Titikorn and Tanitta, ASEAN Analytics Team
02 January 2020
02 January 2020
National car criteria under Malaysia’s NAP 2020 will curb vehicle exports
Following several delays since the summer of 2018, the Malaysian government recently confirmed that the full details of the revised National Automotive Policy (NAP) would be officially announced early next year. The aim of NAP 2020 is to encompass the entire automotive ecosystem, with a particular focus on emerging technology.
“The key difference is that NxGVs provide connectivity and artificial intelligence, thus effectively creating a new Mobility-as-a-Service sector”
The policy will be enacted in three phases, between inception and 2030. The first phase will shift the focus from Energy-Efficient Vehicles (EEVs) to Next-Generation Vehicles (NxGVs). The latter will be fully defined by 2022 and implementation will begin in 2025. The key difference is that NxGVs provide connectivity and artificial intelligence, thus effectively creating a new Mobility-as-a-Service (MaaS) sector. The second and third phases will focus on technology advancements such as 5G connectivity.
Another critical facet of NAP 2020 is the official definition of a “national” car brand. To qualify, six criteria must be met: 1) the brand must be fully privately funded; 2) the majority stake must be Malaysian owned; 3) 98% of the workforce must be Malaysian; 4) 75% of the content must be local; 5) all vehicles produced must be NxGVs; and 6) a substantial investment in R&D must be made.
These criteria imply that the national brands will be given more privileges than the non-national brands, which, in our view, is likely to hinder exports. To understand why, we must consider the following factors.
“The non-national brands account for fewer than 300k units/year of the total of around 600k units/year. These volumes are low compared to neighboring Indonesia and Thailand, where domestic sales are typically in the region of 1.0 mn units/year”
Firstly, Malaysia’s national brands dominate the domestic Light Vehicle (LV) market. They accounted for 50% of total sales and 51% of overall production in 2018, rising to 57% and 55%, respectively, in the first ten months of 2019. The parameters of NAP 2020 will support market share gains (both sales and production) for the national brands. Based on these figures, the non-national (i.e., global) brands account for fewer than 300k units/year of the total of around 600k units/year. These volumes are low compared to neighboring Indonesia and Thailand, where domestic sales are typically in the region of 1.0 mn units/year. As such, it is difficult for the non-national brands in Malaysia to improve economies of scale to lower production costs in favor of exports, compared to Indonesia and Thailand.
In addition, PV density in Malaysia is roughly 540 vehicles/1,000 adults, limiting the potential for growth.
Secondly, the two current national brands do not have proprietary technology. Daihatsu is the technology source for Perodua, while Proton relies on Geely for its technology. We also believe that these partnership contracts contain export restrictions, thus preventing Perodua and Proton from freely entering other markets. Currently, Perodua exports the Myvi to Indonesia as the rebadged Daihatsu Sirion.
Thirdly, unlike the policies in Thailand and Indonesia, NAP 2020 is not expected to contain any measures to stimulate exports. To illustrate, Thailand’s eco-car scheme has a minimum production requirement of 100k units/year. With six participating brands, total output will reach roughly 600k units. But with a total LV market of about 1.0 mn units/year (around half of which consists of Pickup Trucks, with PVs and LCVs making up the rest), the OEMs involved in the eco-car program cannot rely solely on domestic demand to fulfil the minimum obligation. In short, the scheme should boost exports of eco-cars and Sub-Compact Cars from Thailand.
Indonesia’s policy is aimed at the electrified vehicle (xEV) sector (hybrids, plug-in hybrids and BEVs), with a particular focus on the production of xEV batteries, given the country’s plentiful resources of the necessary raw materials. To stimulate exports of locally made xEVs, battery cells and battery packs, the government will ban all exports of related raw materials in 2020, two years earlier than initially planned (2022).
In short, Malaysia’s NAP 2020 policy will do little to stimulate the export sector. And with limited exports, production volumes are likely to remain lower than domestic demand.