Malaysia to Open Up To Foreign Auto Manufacturers

January 21, 2014 Posted by ASEAN Briefing Reading Time: 2 minutes

As the country seeks to regain its position as an Asian auto hub, Malaysia has eased restrictions in its auto market with foreign investors now being able to manufacture all types of hybrid and electric passenger cars, including small passenger cars.

The changes were announced on Monday as part of the country’s new National Automotive Policy (NAP). The new policy’s goal is to make Malaysia a regional hub for energy-efficient vehicles (EEV). Foreign car manufacturers that bring in cutting-edge technology for hybrid and electric cars, regardless of engine capacity and the amount invested, will receive new manufacturing licenses, grants and tax exemptions.

Previously, foreign auto manufacturers were limited to producing vehicles with engine capacity of 1800 cc and above. The move comes as Malaysia looks to surpass Thailand – currently ASEAN’s largest supplier of autos but also currently embroiled in a political crisis. Thailand has recently launched plans to manufacture small, eco-friendly cars of up to 1500 cc, as has Indonesia.

Malaysia is looking for some aggressive growth in auto manufacturing. The country has fallen behind in recent years in production numbers, and produces about 650,000 vehicles, of which about 3 percent are exported. In contrast, Thailand produced 1.3 million cars last year, with Indonesia at 1.2 million. Malaysia aims to produce 1.25 million cars by 2020 – with about 250,000 of these earmarked for export.

Malaysia was the largest car maker in ASEAN up until the early 2000’s, but subsequently lost market share to Thailand and Indonesia when those countries liberalised their markets to foreign auto manufacturers more quickly. Auto prices across ASEAN are expected to fall by up to 30 percent by 2018 due to increased competition and lower import taxes.

Chris Devonshire-Ellis of Dezan Shira & Associates comments: “The kicking in of the ASEAN free trade agreements is starting to have a huge impact in shaping the future of global manufacturing. Foreign manufacturers can now establish operations in ASEAN – often using Singapore as an investment hub – and take advantage of entering these new emerging markets.”

Executives wishing to find out if their country has negotiated Double-Tax or Free Trade Agreements with ASEAN and its member countries may search our ASEAN Briefing website here.

Malaysia, for example, has many DTAs in place, including with the United States, China and India, and with many European nations, including traditional automotive hubs such as France, Germany, the UK, and Sweden amongst several others. These DTAs can significantly reduce taxes on transactions between the parent company and the Asian plant.

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