Malaysia’s electric vehicle (EV) transition continues to progress at a steady but gradual pace, shaped by fuel subsidy structures, infrastructure constraints and intensifying competition among automakers, according to research houses.

While rising global oil prices and geopolitical tensions have added volatility to fuel markets, analysts broadly agree that the near-term impact on Malaysia’s automotive demand is limited. More importantly, they say the EV adoption trajectory remains intact but is unlikely to accelerate sharply in the next few years due to structural barriers.

EV adoption rising, but still early-stage

Kenanga Research expects Malaysia’s EV transition to continue gradually, supported by tax incentives, localisation efforts and new model launches, but constrained by infrastructure limitations and subsidised fuel pricing.

The research house projects total industry volume (TIV) of 790,000 units in 2026, down 4 percent year-on-year, broadly in line with Malaysian Automotive Association estimates.

Despite the decline, it expects replacement cycles to increasingly shift toward electrification, particularly hybrids and EVs, as well as motorcycles.

EV penetration has risen rapidly from a low base, increasing from 274 units in 2021 to 44,800 units in 2025, representing about 5.5 percent of total TIV. However, Kenanga said this still reflects an early adoption phase rather than a structural tipping point.

Malaysia’s policy targets remain ambitious, with EVs expected to account for 20 percent of new vehicle sales by 2030 and 80 percent by 2050 (including hybrids).

However, charging infrastructure development remains behind schedule, with only around 5,360 public chargers installed as of end-2025—just over half of the 10,000 target.

Fuel subsidies dampen EV switching incentives

A key factor slowing EV adoption is Malaysia’s fuel subsidy regime. The BUDI95 mechanism keeps RON95 prices at MYR 1.99 ($0.5) per liter for eligible users, insulating the majority of mass-market consumers from fuel price increases.

Kenanga noted that even with a reduced monthly quota of 200 liters (down from 300 liters), around 90 percent of users remain below the threshold, limiting behavioral change. As a result, the cost advantage of EVs over internal combustion engine (ICE) vehicles is less pronounced for most households.

Hong Leong Investment Bank Research added that historical data shows no clear correlation between fuel prices and total vehicle sales, suggesting that fuel costs alone are insufficient to drive large-scale EV adoption. However, it noted that sustained high oil prices could gradually shift incentives over time.

MBSB Research highlighted a growing divergence in fuel exposure, where higher-income consumers and non-subsidized RON97 users face rising fuel costs. This segment is more likely to accelerate adoption of EVs, hybrids and smaller, more efficient ICE vehicles.

Hybrids bridge the transition phase

Across all research houses, hybrids and plug-in hybrids (PHEVs) are seen as the key bridging technology in Malaysia’s EV transition.

Kenanga said hybrids are gaining traction among consumers who are not yet ready to fully commit to EVs due to infrastructure and cost concerns. This is particularly relevant in the mass market, where affordability remains the dominant consideration.

MBSB echoed this view, noting that hybrids are increasingly acting as a practical compromise between fuel efficiency and infrastructure limitations, especially in urban and high-mileage usage patterns.

EV market competition intensifies with localization

Competition in Malaysia’s EV market is intensifying, driven by localisation strategies, price adjustments and new model launches from both domestic and Chinese manufacturers.

MBSB highlighted Proton as the leading EV brand in the first quarter of 2026, with 8,197 units sold. The e.MAS 5 accounted for 82 percent of sales, while the e.MAS 7 saw renewed demand following local assembly, which reduced prices by MYR 4,000 ($1011) to MYR 6,000 ($1516).

BYD ranked second with 2,261 units, led by the Atto 3. However, its expansion plans face regulatory uncertainty.

Malaysia has reportedly imposed strict conditions on BYD’s proposed completely knocked down (CKD) plant in Tanjung Malim, including an 80% export requirement, a 10,000-unit domestic sales cap and a MYR 100,000 ($25,272) minimum price floor.

MBSB said that if these constraints are enforced, Proton could benefit, particularly as its EV lineup directly competes with BYD in the mass-market segment.

Perodua, however, is not expected to benefit significantly in the near term due to production delays affecting its QV-E model.

Kenanga added that Chinese EV brands are expanding rapidly through CKD localization programs supported by tax incentives until 2027, intensifying price competition in the EV space.

Market structure still dominated by ICE vehicles

Despite rapid EV growth rates, Malaysia’s vehicle market remains overwhelmingly dominated by internal combustion engines (ICE).

JPJ registration data shows petrol vehicles account for 85 percent of passenger car sales, followed by diesel at 6 percent, hybrids at 4 percent and EVs at 5 percent. This underscores the continued relevance of fuel policy and subsidy structures in shaping demand.

MBSB noted that while EV penetration is rising, the market is still heavily ICE-driven, meaning any transition will necessarily be gradual and segmented by income and usage profiles.

Kenanga also highlighted that non-nationals and premium segments are increasingly focusing on EVs and hybrids, while national brands continue to dominate the mass-market segment with a roughly 65 percent share of TIV.

Automakers shift strategy toward margins and localization

Research houses also noted that automakers are adjusting strategies to navigate intensifying EV competition and margin pressure.

Kenanga said manufacturers are increasingly relying on discounts and rebates to drive early EV adoption, but this is compressing margins. In response, companies are shifting toward higher-margin segments, including industrial exposure, premium imports and localization-led assembly.

Chinese OEMs are expanding CKD operations in Malaysia, supported by ongoing tax incentives for locally assembled EVs until 2027. Brands including BYD, Chery, GWM and SAIC are accelerating investment in local production capacity, reshaping competitive dynamics.

Outlook: gradual transition anchored by policy and infrastructure

Overall, analysts agree that Malaysia’s EV transition is structurally intact but progressing at a gradual pace rather than a disruptive inflection point.

Kenanga expects EV adoption to continue rising but not reach a tipping point within the next five years due to infrastructure constraints and fuel subsidies that reduce switching urgency.

Hong Leong Investment Bank similarly views EV growth as policy-supported but not strongly correlated with fuel price movements in the short term.

MBSB, meanwhile, sees intensifying competition and localization as key near-term drivers of market share shifts within the EV segment.

Analysts foresee gradual transition to battery electric vehicles in Malaysia