ev Malaysia

TO EV OR NOT TO EV?

The Contradictions of Malaysia’s Electric Car Policy

“When you give to charity, do not let your left hand know what your right hand is doing” is a phrase from the Bible extolling people to be discreet and humble when doing good deeds. Perfectly fine advice in a religious context, but in any other situation, a such disconnect between two parts of the same body would lead to serious problems. Unfortunately, such incidents are not all that rare in government, where goals of one Ministry are seemingly contradicted by those of another. This absurd anomaly can be best seen by our policies towards carbon reduction, climate change and the electric car market in Malaysia.

Malaysia's Pledge to reduce carbon emission

During the United Nations Framework Convention on Climate Change’s (UNFCCC) 21st Conference of Parties (COP21), which was held in Paris in 2015, Malaysia made a pledge to significantly reduce its carbon emission intensity levels. The commitment is that by 2030, our carbon emission intensity will be cut by 45 percent of 2005’s emission levels.

In fact, Malaysia’s target is the third highest in Asean, behind the Philippines’ promise to reduce its carbon emission intensity by 70 percent and Brunei’s goal of cutting it by 63 percent. And to demonstrate its seriousness in meeting this, the green economy was identified as a key economic pillar of the 11th Malaysia Plan.

More tellingly, even after the change of government in 2018, and the inevitable revision of the previous administration’s policies and plans, Malaysia still remains committed (on paper at least) to combating carbon emissions.

In fact, the present Minister of Energy, Science, Technology, Environment and Climate Change, YB Yeo Bee Yin has managed to carve a reputation for herself as a passionate advocate for the environment. Since taking office in July 2018, she has initiated a campaign to ban single-use plastics, increase the share of renewables in energy generation mix to 20 percent by 2025, and has started the ball rolling for the drafting of a Climate Change Act.

The Plague of Private Vehicles    

Of course, in order to fight climate change and bring down the size of the nation’s carbon footprint, focus should be placed on addressing one of the main culprits – fossil fuel consuming private vehicles.

Malaysia’s car ownership rate is staggering. In 2017, for example, there were around 28 million vehicles registered in the country, of which more than 13 million were cars. Given that the country’s population is around 30 million, this means that there is one car for every two Malaysians.

In fact, the country is already one of the top three automobile markets in the Asean region, despite being one of the least populated countries in the 10 nation group. With a population of just 30 million, only Singapore, Brunei, Laos and Cambodia have fewer people than Malaysia. And to further exacerbate the problem, according to Transport Minister YB Loke Siew Fook, Malaysians are expected to make 131 million daily trips by car by 2030, up from 40 million in 2010.

Already the negative effects of having that many cars – that many petrol-burning cars – on the road are being felt in the form of air pollution. Yes, the yearly haze problem may very much be the result of smoke from forest fires in Indonesia crossing into the country, but cars are not doing anything to help.

As reported by the New Straits Times in March 2019, Universiti Putra Malaysia (UPM) professor Dr Mohd Yusoff Ishak highlighted that incidents of haze have occurred during periods that were previously haze free. For the lecturer at UPM’s Department of Environmental Management, this unwelcomed phenomenon can be attributed to “our dependency on private vehicles.”

There are two main reasons behind Malaysia’s high car ownership rates. First of all, Malaysians are relatively affluent compared to many others in the region, with only Singapore and Brunei having higher per capita income. Thus, more people in the country can afford to buy cars (even though Kuala Lumpur is reportedly the fifth most expensive to buy a car in the world) as opposed to those in Bangkok, Jakarta and Manila.

The other reason is that most people NEED to have their own cars  Yes, the Ministry of Transport is focused on promoting public transport, as seen in the National Transport Policy which was launched this year. And yes, increased use of public transport can help lower carbon emissions and address the problem of air pollution.

However, public transport in the country is highly unreliable. Outside of the Klang Valley, many parts of the country do not have adequate bus or mass transit systems. And even inside the Klang Valley itself, last mile connectivity is quite lacking. So, people have no choice but to use private vehicles.

An Electric Solution  

While it is all very good to talk about improving public transport options; that can only be achieved in the long-term. The problem of air pollution, and how private vehicles are contributing to it, is one that requires a more immediate solution.

The answer is electric vehicles (EVs), which do not require fossil fuels to run and therefore do not add as much to the carbon footprint as conventional vehicles. A study by Northwestern University in the United States reported that increased EV usage can help significantly improve air quality and consequently reduce health problems caused by air pollution.

Malaysia, apparently, wants to encourage the use of EVs and other energy efficient vehicles (EEVs). This is the stated in the National Transport Policy, which – among other strategies – aim to “accelerate implementation of low carbon mobility initiatives.”

This is further supported by MESTECC, through its agency the Malaysian Green Technology Corporation (GreenTech Malaysia), which operates the ChargEV charging network. Presently, there are more than 200 ChargEV stations in Peninsular Malaysia, with more in the pipeline.

What’s more, using the charging stations is free, with users having only to pay an annual subscription of less than RM250. Granted that petrol can cost at least RM200 a month, this means that EV owners can enjoy significant savings in fuel costs.

In addition, Deputy Transport Minister Kamaruddin Jaffar announced during at the Dewan Negara in April 2019 that the government is looking at reducing road tax for EVs and plug-in hybrid vehicles by 50 percent.

Malaysia Electric Car prices

Priced out of the Market  

So, on the face of it, it does seem that the government is working to encourage the take up of EVs and EEVs in Malaysia by improving infrastructure and reducing maintenance costs. And, of course, as aforementioned, they bring great benefits to the environment and public health, as well as helps address the thorny issue of fluctuating fuel prices.

