This article first appeared in Forum, The Edge Malaysia Weekly on April 15, 2024 - April 21, 2024

The automotive industry is not exactly the place one would want to be in the next few years.

Competition among manufacturers of internal combustion engine vehicles, battery electric vehicles (EVs) and hybrid cars has been ongoing for more than a decade now. Last year, some certainty finally emerged about which technology would come out tops.

Automotive giants were certain that the switch to battery EVs would happen faster than anticipated. Nobody saw any future for the outdated internal combustion engine vehicles because of rising petrol prices and increasing awareness of global warming. Hybrid models, which essentially are Toyota’s answer to EVs, has no appeal for the mass market.

Optimism about EVs was based on the explosive sales growth reported by US-based Tesla Inc and China’s BYD Co Ltd.

However, faltering sales of EVs since the start of the year have prompted a review of the outlook for the automotive industry. There is a view that EV sales have peaked and that, from now on, a price war will create a spillover effect on the sales of internal combustion engine vehicles and hybrid models.

Tesla’s growth story is remarkable. It delivered 367,656 vehicles in 2019. Last year, the most valuable automotive company in the world delivered 1,808,581 vehicles - recording a compound annual growth rate (CAGR) of 37% in five years.

Meanwhile, after a slow start, BYD has recorded stunning growth since 2020. The leading Chinese EV manufacturer, which counts Warren Buffett among its shareholders, delivered 1,574,822 vehicles last year - a huge jump from the 130,970 vehicles it sold in 2020. Its CAGR over the last four years has been more than 80%.

There was a significant slowdown in the sales of Tesla and BYD cars between January and March this year, however, raising questions about the sustainability of the growth of EVs.

Tesla recorded sales of 386,810 vehicles between January and March, down 9% year on year and 20% quarter on quarter.

BYD recorded sales of 300,114 vehicles in the first quarter, up 13% y-o-y, but this growth is insignificant if one were to compare BYD’s monthly sales growth of between 70% and 80% for all of 2023. Moreover, BYD experienced negative growth in February.

Not only are the sales of EVs slowing, but a price war is also hurting their profits. Both Tesla and BYD are cutting prices and offering discounts to stave off competition, which began in China when manufacturers started offering EVs that are cheaper than Tesla and BYD vehicles.

The fast-changing pace on the global stage has had a significant impact on the Malaysian automotive scene.

The first to be hit were parallel importers, which suddenly saw their Tesla models, imported with approved permits, no longer cost-competitive because Tesla introduced these models at much lower prices.

The entry of Tesla last year without the need to partner a local company was a game changer in the highly restrictive imported car segment of the Malaysian automotive industry - it made EVs affordable.

The government has also thrown in incentives for the EV industry. There is an exemption of import and excise duties, 100% road tax exemption and personal tax relief for the purchase of EV-related accessories. These incentives will be in place until end-2025.

Tesla’s prices were already cheap compared with those of other models, but the EVs from China are even cheaper.

Today, it is not unusual to find a new EV on sale for less than RM130,000. On top of the discounted price, the EVs come with a warranty of up to eight years for key components such as the battery.

The price war in the EV segment has had an impact on non-EV sales, too. A veteran car executive says prices of EVs are falling so much that even non-EV enthusiasts are thinking about purchasing one. He says customers are also waiting to see whether the government will allow the prices of EVs to drop below RM100,000.

At the moment, to protect local car manufacturers, importers are not allowed to set prices below RM100,000.

Perusahaan Otomobil Kedua (Perodua) has stated that it plans to come up with its own version of EVs next year. The price is likely to be less than RM100,000. If the local manufacturers join the fray, the government might loosen its hold on determining the pricing of EVs.

The executive says customers could postpone their decision to buy a new car, owing to the intense price war in the EV segment.

Car dealers also have to contend with the High Value Goods Tax (HVGT), which is to be imposed this year. They are hoping that the threshold for a car that will be affected by the HVGT will be higher than RM200,000 so that it will not affect the prices of mass market models.

EVs are relatively new to the Malaysian automotive industry. A year ago, it would have been difficult to find a Tesla on Malaysian roads. Today, however, they are a common sight on the roads of major cities here. The same goes for BYD’s EVs and other such models from China.

So far, there has been no push for the adoption of EVs in Malaysia because petrol is cheap and there are concerns about the ecosystem for supporting EVs.

How long, though, will petrol continue to remain relatively cheaper than in other countries in the region? As for an EV ecosystem, the number of charging stations is growing. There are already petrol stations along the North-South Expressway with charging stations.

The EV market in Malaysia will only grow because the price war will continue and the cars will get cheaper. The question is, will it take away market share from internal combustion engine vehicles and hybrid models?

M Shanmugam is a contributing editor at The Edge 

https://www.theedgemarkets.com/node/707890