After years of tepid development, Malaysia’s automotive industry has finally shifted into high gear with the launch of new vehicles under local brands and improved total industry volume, driven by heightened demand and a recovery in consumer sentiments.
The automotive industry, while small, contributes about RM40 billion or four per cent to Malaysia’s gross domestic product (GDP), with a workforce of more than 600,000.
According to reports, currently there are 27 vehicle manufacturers (OEMs), an estimated 53,000 aftermarket establishments, and about 700 parts and components suppliers.
“The automotive industry remains a catalyst towards developing a Malaysian workforce that is adept in technology and high value processes, synonymous with the capabilities of advanced nations of the world,” said Deputy Minister of International Trade and Industry (MITI) Dr Ong Kian Ming during a briefing by the Malaysia Automotive Robotics, and IoT Institute (MARII) on the performance of the automotive sector in 2018 as well as the sector’s outlook in 2019.
He further said the entire ecosystem now must further transform to meet changing demands for future automotive products and services.
With new policies set to take place this year and possibilities of better sales from the newly-launched models, industry observers are generally more positive on Malaysia’s automotive scene.
BizHive Weekly takes a look at updates in the sector:
Charging ahead on the fast lane
After several years of slow growth, the automotive sector has been pushed onto the fast lane, recording a positive growth this year.
“In spite of the dramatic changes and challenges faced by our country, the local automotive industry had performed well and in fact, rebounded for the year under review (2018),” said Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad.
According to statistics by the MAA, Malaysia’s automotive market had rebounded after two consecutive years of contraction. It reported that the total industry volume (TIV) of new motor vehicles registered in 2018 was 598,714 units against 576,625 units registered in 2017, a 3.8 per cent increase compared with in 2017.
Total production of new vehicles in 2018 also saw an increase by 13.1 per cent, reaching a total of 564,971 units compared with 499,639 units in 2018, in tandem with the growth in TIV 2018, said MAA.
On this, Frost & Sullivan’s Associate Partner and senior vice president of Mobility Vivek Vaidya commented that vehicle demand in Malaysia went up by 4.2 per cent in 2018 as rising consumer confidence and the three month tax holiday resulted in higher demand for passenger vehicles.
Vaidya added, “Usually, after a tax break period, the volumes shrink in subsequent quarter but in 2018, strong consumer sentiments ensured the fourth quarter (4Q) volumes matched the last year figures to end the year on a positive note.”
He pointed out that higher wages and the tax holiday led to improved consumer sentiment pushing up sales. However, he also highlighted that these positive sentiments were negated by restraints like accompanying inflationary pressures and stringent loan approvals.
For 2019, Frost & Sullivan forecasts Malaysia’s vehicle sales to reach approximately 609,700 units in 2019 at a growth rate of 1.4 per cent, backed by Malaysia’s expected positive economic growth.
Vaidya highlighted that the key factors likely to aid growth in the Malaysian Automotive market in 2019 include growth in domestic consumption, growth in private investments, and new model launches.
He added, “There are exciting product launches such as Perodua Aruz and Toyota Yaris that are coming up. Proton X70 launched in 4Q for 2018 is likely to gain momentum, which is likely to contribute to growth in 2019.”
He also noted that the reduction in public infrastructure expenditure and weak external sector are some of the restraints in 2019 which will need to be overcome by positive consumer sentiments to stay on the growth path.
He continued, “While persistent high household debt will continue to encourage cautious spending, expected wage growth is likely to provide the requisite counterweight.”
Encouraging TIV figures
Meanwhile, the research team at AmInvestment Bank Bhd (AmInvestment) noted that Malaysia’s December 2018 automotive TIV was flat month-on-month (m-o-m), down 12 per cent year-on-year (y-o-y) at 48,200 units.
“The y-o-y drop in Dec is consistent with the post-tax holiday climate. Monthly sales have been lower or flat on a y-o-y basis every month since September. There a few exceptions that saw a y-o-y improvement in December: Nissan and Mazda (owing to their low base in the previous year), and Proton saw a small bump from the release of the X70 SUV that month (it sold 1,300 units of the X70 in December, which accounted for 24 per cent of its sales of 5,600),” it added.