So why isn’t there a great rush by the general public to purchase EVs and EEVs? Why are throngs of people not lining up at the dealerships of automobile companies that sell such vehicles in Malaysia, clamouring to buy one?

Because They Are Too Expensive!

For instance, the all-electric BMW i3s (which incidentally is just one of three EVs available in Malaysia) retails at around RM278,800 before tax. In comparison, the petrol-driven BMW 118i M Sport, which is also a hatchback, goes for RM188,800. Thus the i3s has a premium of around RM90,000.

Another example would be Nissan Leaf. Presently, the price of the Leaf in Malaysia is RM188,888. On the other hand, the Nissan Almera sedan is selling for RM69,888 – a difference of RM119,000.

So, while initiatives such as offering free charging and reducing the road tax of EV and EEVs may seem nice, they do nothing to incentivise people to buy the cars. Because, the fact of the matter is that the savings accumulated from not having to pay for fuel and the lower road tax during the average 10 year lifespan of a car is significantly lower than the difference between the price of the petrol car and the EV.

Granted that EVs and EEVs around the world are usually more expensive than fossil-fuel burning cars owing to the advanced technologies needed to build one. However, in European countries – namely Germany, the UK, France, the Netherland, and Norway –  the total cost of ownership (TCO) of EVs and EEVs is lower than a conventional petrol car. This is attributable to a number of factors including the high cost of petrol in those countries and tax breaks and subsidies given by their governments to encourage people to go electric.

Malaysia is a different story however. Petrol costs in the country is among the lowest in the world. And instead of offering proper and attractive incentives to would-be EV buyers, heavy excise duties from 75 percent to 105 percent are imposed of all private vehicles in the country.

So, not only are imported EVs expensive because of the weak ringgit exchange rate, they are made even more so by the exorbitant excise tax which, in some cases, can double the price of the vehicle.

The Great Disconnect  

And this is where we go back to the issue of the right hand not knowing what the left hand is doing. On one hand, we have MESTECC and the MOT that are purportedly championing the cause of EVs and EEVs in the country. Then on the other hand, there is the Ministry of Finance – the decision maker for taxation and excise in Malaysia – and (to use a colloquialism), they do not seem to have gotten the memo that national policy is to go green.

Because, rather than try and expedite the entry of EVs into the country, the decision to continue to impose excise duties on such cars is pricing them out of the market. Little surprise then that as of March 2019, a total of just 5,403 EVs were registered in Malaysia. And it also comes as little surprise that out of the 13 marques present in Malaysia that have an EV, only three models are being sold in the country – the aforementioned Nissan Leaf, BMW i3s and the Renault Zoe.

Further demonstrating this disconnect between the various government bodies is the Green Technology Master Plan Malaysia which states, “To bridge the higher cost of ownership for private purchase or running relevant programs with EV, incentives such as tax exemption, purchase subsidy, tax incentive or special program execution fund or grants should be introduced as a catalyst.”

Theorising the Rationale 

Perhaps the best example of how effective tax incentives can help boost the take-up of EVs in a country is that of Norway. The Scandinavian country is unique in the sense that it has the highest of EVs in the world per capita.

And for good reason too, because EVs there are exempt from the 25 percent value-added tax (VAT), from registration tax, from fuel tax, from weight tax and are either exempt from tolls or pay heavily discounted prices. Fossil fuel cars, on the other hand, have to bear the full brunt of the charges, which means cost of ownership is higher even though their initial prices might be lower than an EV.

So why doesn’t the MoF scrap the excise duties for EVs, when encouraging their take-up is part of government policy? For one thing, it is a huge revenue earner, bringing in more than RM5.8 billion in 2019. Therefore, perhaps the reluctance to do so comes from the possible loss of earnings. But then again, even if the excise duty on EVs is abolished, the government is still able to collect excise duties from conventional vehicles.

One suspects however that the reason for the MoF’s reticence has to do with the fact that Malaysia aims to manufacture its own EV, which is slated to hit the market sometime this year. Just as how the formation of Proton back in the 1980s resulted in the current high excise duties that were aimed at protecting the fledging automobile manufacturing industry, the same tactic seems to be making its comeback for electric vehicles.

The Return of Protectionism? 

It is definitely unfortunate if that is the plan because, as the trials and tribulations of Proton over the years have shown, protectionism does not work. Rather than strengthening it, the complacency that came from artificially induced market domination resulted in the national car brand being unable to effectively compete when the market was liberalised. And after more than RM350 billion of tax-payer funded bailouts, Proton had to be rescued by China car maker Geely.

The other problem is that while high excise duties may mean that the locally-produced EV will be cheaper than its imported counterpart, it will definitely be more expensive than petrol-fuelled cars as the cost of manufacturing an EV is, as mentioned, considerably higher than a conventional car. Therefore, whether or not there will be significant take-up of the car is debatable.

Part of this doubt is because there isn’t an established market for EVs in Malaysia, as the pathetic sales figure of 5,403 units demonstrate. It should be noted that before the first Proton Saga rolled off the production, there was already a demand for cars in Malaysia. Proton did not create the demand, it just benefitted from it by cornering the market.

So moving forward, there are many reasons as to why electric vehicles in Malaysia should be made less expensive. Environmentally – because fossil fuel burning cars are the single biggest cause of air pollution in the country. Socially – because carbon emissions from cars are causing health problems for Malaysians. Economically – because it will encourage demand for EVs, and boost the market in the future. And because it will demonstrate a firm commitment by the government to fight climate change. After all, it is no point railing against the perils of plastic when the sky is choked with the fumes of electric dreams that have been set in flames.    

Call us at 03-77325886 or email us at marketing@ibrasiagroup.com for more information on the Green Champion feature of the International Business Review.

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