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This article first appeared in The Edge Malaysia Weekly on February 24, 2020 - March 1, 2020

THE National Automotive Policy (NAP) is an economic policy paper that is highly anticipated by local and foreign automotive players. This is because since the late 1980s, the industry has become a pillar of the country’s manufacturing sector.

In 2014, the government unveiled NAP 2014, the third such policy after the first and second iterations in 2006 and 2009. NAP 2014 is arguably an important policy, as it has, among other things, relaxed Malaysia’s stringent protection of the local automotive industry.

Some say NAP 2014 has been a success, especially in terms of opening up the market to new entrants. One of the measures under the policy was the issuance of new manufacturing licences for energy efficient vehicles (EEV) across all segments.

With the market liberalisation, new investments have come in.

In May 2016, UMW Toyota Motor Sdn Bhd announced a RM2 billion investment in its second manufacturing plant in Malaysia. The plant, located in Bukit Raja in Klang, Selangor, was completed in early 2019 and the new Toyota Vios is being produced there.

Malaysia has not only attracted new investments in the manufacturing and assembly of completely knocked-down (CKD) units, but also in critical parts. For example, Sime Darby Auto Engineering, together with BMW Group Malaysia, opened a new engine assembly plant in Kulim, Kedah, in May 2018.

National carmaker Perusahaan Otomobil Kedua Sdn Bhd (Perodua) also increased investments between 2014 and 2019. During the period, the company invested at least RM400 million a year in its production plants.

Perodua plans to nearly double its investments for 2020, to RM1.06 billion. The bulk of the investments will go towards plant modernisation, expansion as well as preparation for a new model, believed to be a sport utility vehicle codenamed D55L.

According to Datuk Madani Sahari, CEO of Malaysia Automotive, Robotics and IoT Institute (MARii), of the 11 targets under NAP 2014, nine have been met. These include an automotive component exports value of RM10 billion a year by 2020.

Last year, the export value of transportation equipment increased by 6.1% to RM19.14 billion, according to the Malaysia External Trade Development Corporation. This is a remarkable achievement, considering that the country started off with RM4.75 billion in 2014.

However, Malaysia is still far from being an EEV manufacturing hub in Southeast Asia, which was the “mission statement” of NAP2014.

According to the policy, “In addition to introducing measures aligned to global and regional technology changes and developments, the NAP 2014 also aims to make Malaysia the regional EEV hub by the year 2020”.

The main targets of the NAP will always be measured in terms of production and exports of completely built-up (CBU) units. For NAP 2014, the government aimed to increase total production volume (TPV) to 1.35 million units of vehicles annually by 2020. In line with the aim to make Malaysia an EEV hub in the region, of the 1.35 million TPV target, as many as 1.15 million were meant to be EEVs. Clearly, this target has not been met as the country only produced 571,632 vehicles last year.

The government also aimed to increase the total industry volume (TIV) to one million units by the end of this year, with 100,000 units being commercial vehicles. This target was not met either as only 604,287 units of vehicles were sold in the country last year.

Based on the 2014 policy, Malaysia would be exporting 250,000 units of cars in 2020, from around 20,000 units in 2013. Data for the number of cars exported last year has not been released, but industry players estimate the number to be around 30,000 units.

One of the reasons for the below-par performance is the delay in the implementation of the end-of-life vehicle (ELV) policy. An industry player tells The Edge that when the targets were formulated, the government was considering introducing the policy.

“Had the government introduced the ELV policy back then, there could be one million in additional TIV in the market,” says the industry player. With the ELV policy, Malaysia’s TIV could triple from the current average of 600,000 units per year.

Talk of the ELV started around 2009 when the government introduced mandatory annual inspections as a requirement for road tax renewal for all vehicles aged 15 years and older as part of NAP 2009.

However, the policy was later scrapped after receiving much backlash from the public. Time and again, there would be talk of the ELV being introduced, such as a “cash-for-clunkers” programme that was supposed to be implemented in 2015.

Nevertheless, the lack of an ELV policy is not to be blamed when it comes to exports performance.

According to government officials involved in formulating NAP 2014, the exports target then was based on the assumption that products by the country’s first national carmaker, Proton Holdings Bhd, would be successfully exported.

Regardless, one of the officials sees the missed exports target in a positive way: “The 30,000 units exported in 2019 were all from the non-national automakers. This was a tremendous growth from virtually nothing in 2014,” he says.

 

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