Aside from that, it highlighted that sales in the last three months of the year averaged higher than expected with average sales of 48,000 per month for October to December compared with its projection of 45,000 month.
“Most players saw fair sales during this period, owing to a strong reception to year-end promotions and growing ease for customers to obtain car loans. The average approval rate for the six months to November 2018 stood at 64.6 per cent compared with 53.8 per cent in the first five months of the year and 52.9 per cent for 2017.
“The best performers for 2018 were Perodua (up 11 per cent y-o-y), Mazda (up 65 per cent y-o-y) and Nissan (up 11 per cent y-o-y).
“Perodua was the exception in that it saw consistent and strong sales from the beginning of the year (when consumers held back from buying before the election), owing to a launch of the popular Myvi in late 2017.
“Mazda and Nissan enjoyed a low base, both saw growth in 2018 after two consecutive years of double-digit y-o-y declines.
“Other key players saw single-digit drops: Proton (down nine per cent y-o-y), Honda (down seven per cent y-o-y) and Toyota (down six per cent y-o-y).
“We note that the two took different strategies: Toyota leaned heavily on the tax holiday for volume, while Honda sales were generally steady at 7,000 to 8,000 per month excluding the tax holiday and the dip in the one month after,” it explained.
While Malaysia’s automotive scene saw positive growth in 2018, with analysts painting a more positive opinion on the industry’s outlook in 2019, MAA is more pessimistic on its performance in 2019.
It forecast Malaysia’s automotive TIV to settle at 600,000, a 0.21 per cent increase from 2018’s 598,714 TIV.
It reasoned that the slightly flattish growth could be caused by several factors including uncertainties in the global market, lower public investments following the completion of several infrastructure projects and review of mega projects as well as a more prudent approach towards new projects which are expected to weigh on Malaysia’s economic growth, the persistent weak ringgit, and moderation n consumers’ spending.
It also pointed out that the delayed approval from the authorities for new models’ pricings could also affect MAA’s members’ plan for new model launches and subsequently affect the sales of new vehicles.
Nevertheless, it said, the introduction of new models with the latest additional specifications, design styles, and competitive prices could assist in sustaining buying interest on top of a competitive industry landscape which could offer healthy growth as automotive players compete for a larger share of the market.
In addition, Maybank Investment Bank Bhd’s research team (Maybank IB Research) highlighted that apart from new launches, there is recent strength in ringgit against US dollar, due to US Fed’s dovish tone on interest rate hikes in 2019.
“In addition, news flow on the 2019 NAP, likely be unveiled by end-1Q19, will bring the industry forward into energy-efficient/electric vehicle adoption, further enhanced by additional measures (inspection) leading up to a possible end-of-life vehicle (ELV) policy (approximately a quarter of 15 million cars on the road are more than 10 years old).
New Malaysian-brand SUVs to rejuvenates Malaysia’s automotive scene
After a lull year, the automotive sector in Malaysia has gotten a boost from two of its local-brand automotive players thanks to the back-to-back launch of two new SUVs models, a first for both brands.
Launched a few weeks ago, the Perodua Aruz, which has been positively viewed by analysts, is expected to drive Perodua’s earnings this year, driven by features, EEV rating and more affordable price tag which are expected to capture a wide audience.
MIDF Amanah Investment Bank Bhd’s research team (MIDF Research) commented: :The Aruz plugs an important gap in Perodua’s model mix after having been absent from the SUV segment since 2009.
“The Aruz is now Perodua’s highest priced model – previously, the Alza was its highest, priced at RM51,490 to RM62,690. Given the large circa RM10K gap in price points within a price sensitive segment, we think the Aruz is unlikely to cannibalise the Alza in a big way.
“More importantly, the Aruz fills a vacuum in the less than RM80,000 SUV segment – the Aruz would be the cheapest seven-seater SUV from the mainstream brands to be available in the market giving Perodua a strong advantage.”
Non-national B-segment is also expected to see increased competition with the launch of the Aruz. MIDF Research noted that based on the Aruz’s price points of RM73,000 to RM78,000, it expected the non-national B-segment as well as the lower-end MPV/crossover segment to be impacted by increased competition.
