Brutal Reset Needed For Auto Policy

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The recent announcement that the Vinfast group of Vietnam will build a US$2 billion electric vehicle (EV) factory in the US should make Malaysia’s wanna-be leaders scratch their heads in bewilderment.
Vietnam’s rapid accession into EVs overshadows the recent news about arrests by the Malaysian Anti-Corruption Commission of several business people and individuals involved in the nation’s automotive policy.
Beyond these two events, there are many factors that will force thoughtful Malaysian politicians to reconsider the assumptions that underlie the existing automotive policy and draft a new policy that will create the vibrancy of the automotive industry in Thailand, Indonesia and Vietnam.

All this is based on the undeniable assumption that the automotive industry creates modern, high-value added jobs and foreign exchange earnings.
Malaysia gave away its chance to be the “Detroit of Asia” (Thailand took that crown) when it embraced the national car project and left the rest of the industry to scramble for the remaining 30% of the 600,000 car a year market.
That, plus a few half-baked National Automotive Policy (NAP) revisions which only served to perpetuate unhealthy protectionism, led to our neighbours drawing more automotive investments.
Perhaps the government should revert to having the international trade and industry ministry (Miti) as the sole automotive policy maker, with the support of its agency, the Malaysian Investment Development Authority (Mida).
Mida is already playing a key role in drawing foreign investors in addition to its role as custodian of incentives for investors. It is successful because there is a lot of transparency in the awarding of incentives, grants, tax exemptions, and key expat posts that meet certain criteria. Foreign investors prefer a one-stop agency model rather than different agencies (e.g. like MARii) interpreting and setting its own agenda and policies.
Mida has a tremendous amount of goodwill accrued over its long tradition of nurturing the industrial development of Malaysia and attracting foreign direct investment.
This is primarily due to the fact that Mida officers work closely with the manufacturing sector. Mida’s board positions comprise selected captains of industry so that government ideals are balanced with reality.
When it comes to cross-border policies regarding the automotive sector, and the policy driven matters such as those for regional trade blocs like the Asean Free Trade Area (AFTA), FTA and more recently, the Regional Comprehensive Economic Partnership (RCEP), Miti and Mida have the people and experience to handle it.
How does one handle the current situation of a less than robust NAP which has been criticised for lack of long-term vision, non-transparency (customised incentives) and lack of urgency of the civil servants implementing the auto policy?
It wouldn’t be rocket science for Mida to develop a package of incentives to turbo-charge Malaysia’s automotive industry, says an industry participant who was a former civil service officer.
“All you need to do is collate and compare the automotive policies and incentives of Thailand, Indonesia, and Vietnam. Miti and Mida have to set up an auto industry task force, go back to the key OEM (original equipment manufacturer) brands with operations in the country, and fine-tune the NAP policy with the OEM brands’ long-term vision.
“An NAP policy is only good if it is in sync with manufacturers’ models and tech upgrades (more than eight years is common). Our current NAP has its flaws on some policies, especially tax rebates and EV duty exemptions being planned for two years or less.”
Malaysia must make haste. World carmakers will have about 30% of their cars electrified by 2025 and this process will filter down to emerging economies and the supply chain just three years away.
With AFTA in place and the more recent ratification of the RECP by Malaysia, Miti will need to quickly cobble up a winning package of policies and incentives to create more high-value jobs beyond low-tech CKD auto assembly.
The manufacturing of EVs will create jobs in artificial intelligence, Internet-of Things, electric drive motors, traction motor batteries, blockchain technology, telecommunications, and cloud computing among others.
With Penang being up on the IT and chip-testing value chain, Malaysia needs some realistic policy realignments for its automotive sector to regain traction and compete for EV market share worldwide. - FMT
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.

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