This piece is published as part of PEMANDU Associates’ thought leadership series. The views expressed are the author’s own, presented to contribute to public policy discourse, and do not constitute the institutional position of PEMANDU Associates or any of its clients.
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In one year, Malaysia’s EV market doubled. According to the Department of Statistics Malaysia, EV registrations rose from 21,789 units in 2024 to 44,813 in 2025, as cheaper imported models finally made EVs affordable for middle-income Malaysians.
Then, in five months, the policy landscape shifted.
The new rule now requires any fully imported EV (Completely Built Up – CBU) must carry a minimum declared cost of RM200,000 and produce at least 180kW of power. In practical terms, this pushes the minimum retail price to at least RM300,000 after duties, taxes, and margins.
Separately, new conditions on locally assembled EVs (Completely Knocked Down – CKD) introduced an 80 percent export requirement, a mandatory paint shop, and a cap on domestic sales volume for any manufacturer setting up a new plant after September 2025, unless they choose to assemble through existing facilities via local partners.
Malaysia’s Ministry of Investment, Trade and Industry (MITI) frames this as developmental rather than protectionist, intended to move Malaysia up the EV automotive value chain. The question is whether this is an industrial strategy disguised as protection.
A policy at war with Malaysia’s own net-zero roadmap
Malaysia’s premise is reasonable: a country serious about building an automotive industry cannot simply remain a destination for other people’s exports indefinitely.
What it does not fully account for is who bears the cost of the transition, especially for the B40 and M40 households.
Malaysia’s National Energy Transition Roadmap (NETR) sets a target of 20 percent EV share of total industry volume by 2030, rising to 80 percent by 2050.
In 2025, EV penetration sat at roughly 5.5 percent. Reaching 20 percent in five years requires roughly quadrupling the current rate of adoption. This, however, is a steep ask given that the affordable import segment that drove the recent growth has now largely been removed, and where the CKD supply chain needed to replace it will take years to reach comparable scale and price.
The NETR target and the import policy were produced by overlapping agencies, and they are now pulling in opposite directions. A transformation effort cannot succeed when its policies are misaligned with its True North. If Malaysia’s True North is simultaneously to build a globally competitive EV industry and accelerate transport decarbonisation, then the current policy architecture appears to be optimising for one objective while slowing progress on the other.
For comparison, Vietnam tripled its EV market share to 28 percent within four years by keeping affordable options in the market while simultaneously building a domestic champion, which is proof that industrial ambition and climate trajectory do not have to be traded against each other.
The cars most Malaysians can afford just disappeared from the market.
Malaysia’s median household income is RM7,017 per month. Using the common rule that a car should cost no more than one year of household income, the “comfortable” price range for most Malaysians is around RM84,000.
The minimum price at which any foreign brand may sell a locally assembled EV is RM100,000. Proton and Perodua have never been subjected to that floor, which means the only players permitted to compete in the segment that most Malaysian households can actually afford are the two national car makers.
With limited competition, this market structure is unlikely to produce competitive pricing or rapid product development. This is especially concerning at a time when households are adapting to rising costs as the result of fuel subsidy rationalisation.
The households most exposed are the bottom 40 percent by income (B40) and lower half of the middle 40 percent (M40); groups for whom housing, utilities, food, and transport already account for more than two-thirds of monthly expenditure, according to DOSM’s Household Expenditure Survey 2024, leaving limited room to absorb any further cost pressures. For many of them, an affordable EV would have provided meaningful long-term savings.
Elsewhere, the contrast is stark. In Thailand in 2024, the average price of a Chinese EV fell below the average price of a conventional petrol car, with entry models starting at approximately USD 12,500 (~ MYR 50,000), against RM100,000 floor in Malaysia.
This does not serve the nation, especially when Malaysia’s urban development model was built around cars. Shah Alam, Putrajaya, and Cyberjaya are some examples where private vehicle use is a structural necessity, and most commuter corridors where Malaysian households live and work remain beyond the reach of the light rail transit (LRT) network.
The practical consequence is that reducing EV affordability does not shift people onto trains. It simply prolongs petrol vehicle dependency at a time when maintaining fuel subsidies is becoming increasingly challenging.
For investors, this reinforces the importance of stable and predictable policy environments. Factory commitments, component localisation, and workforce development take years, not months. As a result, manufacturers choose investment locations based not only on current policies, but on whether those policies are likely to remain stable.
