Mercedes: Not too late for Malaysia to catch up on EVs but transparent policies needed

The pivot towards electrified vehicles is something that has caught Malaysian policy makers off-guard, or if you want to be less generous with your words, you could also make a case that they just didn’t know what else to do apart from giving tax deductions to Proton and Perodua.

Turn the clock 10 years back to 2011, who would’ve thought that the push towards electric vehicles (EVs) will happen so soon here. In places like Europe and Japan yes, but South East Asia?

Who would’ve expected Thailand to be switching its iconic ‘tuk tuks’ to electric? Or that Indonesia would leverage on its massive nickel reserves to remodel itself into the Arabia of the EV world?

To be clear, EVs remain still remains only on the fringes of the automotive industry. The hype on EVs are mostly driven by the investors’ community looking to adjust their portfolio towards a more ESG-compliant (Environmental, Social and Governance) one. Remember that EVs account for no more than a low single digit percentage of the world’s total car sales.

Even in China, which sells 45 percent of the world’s EV sales, EVs make up only at around 5 percent of total car sales, plug-in hybrids (PHEVs) not included.

And large portion of Chinese EV sales include cars like the Wuling Hongguang Mini EV, which is more like a scaled up golf cart with doors than a real car. In many countries, such cars are not road legal.

But we cannot deny the reality that the EV shift has been put in motion and we will soon reach the tipping point in about a few decades.

Many countries, Japan, UK, and Singapore included, are looking to ban combustion engines sometime between 2030 and 2040, which is not that far away if you consider an average car model lifecycle is around 5 to 7 years. To explain it in simple terms, engines will be banned in many countries after just two more new generations of Honda Civic.

Why the shift to electrification came to South East Asia so fast?

Policy makers in Thailand and Indonesia adopt a very progressive, global outlook stance for their automotive industries.

Thailand for example, exports to more than 100 countries. It is the 11th biggest car-producing country (OICA data). When you are so tightly linked with the global car market, you have to look beyond your own borders to stay relevant.

As the world is shifting towards electrification, Thailand can’t remain only as a hub for pick-up trucks and cheap A-/B-segment sedans.

About 10 years ago, Thailand policy makers plotted the trend on exhaust emission standards in all of the world’s major car markets, and concluded that it’s only a matter time before diesel fume-belching pick-up trucks – their most important exports – will be legislated out of many countries.

The prediction came true when in 2014, Europe announced that by 2020, all commercial vehicles – pick-up trucks included – must meet an average CO2 emission of no more than 147 g/km. For reference, a typical pick-up trucks’ CO2 emission is over 200 g/km. The European pick-up truck market has been going down ever since.

The Nissan Navara, Mitsubishi Triton, Fiat Fullback, Mercedes-Benz X-Class, have all pulled out. Even Volkswagen has given up on the Amarok, choosing to rebadge the Ford Ranger instead. 

Also read: Nissan Navara, Mitsubishi Triton are leaving Europe, here's why trucks are dying there

Thailand needs a new hero product to export, and to prepare for a post-truck future.

When Thailand, which supplies a lot of cars to the rest of the region, shifts towards hybrids and EVs, all its neighbouring countries will have to either follow or respond in kind. Indonesia chose the latter.

No longer content with making Toyota Avanzas and Mitsubishi Xpanders, Indonesia is leveraging on its huge nickel reserves wrestle the lucractive EV investments away from Thailand.

Careful not to repeat its mistake with oil, selling crude oil to foreigners at a low price while Singapore profits from higher value, processed oil products, Indonesia has since banned nickel exports. Anyone who wants a piece of Indonesia’s nickel needs to setup shop and manufacture there.

In a stare down game with technologically superior foreign powers, the foreigners blinked first. Toyota, Hyundai, CATL, and LG Chem have all signed EV-related deals with Indonesia.

The Indonesian government is also fast-tracking demand creation for EVs, starting with making EVs a requirement for its government fleet. Electric buses are now also a requirement for many provinces.

That is the difference between our two progressive neighbours and us. Malaysia suffers from a Galapagos Island-like syndrome.

Malaysians live like it’s still the 1990s, when Malaysia was superior to Thailand and Indonesia, when our Multimedia Super Corridor and Twin Towers represented something. Our political narrative is centred around personalities, race and religion – all very inward looking topics.

Even our car culture here is a reflection of our backwardness – our car buying culture is still all about speed and turbos, with a rebellious, anti-establishment tinge to it – so 1990s. CO2 emission is not a criteria at all.

