CHINA’S global dominance in the automobile industry, particularly electric vehicles (EVs), has not escaped Malaysia.
Two China automakers — BYD and Chery — sold a total of 18,708 passenger vehicles in Malaysia in the first nine months of this year.
That is over six times the 2,970 they sold in the same period last year.
These sales only account for around 3.5 per cent of passenger car sales in the period, but are an indication of how fast they are gaining a foothold in the local market.
The total China share of passenger car sales in 9M24 is slightly higher if other marques are included.
The China companies are selling both internal combustion engine (ICE) cars and EVs.
For EVs alone, BYD topped the list, selling more than 6,000 units in 9M24, followed by Tesla with 4,300 units.
Most China marques being sold are in the B and C segments.
The biggest losers for now are Japanese automakers whose top marques saw sales decline by 10,557 vehicles in that period.
The companies lost 3 per cent of their market share to 28.9 per cent.
Most car makers also saw a decline in sales, save for Perodua, Honda and Lexus. Globally, China-made cars account for around a fifth of new car sales, with a target of making that one-third by 2030.
And China is a clear leader when it comes to EVs, cornering more than half of new global EV sales. China cars sell well because they offer the latest designs and technology at prices that their competitors cannot match.
In a technical analysis titled “Everything all at once,” which I co-authored with Ernst & Young’s Automotive Investment Banking Group economists last month, our findings highlighted an unsettling trend — non-Chinese carmakers in Malaysia are under intense pressure.
Many traditional car makers offer discounts to keep their sales numbers up. Chinese automakers have significantly infiltrated the local market.
There is a launch every now and then. Currently, there are at least 10 passenger car brands and about 20 commercial vehicle brands from China in the market.
And those numbers are growing.
China’s government has boosted the industry since the early 2000s with generous subsidies and tax breaks.
Its car makers also have had a steadfast focus on research and development and have hired top designers and engineers from across the globe. That, along with a technology-driven supply chain, is leading to Chinese manufacturers churning out cars at rates, quality and prices never seen before.
When I visited Ningbo in Zhejiang province in 2021, Zeekr, an EV venture by decades-old auto giant Geely, was capable of developing various vehicle models — such as SUVs, multipurpose vehicles, and hatchbacks — from scratch in as fast as 24 months, compared with roughly four years for many traditional carmakers.
To protect their car makers and related industries, some governments have protectionist policies in place.
The United States and European Union (EU) have imposed tariffs on China-made vehicles.
In May, the former raised tariffs on Chinese-made EVs from 25 per cent to 100 per cent. Similarly, the EU has raised tariffs on Chinese EVs.
The EU is the largest overseas market for China’s EV industry.
Some Chinese car makers are exploring production facilities abroad to circumvent rising tariffs. They are focusing on South-East Asia and South America, with notable efforts in Thailand, Indonesia and Brazil.
LOCAL AUTO PRODUCTION
Chery Auto Malaysia Sdn Bhd entered Malaysia in the mid-2000s, but exited in 2016 due to difficulties in maintaining sales and competition with established local brands.
However, in 2022, the brand re-entered with a robust plan for local assembly and expansion, aiming to make Malaysia a hub for exports of right-hand-drive vehicles across ASEAN.
Chery appointed Sime Darby Bhd subsidiary Inokom Corp Sdn Bhd as its local assembler, with an initial capacity of up to 20,000 units per year, focusing on models like the Omoda 5 and Tiggo 8 Pro SUVs. Within its first eight months of operations, Chery rolled out its 10,000th locally assembled vehicle.
In June this year, Chery launched its new factory in Shah Alam, Selangor.
The new factory has created 500 jobs, with potential for further growth in line with market demand.
The company also claims to have contributed to over 1,000 jobs and has established a network of 100 sales and service centres nationwide.
Besides Chery, Great Wall Motors (GWM) has established its assembly operations in Malaysia at EP Manufacturing Bhd’s production plant in Pegoh, Melaka.
The initial production capacity is set at 10,000 units annually, with plans to scale up to 300,000 units.
It also has plans to assemble EVs locally. GWM added the Haval brand to its lineup early November, complementing its earlier launches of the Ora and TANK brands.
It should be noted that there is no local production of battery EVs (BEVs).