Meanwhile, Affin Hwang Investment Bank Bhd’s research team believed Perodua’s 2019 sales target growth of 1.7 per cent y-o-y to 231,000 is achievable (2018 record sales of 227,000 units), driven by the newly launched Aruz and popular demand for the existing model line-up.
“Feedback for the Aruz has been encouraging; about 5,700 bookings have been registered since the order taking on January 3, 2019, ahead of Perodua’s monthly sales target of 2,500 units (or 30,000 units per annum).
“Alongside the Aruz, Perodua’s existing model line-up (Myvi, Axia, Bezza and Alza) should remain at the top of their respective segments, given these models would benefit from the targeted fuel subsidies introduced in the Budget 2019,” it added.
As for the national brand; Proton, the new X70, which has been mooted about throughout last year following the official announcement of the partnership between Proton and China’s Geely, was finally launched late last year.
“Proton had no catalysts apart from the tax holiday and the late entry of the X70. It registered its lowest annual sales in years (with the monthly average now at a historical low of 5,400 per month) but things should improve with the earliest deliveries of the X70 in this first half of 2019,” said AmInvestment.
According to Maybank IB Research, Proton’s X70 SUV is the first of a series of mass market models to make its mark in the statistics, recording sales of 1,300 units in Dec 2018 (half month impact; 24 per cent of Proton sales in December 2018); without the X70, Proton’s sales would have fallen 11 per cent month-on-month instead of the 16 per cent m-o-m growth.
A new national car to come into play
A new national car project is set to make its mark in Malaysia in 2020, and hence, 2019 is expected to be a busy year with speculations and announcements of other automotive parts players set to benefit from this new project.
Announced late last year, the government is set to launch the national car project 3.0 by 2020 as envisioned by Prime Minister Tun Dr Mahathir Mohammad, in hopes that the move could revitalise the national automotive industry.
According to a report by Bernama, the Ministry of International Trade and Industry (MITI) has already received 14 proposals on the new national car from the private sector and individuals.
“A national car project will gear Malaysia for the next phase, or a new ‘S-curve’ for the industry.
“More importantly, this next phase can be best achieved when we have a national car project in which we have a position to maximise participation of local talents and businesses, especially with regards to meaningful research and development activities,” said Malaysia Automotive, Robotics & IoT Institute (MARII) chief executive officer Datuk Madani Sahari in a post on MARII’s website.
“The third national car is the overall driver that embodies this scientific and technological agenda,” he added.
Meanwhile, Frost and Sullivan senior vice president and Malaysia managing director Hazmi Yusof commented that cars were fast evolving in the developed markets to become part of a mobility platform with batteries, sensors and communication technologies breaking down the vertical boundaries and the younger generation was having a different attitude towards mobility, car ownership and brands.
“These and other factors are disrupting the traditional value chain of the automotive sector.
“Hence the new national car project provides the opportunity for Malaysia-based companies to participate and position themselves in the front-row seats of this change,” he told Bernama.
He was reported as saying that the global automotive had been a fast-evolving industry in the last five years, underpinned by the usage of technology coupled with new business models to disrupt the status quo.
“This disruption creates opportunities for new entrants such as Tesla (in the United States) and BYD (in China) to successfully establish themselves.
“If we are able to identify and ride on these changes, then it would elevate Malaysia’s automotive industry,” he said.
According to Bernama, Hazmi said with the new car, Malaysia needed to find the right partner and create the right ecosystem to achieve the target.
He added that the project was also expected to be a positive influence for other existing industry players to embrace Industry 4.0 technology.
Reviewed policies and what they spell for the sector
The National Automotive Policy (NAP) is expected to revised again, more than four years after its last review.
The review, which was announced last year, was to ensure a healthy and competitive automotive market in Malaysia, with focus on growing locally-manufactured cars.
While the reviewed NAP has yet to be officially unveiled, analysts expect several factors to be highlighted in the new policy which includes a possible End-of Life Vehicle (ELV) policy, emphasis on EEV, and possible incentives to boost the local automotive market.
In a report, Maybank IB Research opined that with NAP just around the corner, the ELV policy needs to be implemented to ensure long term sustainability of the automotive ecosystem.
