Plans for auto hub in Malaysia

Updated: Saturday March 15, 2014 MYT 7:07:48 AM

Plans for auto hub in Malaysia

BY EUGENE MAHALINGAM

THE National Automotive Policy (NAP 2014) which was finally unveiled in January, has since set tongues wagging over some of the policies that were announced.

Among them, was the tax incentives for hybrid and electric vehicles (EVs), which is not applicable if the units are completely-built-up (CBU). Prior to the NAP 2014, all hybrids and EVs were tax exempted – a policy that was actually announced under Budget 2011.

In other words, both CBU and completely-knocked-down (CKD) units were exempted from import duties and excise duties.

Post NAP 2014, however, exemption for hybrids and EVs will end on Dec 31, 2015 and 2017 respectively for CBU units. Sales of hybrids under the old tax structure surged and post NAP 2014, observers now expect a dip in demand for such vehicles. This sentiment is shared by automotive players that offer CBU models.

However, the Malaysian Automotive Institute (MAI) believes that it is only reasonable that automotive companies who “take the extra effort” to offer CKD units should benefit under the NAP 2014.

“The NAP has been designed to grow the domestic automotive industry,” says MAI chief executive officer Madani Sahari.

“And for that the NAP provides customised incentives depending on the strategic value of the respective players’ investments,” he adds.

In other words, automotive companies that are investing in CKD operations are more likely to earn better incentives, says Madani.

Multiplier effect

“On average, a CKD operation has a multiplier effect of 10 economic value points (employment, consumption, investment, for example) compared to only two for CBU operations.”

The MAI is a policy-formulating agency under the Ministry of International Trade and Industry (Miti). Miti is responsible for the country’s automotive policy.

“If you were to do a check, every country in Asean and other regions are providing incentives based on a CKD platform,” Madani says, adding that the main objectives of the NAP 2014 was to turn Malaysia into a regional automotive hub for energy efficient vehicles (EEVs) and promote a competitive and sustainable domestic automotive industry.

EEV is defined as vehicles that meet a set of defined specifications in terms of carbon emission levels and fuel consumption. EEV includes fuel-efficient vehicles, hybrids, electric vehicles and alternatively fuelled vehicles, such as compressed natural gas, liquefied petroleum gas, biodiesel, ethanol, hydrogen and fuel cell.

With that, Madani says the ultimate goal of the NAP is to attract new players into the country and to encourage the existing OEMS to expand, focusing on EEV-specific models.

“We want to target those that are not yet in Asean but want to expand in this region. We have received interests from various players, which include those from China and Europe,” he says, without elaborating further.

“In 10 years, as Asean becomes more developed and harmonised across standards and infrastructure, it is the country with the direction, technology and vision that will become the next automotive juggernaut, of the region.”

With new players entering the market, it would mean the existing ones will need to improve their competitiveness and increase their production and sales volume, says Madani. This especially means that local players, Proton and Perodua, will need to boost their export markets.

“Perodua, for instance, is expanding their production capacity with a new plant. They need to increase the volume, both for the domestic and export markets.”

Perodua is spending RM1.1bil to complete a new production plant at its headquarters in Rawang, Selangor,

Perodua currently exports to seven countries, namely Indonesia, Sri Lanka, Fiji, Mauritius, Singapore, Brunei and Nepal. Among Proton’s export markets are the United Kingdom, South Africa, Australia, Brunei, Sri Lanka, Nepal and Indonesia.

Under the NAP 2014, the government provides a financial package of about RM2bil and outlines measures and implementation plans to increase vehicle exports to at least 200,000 units annually with exports of components reaching a minimum of RM10bil in 2020.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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