Geely Automobile Holdings Ltd has big plans to transform Tanjung Malim into the region’s largest auto city by investing US$10 billion.
It recently began taking orders for its 51 per cent-owned EV brand, Zeekr, in Malaysia. Meanwhile, best-selling EV brand BYD is preparing to introduce its wholly owned Denza brand in the first quarter of 2025. BYD has sold 10,000 vehicles within two years of its launch.
Growing charging infrastructure and environmental awareness provide a solid foundation for continued growth.
ADAPTING TO REGIONAL CONSUMER PREFERENCES
South-East Asia has taken a more welcoming approach to China car companies compared with the West.
Malaysia has had no taxes on EVs coming into the country since 2022, although this will end in 2025.
However, Malaysia does have a RM100,000 floor price for EVs, which will also expire next year.
Hence, it will be a watershed moment for the local automobile industry. The local automotive market is expected to open up and liberalise after 2025.
Malaysia’s automotive industry is made up of over 40 vehicle manufacturers or assemblers, about 640 parts and components makers and about 62,500 after-sales-business companies.
The sector contributes about 4 per cent or RM40 billion to the nation’s gross domestic product and employs over 700,000 people. In the last decade, the local automotive industry has sold an average of 625,000 vehicles annually, with 93 per cent of these produced in the country.
So, is the industry in jeopardy?
Over the last 20 years or so, China has developed a solid supply chain for its cars, with an elaborate and efficient vendor system in place.
The worry is that local vendors will find it difficult to match the quality, pricing and efficiency of the Chinese parts ecosystem which is also highly digitally driven.
This means replacement parts are sent much faster to where they are needed compared with traditional car companies.
THE EV ANGLE
If EV sales keep growing at the current pace and dominate new car sales, there could be more implications for the local industry, with the biggest impact in the below-RM100,000 range.
After Malaysia’s price floor of RM100,000 ceases in 2025, how will companies like Perusahaan Otomobil Kedua Sdn Bhd (Perodua) and Proton Holdings Bhd compete with the onslaught of cheap EVs from China?
Both Proton and Perodua are actively working on their EVs.
Proton launched its first EV called e.MAS priced at RM120,000.
All eyes have also been on Perodua, which sells the most cars in Malaysia today. At the Kuala Lumpur International Mobility Show (KLIMS) 2024, from Dec 5-11, Perodua unveiled its EV concept, the eMO-II, which is still priced between RM50,000 and RM90,000.
It is not exactly in the affordable segment like the Axia, Bezza or MyVi.
Ironically, despite the protectionist policies levelled against them in some countries, Chinese cars are still doing well worldwide. If other car makers do not innovate, inevitably they will lose market share, citing the situation in China, Europe and the United States.
While traditional automakers acknowledge the increasing competition from Chinese brands, they are adapting strategies to remain competitive, balancing innovation with the need to maintain market share. The two main Japanese carmakers in the country, Toyota and Honda, recognise the competition from the Chinese marques, which is impacting their sales.
Toyota, for example, is emphasising a multipathway solution, to offer different powertrains to meet the needs of different customer groups.
The objective is to meet carbon neutrality through EVs, while hybrid electric vehicles, plug-in hybrid electric vehicles (PHEVs), BEV, and fuel cell electric vehicles are able to help to reduce carbon emissions.
There is no single solution to sustainability, but a combination of technologies that offer immediate impact and long-term potential.
Honda, meanwhile, is doubling down on hybrids and expects its e:HEV models to be well accepted. For national carmaker Proton, the influx of new brands offers local buyers a wealth of options.
While this benefits consumers by fostering healthy competition, it also drives Proton, as an established original equipment manufacturer, to continuously innovate and elevate its product and service quality to stay ahead of the competition.
In 2017, Chinese automaker Geely acquired 49.9 per cent of Proton from DRB-Hicom Bhd. The strategic move made Proton a member of a diversified automotive group of companies that include brands such as Geely, Volvo Cars and Lotus.
This opened the doors to technology and platform sharing, giving the company a quantum leap in its product development plans.
Medecci Lineil has over a decade of experience leading a niche-focused team within Goldman Sachs’ investment banking division (IBD). His expertise extends beyond the bank, having been instrumental in establishing consultancy firms in Kuala Lumpur and Singapore, where he serves as a founding board member.