Even buyers in Vietnam see no problem with a Mercedes-Benz E180, which makes less power than our Honda Civic 1.5 TC-P, as long as it comes with the highest range infotainment.

Today’s premium cars are merely lifestyle products and as traffic regulations are tightened - automated number-plate recognizing speed cameras are everywhere in Vietnamese cities - there’s not a lot of places where you can go faster than 100 km/h, which is how it should be as a country progresses.

Meanwhile our policy makers also have to deal legacy issues of supporting Proton and Perodua, both are too big to fail and are no longer national car companies but few want to admit it as such. Under such circumstances, there’s not much mental capacity left to think about the longer term.

That and our addiction to cheap, subsidized petrol (and cheap, unskilled foreign labour), means that it’s difficult for us to make a transition towards green energy.

After all, consumers here can’t look beyond battery replacement cost since fuel prices are so cheap, so why should car manufacturers bother? The way they see it, it’s good that there are still some countries who buy their ageing combustion engines.

Also read: PTT, Thailand’s equivalent to Petronas, will be building EVs with Foxconn

Why should Geely or Daihatsu share their EV or hybrid tech with Proton or Perodua when it’s so much easier for them to make money in Malaysia by offloading their outdated combustion engines to us? Engines that are no longer be road legal in China and Japan, are sent here.

The 1.5 TGDi engine in the Proton X50 was designed to be a plug-in hybrid. Without the electric motor – which is the package Geely gave Proton - it makes no sense to accept the compromises of a 3-cylinder.

The Daihatsu Boon, which gave rise to our Perodua Myvi, will soon be discontinued in Japan, which is looking to ban regular combustion engine cars by 2030.

Also read: Toyota Passo / Daihatsu Boon to soon be discontinued, spirit lives on in Perodua Myvi

The last EV hype train has yet to leave the station, but can Malaysia get on board?

So is the door to enter the next phase of progress closed for Malaysia? To answer that, I sat down with Michael Jopp, Vice-President of Mercedes-Benz Malaysia, at the sidelines of the media preview of the Mercedes-Benz GLE 450.

Jopp says that there’s a lot of potential for Malaysia. It’s still a very important market for the region. Remember that Malaysia serves as the South East Asia regional headquarters for the company, and the Pekan plant exports the Mercedes-Benz C-Class to the Philippines too.

However, in order to realize the potential Malaysia needs to understand the users’ perspective and have very transparent industry policies (no closed door negotiations for incentives).

Investors can't reveal their longterm plans without any assurance of what they could get in return. A clear, transparent 'menu' that lists x requirements to obtain y benefits is how all progressive countries do it. 

Mercedes-Benz has a very wide portfolio of electrified products, from Battery Electric Vehicles, to plug-in hybrids (both petrol and diesel ones), to 48V mild hybrids, and even fuel cell electric vehicles.

The decision on whether to introduce these products in Malaysia or not is dependent on market demand, and that demand is heavily influenced by the direction of the government.

Asked to list his wish list so MBM could accelerate its electrification plans, Jopp says:

“From a user perspective, a very quick rollout of public charging infrastructure. Support for charging at home, well let’s say clarity, because I am not even sure if the power grid would support significant charging from home? Possibly even make it mandatory for condominiums to setup charging support, I think that would be important."

“From a manufacturer’s perspective, a very transparent incentive structure. I think the ultimate goal is to have as much localization as possible but I think, like other products, there should be a generous policy on providing incentives for CBUs first. Because for us, if we were to localize, the investments in localization are huge, and it probably would be a challenge to generate volume in the beginning. With CBUs, that would help also to facilitate charging infrastructure because you will have increasing charging demand, and these two will go hand in hand very nicely,” said Jopp.

But realistically speaking, there’s only so much tax breaks that a government can give. All progressive nations use both carrot and stick methods to incentivize development towards clean energy, and penalize those who don’t move faster.

The discussion inadvertently revealed the other problem that Malaysia is in – our government’s reliance on import and excise taxes from car sales leaves little room for fiscal policy methods to be used as ‘sticks’ to accelerate the shift to EVs.

The Ministry of Finance have mentioned last year that it is mulling to introduce CO2 tax, but unless our current engine capacity-based excise / import tax structure is overhauled, slapping yet another layer of tax won’t work. But that’s another topic altogether.

Also read: Zero tax for EVs in Malaysia soon, but there's a catch