Car sales set to skid further as headwinds mount

New Straits Times

7 days ago

KUALA LUMPUR: After a sluggish first half of 2025, Malaysia's auto market appears to be hitting the brakes hard, with analysts signalling a further slowdown in sales momentum for the rest of the year.
Following three consecutive years of record-breaking sales, the market now appears to be settling into a more subdued phase, marked by shrinking order backlogs, tighter loan approvals and intensifying price competition.
"The market is showing signs of normalisation amid weakening order backlogs, tighter loan approvals and intensifying price competition, particularly in the non-national segment," said RHB Research analyst Iftaar Hakim Rusli.
Total industry volume (TIV) for the first half fell 4.6 per cent year-on-year to 373,636 units, according to the Malaysian Automotive Association (MAA).
Despite the softer start, MAA raised its full-year sales forecast to 800,000 units, up from an earlier projection of 765,000.
RHB Research is holding a more cautious view, maintaining its 2025 TIV forecast at 730,000 units, which represents an 11 per cent decline from last year.
Iftaar said the biggest drag is expected to come from non-national marques, many of which are now feeling the heat from an influx of aggressively priced models, especially from Chinese entrants.
These new players have forced incumbents into deep discounting, a move that, while good for consumers, is destabilising the market.
"Some buyers may delay their purchases in anticipation of further price cuts from both existing and new non-national marques, thereby destabilising the non-national segment," he said in a research note.
Loan approval rates have also taken a hit, dropping to 55 per cent year-to-date from 58 to 63 per cent in the 2022 to 2024 period.
Order backlogs, once a sign of healthy demand, are thinning too, with Perodua's backlog falling from 100,000 units to 90,000 and Toyota's from 20,000 to 15,000, said Iftaar.
He added inflationary pressures are compounding the problem, squeezing household budgets just as competition heats up.
In the electric vehicle (EV) segment, Iftaar expects growth to continue but remain modest due to high prices and limited charging infrastructure.
The current tax exemptions for completely built-up (CBU) EVs, which have supported early adoption, are unlikely to be extended beyond end-2025, as the government shifts its focus to incentivising locally assembled EVs.
"An extension of the tax holiday for CBU EVs would be counterproductive for incentivising original equipment manufacturers to establish local production facilities.
"While we expect EV numbers to continue picking up in the coming months, growth in market share is likely to remain moderate due to structural headwinds, such as high pricing and limited availability of charging infrastructure.
"As such, EVs are unlikely to influence overall TIV in the near term," he said.
Another overhang is the impending implementation of the revised open market value (OMV) excise duty in January 2026.
Iftaar said that although the measure was recently deferred again, it could lead to a 10 to 30 per cent price hike for completely knocked down vehicles unless mitigated by the authorities.
He noted that the Finance Ministry has signalled that such a steep hike is unlikely but has yet to finalise the new pricing methodology.
"The new OMV takes into account the engineering work, royalty payments and license fees, amongst others.
"For CBU vehicles, prices are based on the cost, insurance and freight, on which import and excise duties are imposed," he said.
Meanwhile, HLIB Research revised its 2025 TIV forecast slightly higher to 770,000 units to reflect stronger-than-expected demand, supported by aggressive sales and promotional campaigns as well as the launch of new, attractive models.
HLIB analyst Daniel Wong said order backlogs have eased to between 120,000 and 130,000 units, with Perodua accounting for the bulk at about 100,000 units.
He said Perodua is on track to sustain its sales momentum through year-end, aiming for 345,000 units in 2025, backed by steady order intake and production levels.
"While the TIV outlook remains robust, we expect margins to come under pressure due to intensifying competition across the market.
"We expect continued stiff competition for the RM100,000 to RM200,000-priced segment due to normalising of consumer demand and aggressive new launches and sales campaigns," he said.
Wong added that companies with significant exposure to the US dollar, such as Toyota and Nissan, stand to benefit from the stronger ringgit.
Meanwhile, Honda and Mazda, with heavier Japanese yen exposure, may continue to benefit from the relatively weak yen.