• We expect the government to continue with its EV-friendly policy in the upcoming Budget 2024 announcement as part of its measures to reinvigorate a sustainable economic growth moving forward.

• We also believe it is timely for the government to set a direction for enhancing EV charging infrastructure by (i) establishing national EV charging targets and (ii) adjusting public charging tariffs as outlined in its Low Carbon Mobility Blueprint 2021-2030

• We maintain a Neutral recommendation on Automotive sector at this juncture. Within our coverage, we have a BUY call on BAuto (TP: RM2.68), and MBMR (TP:RM4.80), primarily due to their exposure to new full electric models.

The government remains committed to its green initiatives aimed at driving sustainable economic growth in the future. To recap, tax exemptions for electric vehicles (EVs) were introduced in Budget 2023. These exemptions include: i) full import duty exemption on components for locally assembled EVs (until 2027), ii) full excise duty and sales tax exemption on locally assembled CKD EVs (until 2027), iii) full import duty and excise duty exemption on imported CBU EVs (until 2025), and iv) companies renting non-commercial EVs are eligible for tax deductions on rental amounts up to RM300,000 (for the year assessment 2023-2025). These measures are part of the government's efforts to promote the use of EVs among the public. Given the current low adoption rate, we anticipate that these tax exemptions will continue in the upcoming budget announcement.

In addition, we believe the government may reintroduce some incentives that were introduced in Budget 2022, including: i) tax income exemption for individuals of up to RM2,500 on the cost of purchasing, installing, renting, or financing (hire purchase) EV charging facilities, as well as subscription fees for these facilities, and ii) extending the road tax exemption for EVs, which currently applies to battery and fuel cell (hydrogen) EVs but not hybrid vehicles. This exemption is set to expire on December 31, 2025.

Furthermore, the government has expressed its intention to develop complete capabilities in local EV manufacturing. This aligns with the recently launched New Industrial Master Plan 2030 (NIMP 2030), in which the automotive industry indirectly contributes to Mission 1: Advancing Economic Complexity. This mission aims to integrate the value chain between semiconductors and EVs. Specifically, the government is committed to supporting the production of locally-made electric vehicles (EVs), including essential components such as EV batteries, chassis, motors, and power electronics. Additionally, the automotive sector plays a direct role in Mission 3: Achieving Net Zero by capitalizing on new green growth areas through increased EV usage. Through these initiatives, the government hopes to encourage more SMEs to participate in the EV value chain, serving as component manufacturers, EV service providers, and charging infrastructure providers.

We believe that charging infrastructure is one of the key issues that the government needs to address in order to increase the adoption of EVs. Previously, the government introduced the Low Carbon Mobility Blueprint 2021-2030, which places strong emphasis on several key initiatives: (i) establishing national EV charging targets, (ii) assisting private charging operators, (iii) expanding infrastructure in underserved areas, (iv) requiring EV charging in new building permits, (v) adjusting public charging tariffs, and (vi) researching advanced charging technologies. According to the information available on the website paultan, there are only 1,007 alternating current (AC) chargers and 239 direct current (DC) fast chargers in place as of September 2023.

Overall, we anticipate that the upcoming budget announcement will provide further clarity on charging infrastructure and additional policies pertaining to the EV industry. We believe that these developments will be advantageous for existing players, enabling them to boost EV sales and improve their respective EV services, including maintenance and repairs. Currently, we maintain a Neutral recommendation for the Automotive sector with a BUY call on BAuto (TP: RM2.68) and MBMR (TP: RM4.80), primarily due to their exposure to new full electric models.
 

Source: BIMB Securities Research - 4 Oct 2023