on petrol.

“Nonetheless it will certainly become a pillar of automotive products in the future,” he told StarBiz.

In a Facebook post earlier this month, Transport Minister Datuk Seri Wee Ka Siong said Malaysia is committed to developing the EV industry and eventually making it a potential major pillar of the economy.

With the national EV policies, Wee said Malaysia is in the midst of developing the EV industry to be in line with worldwide trends.

“The EV industry is really not confined to merely selling vehicles. There is a huge ecosystem to be developed and tapped on including standards setting, charging facilities, and other high tech pursuits.

“As Transport Minister, I encourage more investments in our rail industry, particularly in the related technology sub-sectors and upgrading the skills of our local talent,” he said.

While agreeing with Wee’s comments, Williams however said Malaysia must learn from past mistakes on ineffective management in the automotive sector and a reliance on subsidies.

“But it can also learn from past and current successes especially in joint-ventures, such as UMW’s hugely successful long-term relationship with Toyota and the newer but very successful Geely-Proton tie up.

“Also, good design like the X50 and X70 are essential as well as value for money and quality. Malaysian car companies can provide this and make it a success. They have already shown it.”

Williams added that Malaysia must focus on developing an EV industry that can eventually have a global presence.

“Because the Malaysian market is relatively small, a successful EV offer must focus on exports into Asean and beyond. Otherwise return on investment will be difficult and slow to achieve.”

Renato Lima-de-Oliveira, an assistant professor of business and society at Asia School of Business and a fellow of the Centre for Market Education, said it is “totally possible” for Malaysia to occupy a “prominent position” in the EV industry.

“Malaysia is a global manufacturing hub, deeply integrated into global value chains. However, there are many challenges.”

Lima-de-Oliveira noted that countries in Europe and China have pursued an aggressive strategy to develop local infrastructure for EVs and manufacturing capacity.

“In South-East Asia, Thailand is well positioned to advance given their relatively robust auto manufacturing park, large market size and recent incentives, including import duties reductions for battery EVs.

“EV sales in Thailand in 2021 were close to 12,841, while sales in Malaysia were only 274 for the same year. Malaysia will need to catch up fast to reap the opportunities of this emerging industry.”

Sales of EVs in Malaysia are expected to pick up this year, as the introduction of new models at more competitive prices is anticipated to spur buying interest.

At Budget 2022, which was tabled in October last year, the government announced that it would provide full exemptions on import and excise duties and sales tax, as well as road tax (up to 100%) for EVs.

Individual income tax relief of up to RM2,500 will also be given on the costs of buying, installing, leasing or repayments of EV charging facilities.

According to the Malaysian Automotive Association (MAA), a total of 508,911 vehicles were sold in 2021. Of this, only 274 units comprised EVs. While no projection has been given, MAA president Datuk Aishah Ahmad said at the association’s first bi-annual media conference in January that sales of EVs for 2022 “will be a lot higher,” especially in light of the tax exemption.

Additionally, the tax exemption on EVs has also stimulated interests of original equipment manufacturers to invest in Malaysia.

In January this year, it was reported that Melaka will be receiving an investment totalling RM1bil by bumiputra company, Fieldman EV Sdn Bhd, to develop Malaysia’s first electric car assembly plant. The company had also obtained exclusive rights to distribute EVs in Malaysia and the South-East Asian regional market for right-hand drive vehicles from China’s Changan Automobile Corp.

Despite having lower running costs and being more environmentally friendly, demand for EVs has never been too popular in Malaysia compared with cars with internal combustion engines (petrol and diesel).

Generally, the main deterrence for purchasing EVs or even hybrid vehicles (which are powered by an internal combustion engine and an electric motor) has always been due to the relatively high purchase price and poor understanding of their technology.

However, many are confident that the implementation of the duty waiver will spur the demand for EVs.

A similar situation was seen with hybrid cars, a decade earlier.

