Tariffs, incentives hinder 3rd national car project

Some OEMs are asking for lower excise, but such terms are difficult to be fulfilled


THE third national car project could hit a snag as differences over incentives, grants, tax exemptions and investment returns may prolong the search for a viable partner.

Industry sources told The Malaysian Reserve that the differences, especially on incentives and grants, have held up negotiations as the country seeks to secure a key strategic partner to develop the third national car project.

“The government is asking the carmakers to share platforms with a local partner. The car manufacturers wanted to know what they would get in return. Sharing platform could be equal to sharing intellectual property.

“They want greater benefits in return to justify the collaboration,” said an industry source, who declined to be named as negotiations are ongoing.

The government has proposed a third national car project as a key component in developing critical engineering talent. The project will be fully funded by the private sector and would focus on the Asean market.

But most major carmakers are already present in the Asean market, a region which offers a huge potential, especially with rising income of its over 600 million population.

Investment in the car manufacturing business is also expensive, requiring billions in capital injection. Malaysia is not the only country which is eyeing the lucrative but competitive automotive market.

Vietnam’s conglomerate Vingroup recently opened a factory that will see the production of the country’s first automotive brand. Vietnam, which is one of the fastest-growing economies in the region, hopes to capitalise on the expanding middle class who has a rising appetite for cars.

Talks over the new national car project were supposed to be wrapped up at the end of May with a few companies shortlisted.

The source said some original equipment manufacturers (OEMs) are asking for lower excise duties on their locally assembled cars, but such terms were difficult to be fulfilled.

The source said there were also worries that the local total industry volume (TIV) may not be sufficient to support the prospective investment.

“The TIV is stagnating. It is like ‘I eat your (market) share, and you eat my share’. The product must reach critical mass for it to be competitive. If it is just 2,000 units a month, then, it is nothing,” the source added.

The target of selling the third national car regionally would mean that the potential partners have to realign and adjust their strategies and business structure to suit the project.

“What is it for them if they make the third national car and compete with their own current brand? It will cannibalise their own products.

“It would be better for them to put their resources in other areas in neighbouring countries which might have a bigger volume than Malaysia,” the source added.

Local carmakers sold almost 600,000 vehicles last year. For the first five months of 2019, the TIV reached almost 254,000.

Total car sales for the six key markets in South-East Asia — Thailand, Indonesia, the Philippines, Vietnam, Malaysia and Singapore — reached a record 3.57 million units last year.

Carmakers sold 1.04 million units in Thailand, while Indonesia registered 1.15 million units.