Malaysia’s incentive framework for EVs has moved in either short cycles, renewed late, or with conditions shifting between announcement and implementation. The CBU duty exemption alone was extended twice before lapsing without a replacement framework in place, leaving distributors and consumers to plan around a deadline that had moved before finally holding. But the kind of transformation Malaysia claims to be pursuing, such as moving up the value chain and building sovereign industrial capability, requires a policy environment that does not surprise its intended beneficiaries.
Protectionism as a tool, not a verdict
These costs do not, by themselves, settle the argument. Protectionism is undoubtedly a legitimate tool, but what matters more is its design, and whether Malaysia’s design matches the transformation ambition it claims.
South Korea built its automotive industry behind protective walls in the 1970s and 1980s, but the protection was structured around a specific condition: that the beneficiaries would eventually have to compete without it.
Hyundai was not simply shielded from foreign competition. It was also pushed, through deliberate policy pressure, to invest in engineering capability, to develop its own platforms, and to prove itself in export markets where no protection applied.
The domestic market was the training ground, not the destination. Today, Hyundai-Kia is the world’s third largest automaker by sales, and South Korea is sufficiently confident in the competitiveness of its domestic industry that it has allowed Chinese EVs to enter as standard imports, with no special conditions and no price floors. BYD entered the Korean market in 2025 and has been gaining share, and yet, Hyundai has not collapsed.
Malaysia’s experience with the same protectionist tool produced a different outcome. Proton, through import duties and approved permit restrictions imposed upon foreign car brands for decades, was insulated from the competitive pressure that the South Korean policy had deliberately applied to its own champions. The protection then worked in the narrow sense that Proton survived. The current policy is closer in character to that experience than to South Korea’s. The CBU floor and the greenfield CKD conditions preserve the domestic market for national brands but contain no visible mechanism requiring Proton and Perodua to become competitive enough to not need that preservation.
The conditions that make protection work
The argument here is not that Malaysia should have simply opened its market and absorbed whatever followed. Thailand and Indonesia arrived at broadly similar industrial objectives through mechanisms that kept consumer access intact while still compelling manufacturers to invest locally.
Thailand, which has no domestic brand to protect, introduced a production ratio requirement: manufacturers wishing to sell competitively priced imports were required to produce locally at two units assembled for every one imported, rising to three to one by 2027. BYD responded by building a 150,000-unit factory in Rayong, employing over 6,000 people and exporting across ASEAN and beyond.
Indonesia on the other hand, required manufacturers to post a bank guarantee equivalent to the duties they would have owed, redeemable only upon meeting production commitments. Nine global brands committed, approximately USD 950 million was pledged, and 281,000 units of annual capacity are coming online.
In both cases, the industrial outcome was achieved without a price floor and without conditions that varied depending on when an agreement was signed.
A commitment-based structure, whether through production ratios or financial guarantees, creates the same investment incentive as a market restriction, while leaving the price environment intact for buyers.
If Malaysia is serious about a genuine industrial transition, alternative pathways do exist. A foreign brand opting for contract assembly instead of building its own plant does not produce local long-term talent capability and technology knowledge transfer. While Malaysian content does sit at around 76 percent, that figure refers mostly to body panels, seats, wiring and final assembly, not to the parts that define the car as an EV — the software stack, the battery management system, as well as its platform architecture, all of which remain the IP of the original manufacturer.
The result? Malaysia’s role in the value chain remains what it was before: screwdriver integration at the end of someone else’s supply chain.
The cost that does not show up as failure
Protectionism is not, in itself, the problem. Every country in this comparison protects its automotive interests in some form. In fact, the United States has effectively closed its market to Chinese manufacturers entirely. The European Union applies tiered tariffs calibrated by manufacturer. The tool is not the issue.
What distinguishes successful protectionism from unsuccessful protectionism is whether it was designed with an exit condition, a point at which firms are eventually expected to compete on their own after developing the capabilities the protection was meant to build.
The CBU price floor and the CKD own-plant conditions preserve market space for national champions but contain no mechanism that requires those champions to earn it. While the intention may be genuine, the cost is larger than it appears — one that a transformational industrial policy cannot afford, because the deep capability transfer Malaysia is pursuing is unlikely to materialise any time soon.
Nevertheless, foreign car makers will continue to adapt, and Malaysia will likely progress, albeit it being business as usual, much as it has before.
The industry will survive, and the market will grow, slowly. Slowly is the operative word. Against peers who have moved faster. The true cost is not failure, but the non-arrival of the industrial objectives. The ambition is transformation. The current policy, however, still looks more like preservation.
Author:
Nazirul Ibrahim
Senior Manager
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