Market in motion: Policy crossroads and the electrification curve

The Star

3 days ago

AFTER a record-setting 2024, Malaysia's car market is downshifting, not collapsing, rather correcting as it reaches a pivotal juncture.
Total industry volume hit 816,700 units last year, a historic peak, but 2025 forecasts suggest a soft landing, with projections ranging between 750,000 and 792,000 units.
The sector might not draw much consumer attention, but industry observers are noticing a more stable gear after the post-pandemic demand surge and backlog clearances.
What looks like easing demand is more than a number, underneath it lies a deeper reconfiguration – policy pivots, shifting consumer incentives, and a tightening race towards electrification.
Two-speed market emerges
The policy landscape is not background noise; it has always been the steering wheel.
The first looming change is CKD (completely knocked down) vehicle excise duty treatment, set for January 2026, as planned, would add to car prices, likely creating a spike in advance purchases in late 2025.
An intended long-term pricing structure causing short-term demand.
The second potentially more transformative shift is the RON95 fuel subsidy rationalisation.
Designed to ease the fiscal burden and redirect RM8bil annually toward more targeted support, this policy is set to reshape buyer purchase considerations.
As fuel prices reflect global markets, the government is creating stronger incentives for consumers to choose more efficient, lower-emission vehicles.
This aligns fiscal reform and green mobility to support a scalable transition in the near term.
This is expected to cause a short-term slowdown in car sales.
However, economists generally believe that the demand for personal cars will continue, as car ownership remains a necessity for many Malaysians, especially outside cities.
Even in towns without access to good public transport, families still see cars as essential for work, school and daily errands, even if fuel prices rise.
Lower-income B40 (bottom 40%) and much of the M40 (middle 40%) groups are expected to retain protection, but for upper M40 and T20% (top 20%) consumers, the calculations will change.
Rising fuel costs will shift preferences toward hybrids (HEVs) and electric vehicles (EVs), not only as lifestyle choices, but as economic ones as well.
Through the rationalisation of fuel subsidies, the transition towards more fuel-efficient and electrified vehicles, including HEVs and EVs, will likely accelerate.
The tax breaks for EVs further enhance their appeal, creating a combined positive effect that helps the country's environmental goals.
Together, these shifts highlight how reactive the market is to policy change and is producing a two-speed market: one where affordability remains protected for some, while others begin to hedge against rising long-term costs through tech-forward vehicle choices.
For manufacturers, the signal is clear, diversification is key.
EV momentum, policy uncertainty
Electrification is gaining traction, but beyond the headlines, there are subtle nuances.
EV registrations in Malaysia jumped 110% year-on-year in February 2025, with 2,160 units sold, surpassing HEVs for the first time.
The unmistakable momentum in EVs could account for 5% of total car sales in 2025 – a small but fast-growing slice.
Behind the surge is a mix of incentives, expanding model choices, and stronger narratives around environmental responsibility.
Proton's e.MAS 7, for instance, led February's EV chart with 580 units, becoming a homegrown success made possible by Geely partnership support and government backing.
For the first time, the idea of a mass-market Malaysian EV doesn't feel aspirational but attainable and parked in driveways.
Chinese manufacturers are also throwing out the old playbook.
BYD has overtaken Nissan to break into Malaysia's top 10 automakers, while Chery continues its upward trajectory.
Their aggressive pricing and bundled service offerings are disrupting the established order of legacy players, forcing them to adapt or risk losing out, and reinforcing Malaysian buyers' preference for value above all.
In the wider Asean context, the EV market share grew from 9% in 2023 to 13% in 2024, with Thailand and Indonesia actively aiming to be the top EV hub, while Malaysia aims for xEVs to make up 20% of new car sales by 2030 and a bold goal of 80% by 2050.
This shows a regional competition for EV dominance, which could lead to more regional trade and robust supply chains integration across member countries.
But even as momentum builds, a crucial policy hurdle looms: Malaysia's current EV tax exemptions expire at the end of 2025.
There is, as yet, no clarity on what comes next.
Without a signal of continuity, investor confidence and consumer adoption risk stalling, echoing the early 2010s, when HEVs were first introduced, derailing momentum by removing policy support.
The success of Malaysia's xEV landscape and long-term electrification goals depend not just on product, but on stable and inclusive policy frameworks that do not alienate but fortify existing automotive supply chains.
Hybrids: From stopgap to strategic segment
While much attention focuses on EVs, the HEV segment deserves a second look.
As charging infrastructure expands unevenly and energy grid concerns persist, HEVs offer a flexible, lower-barrier entry point into electrification.
Fuel-efficient, range-assured, and infrastructure-light, they present a practical choice for cautiously optimistic adopters.
Recent global trends suggest that HEVs and plug-in EVs (PHEVs) are entering a second wind.
As EV demand begins to stabilise after its initial surge and fanfare, HEVs are quietly reclaiming ground, offering continuity where full electrification still feels uneasy, especially among those unwilling to fully rely on chargers, or who value range consistency in semi-urban settings.
The bigger insight?
Electrification isn't binary. It's a spectrum.
HEVs/PHEVs represent practical, scalable steps that can reduce emissions without overburdening infrastructure.
They offer access without demanding sacrifice, while building public confidence for deeper electrification later.
Policy must meet the moment
Malaysia's green mobility agenda is ambitious. Targets of 20% xEV share by 2030 and 80% by 2050 position the nation as a regional contender.
Good news: we are well on our way. But ambition needs scaffolding.
There's an urgent need for a post-2025 policy roadmap – one that doesn't just extend tax breaks but sets out a coherent long-term vision.
Such a framework should:
> Ensure continuity for xEV incentives, especially for local production and R&D investments;
> Include HEVs, PHEVs, and even fuel-cell EVs (FCEV) in the green transition toolkit;
> Provide clear policy signals that don't alienate existing supply chain players;
> Coordinate with Asean partners on interoperability, trade integration, and component localisation.
With Malaysia chairing Asean in 2025, the opportunity is ripe.
As Thailand and Indonesia race ahead in EV manufacturing, Malaysia's strength may lie in integration: establishing itself as the connective tissue between production, assembly, and battery innovation across the region.
Conclusion: Calibrating the climb
2025 will not be the year Malaysia's automotive market slows – it is the year it recalibrates.
Policy has always played a pivotal role, driving at the heart of purchasing decisions.
Electrification is no longer fringe, rather an unfolding reality. The winners of this next chapter won't be the loudest marketers or the cheapest importers.
They will be the ones who understand the nature of reform, who localise their offering without losing ambition, and who see the road ahead not as a straight path but a multifaceted climb towards a robust, thriving, economically and environmentally sustainable automotive industry for all.
The views expressed here are the writer's own.