• Electric vehicles (EVs) is the future: EVs continue to make progress towards becoming a mass-market product in a larger number of countries. This growth is driven by competition among EV manufacturers, decreasing battery and car prices, improved safety and reliability, and ongoing policy support. In 2023, 13.8mil EVs were sold worldwide, making up 18% of total vehicles sold. The International Energy Agency (IEA) forecasts 23% YoY growth in global EV sales to 17mil units in 2024, representing 21% of total vehicles sold. In 5M2024, global EV sales grew by 20% YoY and captured 17% market share. IEA’s forecast is on target as vehicle sales typically accelerate in the second half of the year.
  
  Currently, EVs are primarily accessible to higher-income consumers due to their relatively high prices. However, more affordable models are being introduced, appealing to middle and lower-income levels. This will likely boost penetration rates, potentially increasing EV market share to 40%-45% alongside conventional internal combustion engine (ICE) powered vehicles by the end of the decade.

• But not in Malaysia: EVs make up 2.6% of total new vehicle sales in 4M2024, up marginally from 1.7% in 2023. Malaysia's policy offers generous incentives and tax holidays to purchase EVs until the end of 2025. However, these benefits are primarily accessible to affluent consumers due to a minimum price of RM100,000. Essentially, Malaysia's EV policy encourages affluent consumers as early adopters, and for the mainstream market to catch on. This strategy, also used in North America and Europe, has yielded unfavorable outcomes; once incentives expire, EV sales decline. We believe Malaysia will face a similar situation in 2026.

• Why we think it will not work in Malaysia? We think the government’s policies are fundamentally flawed while there is insufficient communication to build public awareness. On the plus side, EV-related infrastructure is sufficient; Malaysia has a good number of charging stations to EV on the road ratio, and sufficient electricity with ~35% reserve margin in Peninsular Malaysia. The bigger issue is obtaining financing, as not all banks offer EV financing, and those that do typically provide only a 5-year financing option instead of the more popular 9-year term. Additionally, insurance costs are high, and options are limited. Another significant issue, though controversial and sensitive, is fuel pricing. For EVs to be economically competitive with ICE vehicles, fuel prices need to be high. Malaysians currently enjoy cheap petrol at only USD0.44 per liter, which is the 9th cheapest globally. The annual fuel cost burden1 for car drivers in Malaysia, as a percentage of Purchasing Power Parity (PPP), is one of the lowest globally at just 1.7%, compared to the global average of 8.4%.
  
  In conclusion, the current cost economics are not compelling enough for Malaysian consumers to switch to EVs. We think petrol price must increase by 125% to RM4.80/liter for Malaysians to embrace EVs wholeheartedly. At that price, the annual fuel burden is 4% of PPP, which correlates strongly to countries with high EV penetration rate.

• What Malaysia needs to do to make EV a success? Malaysia should consider adopting policies like China’s, which is the most successful large-scale adopters of EVs. China’s policy focuses first on lower-income individuals and later, on the affluent. Case in point, in 2017, China banned ICE motorbikes and mandated electrified two-wheelers, resulting in over 350mil e-scooters zipping across the country in 2023 according to the China Association of Automotive Manufacturers (CAAM). During the same time, diesel public buses were phased out and replaced with electric versions, and now 80% of public buses are electrified nationwide.
  
  As a result of these policies, the average Chinese commuter has become familiar with EVs and its merits – air quality has improved significantly, and cities have become noticeably quieter. Therefore, they are comfortable and have no anxiety to buy an EV. When the Chinese government provided incentives for private EVs in 2021, consumers swiftly took advantage of this rare opportunity. According to CAAM, EV sales in May 2024 reached 43.5% of total vehicle sales, a significant increase from ~7% in Jan 2021, before the incentives were introduced. China’s policies clearly worked, which is no small achievement given that it is the biggest car market globally and the third largest country in terms of geographical size.

1. WHY WE THINK EV IS THE FUTURE

1.1 EV is a proven concept: EV has been growing briskly with a 10-year CAGR of 52% (2014:2023) vs. a CAGR of -2.7% for ICE powered vehicles in the same period. The pace has notched up higher since 2020 with an average growth of 62% p.a. In 2024, IEA forecasts that one out of five cars will be an EV despite many countries having just started introducing EVs in their markets.

Source: AmInvest Research - 12 Jul 2024