The government has been incentivizing electric vehicle purchases and use as a way to boost domestic electrification trend. Those incentives come in the form of zero import duty, zero excise duty, zero road tax and non-tax on EV and/or related equipment, among others.
Whatever the early rationale behind these incentives,[1] changing global conditions are making these policies dated. Rising trade barriers across the world are affecting EVs adversely, especially those made in China. Regardless of the appropriateness of US and more relevantly European policy in response to China’s dominance in the space, these barriers would redirect Chinese EV volume from places with high tariffs to other economies without similar restrictions. These other economies—many of them are small-to-medium sized (like Malaysia)—might be the ones having to absorb oversupply. In other words, there is an EV oversupply coming our way.
Under a scenario where there are downward pressures on EV prices, would Malaysia’s set of incentives still make sense? I would argue no, especially for the retail side of the equation.
There are several reasons for the negative answer.
First, the downward pressures on prices caused by manufacturers’ need to reduce their inventories would likely be good enough to encourage domestic electrification on the road.
Second, the prospects of higher petrol prices caused subsidy rationalization exercise should already be a big incentive enough for road users to migrate from internal combustion engine to EV. This is of course depending on the government going through with the rationalization exercise.
Third, the coming oversupply would be an opportunity for the Malaysian government to shift the burden of encouraging EV from the public towards private manufacturers. After all, these are private EVs we are talking about, not public transport. And even better, the burden would be shifted towards foreign manufacturers, which many of these manufacturers originating from China.
Fourth, the government faces fiscal pressures and the migration towards EV would be a chance for Putrajaya to reap the migration dividend in the form of more duty and levy revenue. This does not mean raising those duties and levies to punitive level. It could mean just normalizing it (i.e. undo the incentives). That additional revenue could be used to either finance electrification facilities, or other pressing needs in education, health or even defense… or finance public transport projects instead of boost private vehicle ownership.
If it were up to me, I would quickly cut short these incentives. Immediate reversal of policy is likely too disruptive to be good and that suggests undoing it by end of 2024 sounds reasonable.
Otherwise, these EV incentives do have sunset clauses. I would recommend letting them lapse. But waiting until 2025 might be too long for Malaysia to benefit for changing global landscape.
[1] — Given early (still?) focus on luxury electric vehicles and the government being overly focused on retail side of EV supply chain, the policy might have been captured by what I would call hobbyist lobbyists, i.e. rich men who take electric vehicle as a symbol of prestige.
It definitely didn’t help with the perception when early major lobbyist was an association named Malaysian Electric Vehicle Owners Club.
If the policy had not been captured, it would have focused early on the mass market, allowed leeway for cheap but reliable Chinese brands instead of the likes of Tesla, and also would provide better stress on industrial rather than retail.