Maybank Investment Bank said Tuesday that Malaysia’s automotive industry is transitioning, driven by the rise of electric vehicle (EV) players, with current investments focused on downstream areas like showrooms and service centers, alongside growing interest in EV assembly.
The research house said in a note that the automotive industry in Malaysia is witnessing a surge in new players and investments, primarily driven by the EV carmakers, signaling the beginning of the industry’s transition.
However, it noted the trend remains largely on the downstream of the supply chain, such as distributorship, with growing investments in the midstream segment, ie. EV vehicle assembly.
“We expect investment in EV vehicle assembly to gain momentum, particularly with the expiration of incentives for completely built units (CBU) EVs,” it said.
In Peninsular Malaysia, it has identified four key hotspots actively attracting EV-related investments, primarily from Chinese players: Perlis, Perak, Pahang, and Johor.
However, it opined that growth will not occur overnight, especially given the current downcycle in the global automotive sector, where original equipment manufacturers (OEMs) are likely to adopt a more cautious approach to capital expenditure.
As a result, it foresees several possible scenarios following the end of the CBU EV incentives this year: an increase in local sourcing; an increase in semi knocked down (SKD) vehicles in the medium term while the industry works on strengthening its EV supply chain readiness (full import duty exemption for EV components assembled locally has been granted until 2027); a potential exit of certain marques from the Malaysian market, especially for players lacking significant local volume.
“To ensure that local auto parts players can capitalize on the ongoing EV transition, we expect a rise in technical partnerships,
“Companies that successfully upskill and move up the value chain could benefit on a larger scale, expanding their customer base and potentially tapping into the global
supply chain,” said Maybank.
It opined that this will be particularly true for high- value, compact products like semiconductors and software solutions, where sourcing from this region offers foreign players significant cost advantages, including favorable currency dynamics.
On the flip side, it said industry consolidation appears inevitable, especially among the traditional automakers.
Maybank anticipated the consolidation process will be driven by corporate actions from global carmakers, with ripple effects cascading across the entire value chain.
While it sees this trend is impacting local automotive players, it sees Malaysia’s auto market remains resilient, dominated by national marques like Perodua and Proton, which account for nearly two-thirds of total industry volume (TIV).
It also said the expiration of CBU EV incentives in Malaysia is also expected to boost local sourcing, creating upstream opportunities (ie. auto parts supply) in the EV supply chain.
Beyond the local OEMs, Maybank said Malaysia has experienced a significant influx of new players in the automotive industry in recent years, with the majority hailing from China.
According to the research house, many of these newcomers have announced plans to establish EV assembly operations in Malaysia, including for export markets.
However, it said EV assembly in the country remains in its infancy, with most operations currently limited to SKD assembly.
“The entry of these new players presents opportunities for local distributors to form strategic partnerships, including assisting with the establishment of local supply chains for assembly,” it said.
However, it noted an increasing number of OEMs are opting to establish their operations directly without relying on local distributors.
Notable examples include Stellantis, Chery, GWM, and SAIC.
“We expect this trend to intensify competition within the distribution segment which has implications for the broader supply chain,
“As such, we maintain a cautious outlook on the distribution space due to the increasingly crowded landscape and heightened competition among players supporting the downstream of the automotive supply chain,” it said.
However, Maybank highlighted several challenges must be addressed in developing a robust EV supply chain.
According to the research house, currently, multinational corporations (MNCs) dominate key areas of the battery and automotive electronics supply chain in Malaysia, while local auto parts suppliers remain heavily reliant on national carmakers for the majority of their revenue.
It noted this is particularly evident as national carmakers control nearly two-thirds of the TIV market in Malaysia.
“To support local EV assembly and develop a self-sustaining EV supply chain, national carmakers will need to upgrade the capabilities of their existing suppliers or potentially phase out outdated vendors, as EVs use fewer moving parts compared to internal combustion engines (ICE) vehicles,
“This transition requires careful planning to manage the shift from traditional auto parts suppliers to those capable of producing components suited for EVs,” it said.
Maybank opined that existing suppliers may need to invest heavily in new technologies and capabilities, which could be a barrier for many, particularly given the relatively small local EV market.
This high entry barrier is a significant deterrent for companies considering entry into the EV space, it added.
Analysts foresee increased localization investment in Malaysia’s EV sector next year