“In line with potentially higher number of vehicles on the road, especially in congested states (such as Wilayah Persekutuan and Pulau Pinang), we firmly believe that the ELV policy needs to be implemented to remove road-unworthy vehicles from the road with long-term sustainability of the automotive ecosystem in mind; this also supports the government’s idea for a high-tech third national car project,” it opined.
“Nonetheless, we believe that implementation of the ELV policy could be much later (three to five years down the road) in order to prepare the consumers as well as the industry for this exercise,” it added.
Among the concerns that need to be addressed first include the volume impact for the industry (cars more than 20 years could be targeted first), sufficiency of inspection centres (existing car service centres may be empowered to carry out inspections), and quantum of tax and excise duty exemptions and other incentives (if any) for owners to scrap their cars to own a new one, Maybank IB Research pointed out.
Following a briefing with the Ministry of International Trade and Industry (MITI), Maybank IB Research noted that the ministry had revealed several possible strategies under the new NAP.
These strategies include expediting the duty/tax incentives approvals for qualified CKD vehicles.
“Among the strategies, what caught our attention was a review on the energy efficient vehicle (EEV) customised incentive applications introduced in 2014 National Automotive Policy (NAP); this will level the playing field for EEV manufacturers in the country. Despite lack of details, we laud MITI’s proactive measures to address issues and concerns of the automotive industry, with consumers’ interest at heart,” said the research team.
“Recall that in 2014 NAP, each EEV manufacturer can engage in a direct negotiation for a tailored incentive structure based on the respective manufacturer’s needs and contributions.
“The standardisation of the currently customised tax/duty incentives structure will level the playing field for all EEV manufacturers.
“In addition, to enhance the timeliness and transparency for the approval of incentives for EEV manufacturers, the Automotive Business Development Committee (ABDC), under MITI, will now meet twice a month instead of monthly; the ABDC is tasked to deliberate on applications for the industrial linkage programme and customised incentives for EEV manufacturers,” it explained.
As for the possibility of incentives for completely knocked down (CKD) vehicles, Maybank IB Research noted that there were also discussions by MITI on reduction of excise duty for CKD vehicles.
“In relation to the extent of duty incentives to be offered, the Deputy Minister declined to disclose but maintained that loss of government revenue in excise duty can be offset with higher industry volume – a win-win situation for both,” the research team said.
It pointed out that a lower duty regime, should it be announced, would be a positive advancement towards liberalising the industry.
Currently, it noted that excise duty on imported components for CKD passenger cars ranges from 75 per cent to 105 per cent depending on engine capacity.
“Of the major marques we monitor, we believe companies with higher CKD car sales would benefit. Filtering further, those with more than 40 per cent imported content will have more room for duty reduction (CKD Japanese and Continental models) compared with national marques such as Perodua whereby imported content is more than 10 per cent.
“On the flip side, marques with high CBU exposure (Continental marques) will face more competition,” the research team added.
Aside from that, Maybank IB Research said believed that reduction of excise duties should be more on an Industrial Linkage Programme (ILP).
It explained: “Essentially the ILP for the automotive industry allows for a certain level of reduction in excise duty based on the localisation of components for respective CKD car models. Currently, under the 2014 NAP, each car manufacturer enjoys a customised incentive structure based on their negotiation with MITI.
“We believe that excise duty reduction, if any, would likely be implemented with conditions that more components are localised in order to spur the local ecosystem. For this we, believe that Japanese (Toyota, Honda, Nissan, Mazda) and Continental (Mercedes Benz, BMW, Volkswagen) marques would benefit more than the national marques (Proton and Perodua).
“The Japanese and Continental marques, both have CKD models with relatively lower localisation rate compared to the national marques. For instance, the previous generation Toyota Vios has a localisation rate of circa 60 per cent compared with Perodua Myvi’s localisation of more than 90 per cent.
“Relatively lower localisation rate offers more room for the Toyota Vios to further establish its local supply chain and reap the benefit of lower excise duty.”
With that, it believed that local auto parts supply chain will emerge the biggest beneficiaries of higher component localisation.
All in, despite the current uncertainties in the global market, 2019 is expected to be an exciting year for the local automotive industry, with new policies coming into place and possible announcements on the new national car.