Malaysia now classified as a risky investment destination by some manufacturers

The recently announced 2020 National Automotive Policy (NAP) and recent changes in the government are not sitting well with car manufacturers operating in Malaysia.

“It’s a bit unsettling. Less than a week after announcing an auto policy that doesn’t say anything meaningful, the prime minister is stepping down?,” said an executive at a German automotive brand.

However, the executive remained optimistic about the mid-term prospects of Malaysia, and sees the current episode merely as a speed bump along the way.

“There are no changes in our immediate plans, CKD models planned for the future are still on track, but we would appreciate better clarity about what’s going to happen in the near-term,” said another German executive.

“For us, the biggest challenge in introducing more CKD models here is less about government policy, but the small volume that the market offers. Manufacturing is all about volume,” said the executive.

Asian brands however, are less optimistic, with at least one Japanese and one Korean executive telling us that they now consider Malaysia to be a risky place to invest in, as government policies can change overnight, and along with it interpretation of tax regulations and qualifying criteria for tax incentives.

One Japanese executive was livid when commenting on his thoughts about NAP 2020. “That’s not an auto industry policy. That’s simply a presentation of what the future of the automotive industry will look like in 2030.”

“Malaysia benefits from very good infrastructure and strategic location. The locations of the factories are not very far away from ports, and the logistics infrastructure is well established, better than Indonesia, which also faces threats of natural disasters. However, it’s difficult to plan for the long term if the government keeps making U-turns,” said another executive, who added that the reason investments are moving to Thailand and Indonesia is because of political climate.

Although Thailand’s political climate is equally unstable, the country has a very independent and well established civil service. Irrespective of who becomes the prime minister, their policies don’t change.

Thailand’s current automotive policy are a continuation of what was established by exiled ex-premier Thaksin Shinawatra.

Thaksin’s 2002 Automotive Industry Master Plan has since evolved to Eco Car Phase 1 and Phase 2. In that period, Thailand has had six prime ministers from six different parties, sometimes involving mass protests that paralyzed Bangkok capital.

Despite the frequent changes in government leadership, never once did Thailand backtracked on previously announced plans regarding implementation of carbon emissions-based excise duty structure, E20 gasohol fuel, tax incentives small cars.

On the other hand, companies that have invested in Malaysia’s EEV programme have experienced various setbacks. What was approved by the previous government was found to be not in compliance by the current government.

Making things more difficult is that the requirements for EEV were never made public, as incentives were ‘customized’ to each manufacturer depending on results of the government’s cost-benefit analysis. What’s agreed with the previous government might no longer the recognized by the next government.

Case in point was Honda’s recent revision in prices. Honda Malaysia says the increase in prices is due to adjustment in EEV incentives, which the Ministry of Finance insists hasn’t been changed, but only that Honda had failed comply with its requirements. Since the government doesn’t make the requirements public, we won’t know the true story.

What we know is that the government has been contradicting itself when it comes to car prices.

First they denied that car prices are going up. Then they admitted that yes, there will be a revision in how car taxes are calculated (although the duty structure remains the same) but its implementation will be delayed until 1-Jan 2021.

What happens after 2021 is a big question mark. The government assures us that “any increase in prices will be gradual.” Try working on an investment plan based on such information.

Mazda also experienced problems in introducing the Mazda CX-8. The model was supposed to be introduced in 2019 but delays in price approvals meant that the company could not realize any revenue from the project until almost one year later, throwing a spanner into the company’s business planning.

The Koreans have also been eyeing on Malaysia for quite some time. Among the South East Asian nations, Hyundai and Kia are most successful in Malaysia. Both Kia and Malaysia have their regional offices in Malaysia.

Despite a longer history in Malaysia, Hyundai Motor decided to skip Malaysia and poured RM 6.55 billion into a new car plant in Indonesia.

By 2021, Indonesia will overhaul its vehicle tax structure, changing from the current engine capacity-based tax bracket to one based on CO2 emissions. The tax is structure is in line with global trends and is similar to what Thailand has already adopted.

Following that, Toyota has also announced that it is investing RM 8.3 billion in Indonesia to build electric and hybrid vehicles.

Another German executive also mentioned that Malaysia actually had a shot in the setting up of high voltage battery plants for hybrid and electric vehicles. Prior to Thailand/Indonesia catching up, Malaysia was the region’s leader in hybrid vehicles.

Despite the initial lead, Malaysia didn’t do much to provide a clearer policy direction.

Although Malaysia was one of the first countries outside of Germany to assemble the hybrid S400h and subsequently the C350e and E350e plug-in hybrid, Mercedes-Benz pumped RM 457 million to build a battery plant in Thailand.

Likewise for BMW, which pumped RM 66 million to build a battery plant in Thailand.

In the midst of all these talk about a change in the government, we would like to ask: Sorry but who is running the country?