In October 2010, during the tabling of Budget 2011, the government granted full excise duty exemptions on hybrid cars below 2,000cc until Dec 31, 2011. The move resulted in a big drop in prices for the cars and fuelled the demand for such vehicles.

With only a handful of hybrid vehicles available in the market at the time, the biggest beneficiaries of the duty exemptions were UMW Toyota Motor Sdn Bhd and Honda Malaysia Sdn Bhd, which saw an immediate surge in sales of the Toyota Prius and Honda Insight hybrid vehicles, respectively.

According to MAA statistics, total hybrid vehicles jumped over 2,000% to 8,334 units in 2011 from 328 units a year earlier as a result of the duty exemptions.

Honda recorded a surge in hybrid vehicle sales to 4,596 units from 129 units in 2010, while Toyota sold 2,457 units versus 198 units previously. Lexus sold 1,267 units compared with just one unit previously.

Lima-de-Oliveira said the successful penetration of more EVs has happened through a combination of policies.

“Typically, the traditional carrots and sticks.”

“These include tax rebates for consumers, licensing restrictions for conventional internal combustion engines, emission reduction mandates for car manufacturers to give them a strong incentive to sell EVs and a robust deployment of charging infrastructure.

Lima-de-Oliveira emphasised that having a good network of charging stations would also create confidence in drivers and help avoid range-anxiety issues.

“However, I would call attention to one critical factor that makes EVs less attractive in Malaysia, namely gasoline subsidies. If you do the math, considering how subsidised gasoline is in Malaysia, it is still attractive to buy a conventional vehicle rather than an EV.”

Lima-de-Oliveira, who teaches an energy and sustainability course at the ASB, said one of the assignments is to compare a Tesla S (which has a battery capacity of 100 kilowatt-hour) and a Perodua Myvi 1.3L (which has a fuel tank capacity of 40 litres) using current local electricity and gasoline prices.

“We calculate the efficiency, distance they can drive in one charge and cost of running. In general, EVs are close to three times more efficient in converting energy into mobility, have low maintenance costs over the long run, but are more expensive to buy.

“But in markets that have a high share of EVs like Norway and Sweden, consumers immediately save on fuel because gasoline is so much more expensive.”

Lima-de-Oliveira noted that this is not the case in Malaysia.

“If you want to transform consumer behaviour to switch to EVs, low gasoline price is a limiting factor. Of course, increasing gasoline prices is always a politically sensitive policy with its own challenges and pushback. But it has been part of the package of greening our mobility options,” he said.

According to the World Economic Forum (WEF), worldwide EV sales hit 6.6 million in 2021, accounting for almost 9% of the global market. Total EV sales in 2021 almost doubled from the previous year.

“In China, the world’s fastest-growing EV market, sales doubled in each month of 2021 compared with a year earlier. Overall in 2021, more EVs were sold in China than throughout the world in 2020.”

The WEF added that Europe experienced 70% market growth, selling 2.3 million EVs and hybrid EVs in 2021, while US sales more than doubled to beyond half a million vehicles.

“The numbers look positive for continued market growth across major markets, but the road ahead for electric vehicles may contain some hidden bumps.

“Auto manufacturers must contend with looming supply-side challenges, including increasing bulk material costs. Steel prices doubled in 2021, with aluminium prices spiking by up to 70% and copper up by more than a third,” it said.

While these additional costs impacted both conventional and EV production, the WEF said EVs also faced specific price challenges associated with battery manufacture, including year-on-year increases for essential materials like lithium carbon (up by 150%), graphite (up by 15%) and nickel (up by 25%).

“While there may be a lag before material price hikes hit consumers, the trend is a cause for concern when it comes to market growth.

“Another challenge facing the industry is a global shortage of microchips, which has slowed and at times halted production of cars and other products. It’s a shortage that particularly impacts EVs, as their electronic components mean they need 2.3 times more microchips than cars with an internal combustion engine.”

Source: The Star