2014 Malaysian Automotive Industry is really energized after the recent government announcement of the new National Automotive Plan (N.A.P.) developed to expand domestic demand while increase desirability for new foreign investments
Starting the year a new National Automotive Plan (NAP) was finally announced and was immediately judged as one of most comprehensive and exciting automotive topic in the entire South East Asia.
From our daily experience observing all global markets, only effective and middle terms plan could really help the sector to evolve towards targets, while pure incentives scheme (normally under the form of sustain substitution of old and high emission/low safety vehicles) do not deliver a long term performance while altering short term competition.
The impression is that the Malaysian N.A.P. could work.
The plan, developed by the Government together with external consulting and key local manufacturers could be summarized in three key main targets:
1. 1 – The continuation of the approved permit system for CBU/CKD imports for the time being,
2. 2 – Vehicles price reductions through more liberalized industry activities rather than simply by reducing excise tax.
3. 3 – Expand investment in Energy Efficient Vehicle (EEV) production thru focused incentives.
For the first time, production of vehicles below 1,800 cc will no longer require a manufacturing license (ML), which has been used to restrict the establishment of new production. The ML system was introduced in 1967 to protect local makers and there has only ever been one exception, in the case of Nissan through a local partner, Tan Chong Motor. On the other hand, the fact that the approved permit for new vehicles, introduced in 1966, will remain in place until at least December 2020 could sabotage liberalizing efforts as well as the expected results of price reduction.
The opening of the small car sector has been speculated to lead into the expansion of EEV production in the country, with small hybrid and electric vehicles expected to be the main targets. However, we doubt the plan will have a positive impact and expand the industry in terms of sales and production volume.
The EEV covers virtually the entire automotive industry, ranging from two wheelers with 50cc engines to 2,500 cc vehicles, and includes basically all fuel types. Any vehicle which passes fuel consumption and carbon emission standards could qualify as an EEV. And the standards are not even high when compared to the second phase of Eco-Car, announced in 2013.
The fuel specification for city cars (801 – 1,000 kg) at 5 l/100 km, for example, is only comparable to the first phase of Eco-Car project in Thailand, and LCGC which targets comparatively cheaper and smaller cars. The low technical requirements also limit the possibility of an export expansion to more developed markets, where strict environmental standards are usually obligated.
It was not clarified yet the level and the form of sustain distributed by the State and because of the broad segment targets risks are related on missed focus for investors. Furthermore, the clear statement to exclude excise tax from the incentives also undermines the attractiveness of the investment plans when it is compared to the reduction of excise from 30 per cent to 17 per cent in Thailand, which has helped secure a significant amount of market share for the targeted Eco-Car sub-segment.
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