• USA President Biden has released a decree to raise tariff on China-made EVs to 100% − quadruple from the previous rate of 25%, and triple tariff of EV lithium-ion batteries and battery parts to 75%. These new tariffs will take effect in 2025.

• There are hardly any EVs originating from China in the US nor do any Chinese EV manufacturers have plans to export their products into the country due to obvious reasons. Therefore, this news headline is more bombastic than the actual impact. If anything, the U.S. consumers have lost out on a potentially affordable EV option.

• China is the world’s largest EV maker and user, commanding roughly 60% of all EVs made globally. As at end of April 2024, EVs made up 44% of the total new car sales in China, from only 7% three years ago in 2021. EV market share will only accelerate in China because it is now cheaper than conventional internal combustion engines (ICE) due to economies of scale and maturing technologies.

• China is the biggest EV exporter globally, but it is finding increasing resistance from protectionist measures, particularly from the West and Western-allied nations. Therefore, from a strategic basis, it makes sense for China to structurally focus on “friendly” countries, of which Southeast Asian is one of them.

• SHORT-TERM: There is no impact as there are no manufacturing or assembly of EV facility in Malaysia, and all EVs in Malaysia are currently imported as CBUs. Only EPMB (Not Rated) are assembling electric motorbike and battery-charging stations, but this is a totally different segment altogether. All the major Chinese EVs have earmarked Thailand and Indonesia as their assembly facility for the region. Thailand EV market share is around 10% and is expanding briskly as more models (affordable and premium) become available. BYD (1211 HK, Not Rated) have completed the construction of its biggest factory outside of China in Thailand, which is its right-hand drive hub for the region. Similarly, Chery Automobile (Private Company) has a manufacturing hub in Indonesia to cater for its domestic market as well as export to the region.

• MEDIUM-TERM: We have been waiting for Perodua and Proton to finalise their affordable EV model that is touted to be launched in 2025-26. As of today, there is scant information whether these affordable EVs will be a rebadge of existing models or a new model. There is also no indication on the pricing of these EVs. Should Proton and Perodua’s EVs be priced >RM80k, we believe it is economically feasible for Chinese EVs to export into Malaysia via their Thailand and Indonesian facilities as it will remain competitive after the 75% excise duty + 10% sales tax imposed. Verily, pricing is everything, and both Perodua and Proton cannot ignore what the China EVs will do.

• We are NEUTRAL on the auto sector based on the expectation that TIV will stabilise to historical norms in 2024. Valuations are balanced, except for BAUTO which is trading at deep discount and is our sole BUY.

Source: AmInvest Research - 15 May 2024