New rules on imported electric vehicles (EVs) are expected to accelerate local assembly in Malaysia, but analysts say rising competition and softer demand could limit broader industry gains.
Malaysia’s electric vehicle (EV) industry is entering a new phase of development, with government policies increasingly focused on localization rather than adoption, as new restrictions on imported EVs take effect and automakers expand local assembly operations.
Analysts said the policy shift is expected to support the growth of a domestic EV ecosystem and strengthen local supply chains, although intensifying competition and moderating vehicle demand could weigh on profitability across the sector.
In a recent report, Maybank Investment Bank said policy-driven localization is likely to accelerate following the expiry of incentives for completely built-up (CBU) EVs and the introduction of tighter import requirements from July 1, 2026.
The research house said EV-related investments, particularly from foreign original equipment manufacturers (OEMs), remain at a critical juncture as investors await greater clarity on Malaysia’s long-term automotive policies.
Nevertheless, it remains optimistic about the sector’s prospects, expecting EV penetration to continue rising as national carmakers expand their offerings and more global brands establish local completely knocked down (CKD) assembly operations.
“While policy developments will play a crucial role in shaping the future EV landscape, we remain optimistic that EV penetration will continue to increase, driven primarily by the national marques, alongside existing EV brands that have already established, or are in the process of establishing, local CKD operations, including XPeng, Chery and TQ Wuling,” the research house said.
Maybank noted that national marques are likely to remain central to the localization effort due to their scale and extensive supplier networks.
Although Perodua’s QV-E has yet to achieve sales volumes comparable to leading EV brands such as Proton and BYD, the bank viewed the model as strategically important for the industry’s transition.
“It represents a critical first step in preparing domestic suppliers for the industry’s EV transition,” it said.
Historically, national carmakers have formed the backbone of Malaysia’s automotive supply chain by generating the production volumes needed to justify localization investments. However, Maybank cautioned that the localization journey remains at an early stage and will require sustained effort over the coming years.
Separately, MBSB Research said Malaysia’s EV market continues to gain momentum, with EV penetration reaching 7.3 percent of total industry volume (TIV) in the first quarter of 2026.
The research house noted that actual EV adoption could be higher because sales from several major brands, including Tesla, Zeekr and XPeng, are not captured in data compiled by the Malaysian Automotive Association (MAA).
According to MBSB, the government’s policy focus has shifted from stimulating EV demand to encouraging local manufacturing following the expiration of CBU EV tax incentives and the implementation of new import requirements.
Under the revised rules, imported EVs must meet a minimum cost, insurance and freight (CIF) value of RM200,000 and a minimum motor output of 180kW.
The requirements effectively reposition imported EVs into the premium segment, with retail prices likely to exceed RM300,000, thereby enhancing the competitiveness of locally assembled models.
“While importers may benefit from a near-term inventory clearance before the policy takes effect, demand is expected to gradually pivot towards locally assembled EVs, alongside internal combustion engine (ICE), hybrid and used vehicles once existing CBU inventories are depleted,” MBSB said.
The research house believes the policy changes are broadly positive for OEMs with established or expanding CKD operations, while brands that continue to rely heavily on imported vehicles could face mounting pricing pressures and reduced competitiveness.
The transition comes as EV adoption continues to accelerate. TA Securities noted that EV registrations more than doubled to 25,500 units in the first five months of 2026, reflecting strong consumer interest and a growing range of available models.
However, the brokerage cautioned that the rapid growth in EV sales should not be interpreted as an expansion of the overall automotive market.
Instead, it believes much of the growth reflects a redistribution of market share away from conventional vehicles and among competing brands.
“In our view, the rapid growth in EV adoption mainly represents a shift in market share rather than an expansion of the overall market,” TA Securities said.
The research house expects competition in Malaysia’s automotive industry to remain intense in the second half of 2026 and beyond, driven largely by the continued expansion of Chinese automakers.
Beyond established brands such as BYD and Chery, a growing number of Chinese marques are entering the market with competitively priced models featuring advanced technology and extensive equipment lists.
Importantly, Chinese manufacturers are no longer focused solely on EVs but are increasingly competing in sport utility vehicle (SUV) and conventional ICE segments, broadening their challenge to incumbent players.
At the same time, the pace of new model introductions and facelifts continues to accelerate. Consumers now have access to more than 40 EV models in Malaysia across multiple price points, creating a more crowded and competitive marketplace.
Proton’s e.MAS has emerged as the country’s leading EV brand, underscoring the increasingly competitive dynamics of the domestic market.
Looking ahead, analysts expect policy support for localization to benefit selected automakers, particularly national brands and manufacturers with local assembly operations. Incentives for CKD EVs remain in place until the end of 2027, providing a window for companies to deepen local production and supply chain integration.
However, research houses generally agree that these measures are unlikely to significantly boost overall industry volume.
Instead, the sector appears to be entering a more challenging phase marked by normalizing demand, intensifying competition and growing pressure on margins.
As Chinese brands continue expanding their footprint and promotional activities become more aggressive, earnings growth for automotive players could come under strain despite the favorable policy environment for local EV assembly.
For now, the government’s localization drive may help shape a stronger domestic EV ecosystem, but the battle for market share is likely to become increasingly fierce as automakers compete for a limited pool of buyers.