Last week Proton manufacturer Perusahaan Otomobil Nasional was awarded the rights to distribute the new generation of the Smart Automobile Company’s electric-only vehicles in Malaysia and Thailand.
It was a toney event, almost like a premium German car event. The opening itself was politically correct with Proton’s CEO, Dr Li Chunrong gamely struggling to deliver his speech in Bahasa Malaysia.
His effort, if not his delivery, was appreciated, as registered by the grateful applause when he finished. If you’re a non-Mandarin speaker, try making a speech in Mandarin before you criticise his sportsmanship.
Ever since the government blessed DRB-Hicom’s Proton joint venture with the Zhejiang Geely group in 2017, things have been coming along for the car maker. A milestone of its journey back to glory was its sales record last month when its X-50 topped the sales chart for SUVs (or sports utility vehicles).
This is the first time that an SUV beat all other passenger vehicle configurations, and the first time that a China-derived model has topped a Malaysian monthly sales chart.
The new distributor agreement with Smart Automobile, which is a joint venture between Zhejiang Geely and Mercedes-Benz, will pave the way for Proton’s own transition to electrification.
The decision to start with the “smart” brand is commercially astute because electric vehicles are in their early days and are priced in the premium segment. Smart Automobile’s new generation is in the premium segment of the small city-car and the diminutive volume of sales will make it easier to develop the EV business.
“This is good for Malaysia” agreed a Malaysian franchise-holder of China-made commercial vehicles.
“Hope the government will be more open on the incentives to more than just Proton. Already, Proton has tremendous advantages such as government purchase, APs, and manufacturing facilities.
“A fairer spread of incentives to all the qualifying participants will encourage more investors as can be observed in Thailand and Indonesia. Rather than building up one monopoly,” he said.
And this is the rub: Malaysia’s engagement with the China car industry through the Zhejiang Geely JV is about the first in Southeast Asia and it is enjoying fertile growth.
How and where does Malaysia go from here? How does Malaysia replicate this success and create much needed employment in the high-value industrial sector and boost export earnings from manufacturing?
Proton’s success has drawn the attention of some of China’s approximately 350 car makers. Automotive conglomerates including giants such as SAIC, Dong Feng and BYD have set up national sales offices in Kuala Lumpur, giving a bit of relief to the oversupplied office property sector.
Another automotive industry participant with experience in local assembly as well as national sales said Malaysia must take advantage of its first-mover position and scale up its investment incentives to be as attractive as, if not better than, what Thailand has to offer.
“Thailand’s national automotive policy is already in phase 3. The EV3 policy incentives for 2022-2025 covers electric vehicles including motorcycles and pick-up trucks. One of the big draws for a foreign automotive investor is the conditional 13-year tax holiday,” he said.
These conditions and incentives are clearly spelt out for the enlightenment of financial advisors and potential investors.
According to KPMG’s Thai practice, the incentives generally consist of customs duty reductions, excise tax reductions, and excise tax subsidies. The incentives available are based on the battery size and the suggested retail price of the vehicles.
“The customs duty incentives range from a reduced import duty rate of 40% (from 80%) to a full exemption from import duty. The excise tax incentives include a reduction to 2% (from 8%) for passenger cars and 0% for pick-up trucks.
“An excise subsidy package is available for certain electric motorcycles, pick-up trucks, and passenger cars and is applicable to both imported and domestically produced electric vehicles.
For pick-up trucks, the subsidy is only available for domestically produced vehicles,” said the KPMG report.
For Malaysia to grow beyond Proton’s success, it has to ensure that there is a level playing field for all potential investors who meet clearly defined terms and conditions.
It is understood that there are various grants and funds allocated for automotive activities such as R&D for preferred companies. These financial and non-financial incentives must be transparent and allocated to qualified applicants and not just to the anointed few.
Regarding non-financial barriers to entry, a senior manager of one of the China car makers who started his assignment in Malaysia three months ago commented about the racial factor in government policies.
A Malaysian automotive industry friend riposted with a story about a Malaysian who had emigrated to Australia and took up a South Korean car distributorship. The chairman of the distributorship was revealed to be a white Australian male, a politically correct move for an Asian-owned company doing business in Australia.
My friend said Bumiputeraism exists all over the world in varying degrees. It’s a matter of giving face and we have to adjust so that China car companies can use Malaysia for a market as well as a base in the race to develop EVs and open a whole new world of energy disruption.
That would be the type of soft power by China that would be appreciated by Malaysians.
The views expressed are those of the writer and do not necessarily reflect those of FMT.
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