Gov to re-introduce tax cuts for hybrids? Honda Malaysia says discussion is on-going

Malaysia’s current import and excise tax exemption for green vehicles is limited only to battery EV (BEV) models. Despite the tax exemptions, the cheapest BEV in Malaysia is still priced at RM 139,800 – Great Wall Motor’s Ora Good Cat, imported from China.

The idea for the tax exemption is to have these imported BEVs kick-starting market demand so job-creating, investment-attracting local assembly projects can follow.

There are now three locally assembled (CKD) BEVs, from two manufacturers – the Volvo XC40 EV and Volvo C40 starts from RM 278,888 and RM 288,888 respectively, and the RM 648,888 Mercedes-Benz EQS 500 4Matic.

As for hybrids, tax exemptions for imported hybrid vehicles expired in 2013, replaced by the Energy Efficient Vehicle (EEV) incentive for locally assembled (CKD) vehicles. EEV doesn’t explicitly give additional tax breaks to hybrids.

Technically, Malaysia no longer give special treatment to hybrids, though some brands like Volvo and BMW continue to enjoy lower taxes for their plug-in hybrids. It’s hard to explain why, because applications for EEV incentives are evaluated by the government on a case-by-case basis.

Last week, Honda Malaysia said that discussions with the government to re-introduce tax cuts for hybrids are on-going.

“We are always in negotiation and in talks with the government,” said Sarly Adle Sarkum, President and Chief Operating Officer of Honda Malaysia at a media event on Friday evening.

Sarly did not mention if the tax cuts will be expanded to imported (CBU) models or limited to just CKD ones, though we think the latter is more likely.

Honda is the first company to locally assemble hybrids (Jazz Hybrid, 2012) in Malaysia. It was also the first to open a battery and power electronics pack (IPU) assembly plant in Malaysia in 2020, for the City e:HEV RS.

“We have discussed at length with them. There will be some incentive plans coming up. I can’t give the details to that, but they will also include HEV into their plans. How quickly? I can’t confirm. But if you talk about discussions with the government, we’ve had numerous sessions with them, at MAA level, and also independently. So, we are waiting for that. We are pushing, waiting for that. Let’s see how it goes,” he added.

Separately, the statement by Perodua last year that it will be producing a locally assembled hybrid by 2024, and that it will be the lowest price hybrid in Malaysia, is a strong enough hint that special tax exemptions for hybrids will return to Malaysia.

Also read: Perodua to launch its first hybrid in 2024, new variant for Ativa facelift?

Honda Malaysia also announced that it will be expanding its line-up of CKD hybrid models.

"Honda will further strengthen our hybrid technology in the Malaysian market. We were the pioneer in introducing hybrid technology to this country 19 years ago. The technology has evolved significantly since, starting with the IMA, Sport Hybrid i-DCD, and now we have taken a step further with e:HEV technology.

"Electrification is the global trend and future of mobility for the automotive industry. As such, Honda is also stepping up its electric or EV development efforts progressively. Honda believes that hybrid technology is right approach at this point of time, particularly in Malaysia. We want to ensure Malaysian's needs are being fulfilled with the most practical and relevant technologies before fully adopting to EVs," said Sarly.

"We will expand our model line-up and introduce e:HEV powertrains to our products in the future," he added.

Honda Malaysia currently sells 4 hybrid models - e:HEV RS variants of City, City Hatchback, HR-V, and Civic. All are locally assembled at Pegoh, Melaka. Each hybrid variant contributes about 10 percent of the model's total sales, except for the City, which is at around 5 percent. 

Honda Malaysia will launch 4 new models in 2023, including the first ever Honda WR-V.

The Honda City e:HEV RS is currently the most affordable hybrid in Malaysia, but prices still start from RM 108,800. Without taxes, the City hybrid is priced at just RM 96,300 in Langkawi.

The best-selling hybrid in Malaysia however, is the Toyota Corolla Cross Hybrid. Prices start from RM 142,000. Without taxes, the hybrid SUV sells for RM 132,009 in Langkawi.

In Thailand, Honda is now the No.1 selling hybrid brand, mainly due to its wider hybrid models offering.

Also read: Honda overtakes Toyota to claim No.1 position in Thailand's hybrid car sales for 2022

Like many other CKD models with a very high percentage of local content, these CKD hybrids already benefit from excise tax rebates under the Multi Sourcing Parts Progamme (MSP) and Industrial Linkage Programme (ILP) incentive.

Also read: Rafizi's flawed car price reduction 'formula' raised again - Perodua Myvi costs just RM 25k without tax? Nonsense

What these local manufacturers are lobbying for however, is for a full tax exemption to be extended to them, because it is not realistic to expect BEVs to deliver sales volumes significant enough to justify for a full scale CKD investment.

Perodua, Malaysia’s largest automotive manufacturer and biggest buyer of local automotive parts has said that establishing a hybrid parts ecosystem is a necessary first step before Malaysia can talk about (real) CKD of BEVs.

Also read: Perodua: Readiness of local suppliers crucial for electrification; hybrid as stepping stone to EV

The CKD done by Volvo and Mercedes-Benz BEVs are actually semi-knocked down (SKD), with pre-painted body shells imported from Europe. No metal stamping, welding, or painting work – the highest investment value for a car plant - is done here.

These type of manual, basic tools-only assembly work cannot be done at highly automated, high-volume production lines at plants operated by the likes of Honda, Toyota, or even Proton and Perodua, because that’s not how their plants are configured.

This also begs the question, why is the government putting aside the interest of the industry's biggest investors that are producing cars for the widest group of Malaysians, to give tax breaks to low-volume, low CKD investment luxury BEVs bought by society's elites?