Greater impetus is expected to be given to energy efficient vehicles under the revised National Automotive Policy scheduled to be announced in mid-January.
At the same time, the government is expected to continue backing the national car project but not at the expense of other local and foreign players.
The major policy document will set the direction of the automotive industry for the next decade and is also expected to address the approved permit (AP) system and the duty-exempt status of hybrid cars after 2013.
This was sounded out by International Trade and Industry Minister Datuk Seri Mustapha on the sidelines of the recent 4th Kuala Lumpur International Conference.
According to Mustapha, the revised NAP will focus on making the country an EEV hub in the region by 2020.
Earlier in his keynote address, he said Malaysia's focus is not only on EEVs but will also encompass the whole auto green lifecycle.
"If we are competitive in the energy efficient and ecofriendly vehicle segment, we should be the regional leader. We have the right combination of skills and resources to support investments in this area," he said.
According to Malaysia Automotive Institute (MAI) chief executive officer Mohamad Madani Sahari, government backing will be skewed towards enhancing the national car manufacturers' competitiveness and efficiency.
Answering questions during the CEO Roundtable on "The Future of Malaysia's Auto Industry" at the conference, he said this is to enable the national car manufacturers to lower their costs of production, thereby enhancing their competitiveness and efficiency.
However, he stressed that Malaysia's overall policy is to support and enhance the entire automotive ecosystem so that it will benefit both local and foreign players in the country.
Madani said both the two national car companies - Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd (Perodua) - have designed their own transformation plan to shape their future.
UMW Holdings Bhd chairman Tan Sri Asmat Kamaludin said during the roundtable discussion that Proton and Perodua have created more than 270 vendors and 200,000 jobs, and collectively, they spend RM8 billion annually to buy parts from local suppliers.
Perodua managing director Aminar Rashid Salleh, in charting Malaysia's future direction, said the country has to complement other Asean countries rather than compete with Thailand and Indonesia to attract investments.
Increased competition from the importation of completely build-up (CBU) vehicles has resulted in the market share of Proton and Perodua to fall from 80 per cent in 2002 to 55 per cent in 2012.
This has led to a trade deficit of RM16 billion last year as the total exports of local automotive products amounted to only RM5.2 billion compared with total imports of RM21.8 billion.
The auto industry contributed 3.2 per cent to the country's gross domestic product in 2012, which is expected to increase to 10 per cent in 2020.
The question is, will the revised NAP be attractive enough to attract global manufacturers to invest and make Malaysia the EEV hub in the region.
Thailand already has a headstart, offering incentives as early as 2007 under the first phase of its investment promotion scheme for Eco-Car manufacturing.
Under the incentives, projects of a minimum investment value of about US$145 million have been offered corporate income tax exemption of eight years, along with duty-free importation of machinery.
The Thai Finance Ministry has also reduced the excise duty from 30 per cent to 17 per cent on eco-cars that have engines smaller than 1,300cc for petrol engines and 1,400cc for diesel engines. The cars are dubbed as "Eco" as the cars need to pass stringent environmental, safety and fuel economy regulations such as running fuel on 20km/L.
The programme attracted investments of TB28.8 billion (RM2.9 billion) from Mitsubishi, Honda, Toyota, Nissan and Suzuki, producing a combined annual capacity of 585,000 units.
Many of them have started production, with a production target each of more than 100,000 units annually as the Thai government stipulates that production volume needs to reach 100,000 units in five years.
Thailand's Board of Investment has now set March 31 next year as the deadline for companies to submit investment plans under phase two of its Eco-Car programme.
The excise tax structure for Eco-Car 2 vehicles will be lowered from 17 per cent to 14 per cent, while those that are E85-capable will enjoy an even lower rate of 12 per cent.
The Thai government predicts annual eco-car production will soar almost 60 per cent to 935,000 units within five years as next year’s second phase of its promotion of high fuel efficiency, low emissions cars attracts new investment in small vehicles.
The car makers plan to export at least 50 per cent of their production, especially Honda and Suzuki, and make Thailand their export base for the region and for newly emerging markets.
Mazda is now conducting a viability study into taking part in phase two of the Eco-Car project while Nissan is planning to build a second eco-car in Thailand, following the success of its B-segment March (Micra) global hatchback.
Toyota Thailand is also keen to apply for its second eco-car licence before next year's March 31 deadline, as its newly launched Yaris sport hatchback meets the specifications of the Eco-Car programme, while Mazda, Ford and Volkswagen are likely to enter the next race along with Mitsubishi, Honda, Nissan, Suzuki and Toyota for a second eco-car licence.
Mitsubishi has expressed interest in taking part in the Eco-Car 2 project since it has already developed vehicles that fit the requirements, such as Euro 5 emissions and CO2 levels of under 100gm/km.
Likewise, Indonesia has its Low Cost Green Car (LCGC) programme where Japanese manufacturers dominate with the Toyota Agya and its sister model, the Daihatsu Ayla; the Datsun Go and the Go+; the Honda Brio Satya; and the Suzuki Karimun Wagon R.
While Thailand's Eco-Car programme has clear requirements on investment amount and production volume in exchange for various incentives, the LCGC programme has a car price ceiling of around 9.5 million Rupiah (RM25,000) to indirectly induce local production.
The technology level required is considered slightly lower than the Eco-Car programme, which has requirements on emission standards (Euro 4 and CO2 emission less than 120g/km), adding to the fuel efficiency standard (both at more than 20km/l).
The technology gap is also apparent compared with the second phase of the Eco-Car programme (Euro 5 and CO2 emission of less than 100g/km; fuel efficiency of 23.3km/l), with limitation of 1,200cc petrol and 1,500cc for diesel engines.
Against this backdrop, Malaysia's policy makers have a daunting task to realise special incentives to promote the country as an EEV hub to investors.
As Aminar Rashid suggested, it's better for drafters of the revised NAP to come out with clear cut policies to complement other Asean countries rather than compete with Thailand and Indonesia for a piece of the EEV pie.
A complementary strategy is far better than playing catch up with our Asean neigbours, which have the advantage of starting early, liberal ownership structure, liberal taxation policies and a bigger populace for a bigger market.
As it is, Malaysia has yet to come out with clear cut policies on the goal of becoming an EEV hub in the region.
The duty-exempt status of hybrid cars up to 2-litre capacity, done on an ad hoc basis, is supposed to end at the end of 2013. So far, we have seen Honda assembling its Jazz Hybrid at its Pegoh plant in Melaka. Toyota is expected to follow suit soon with its completely knocked down (CKD) Camry Hybrid.
Besides the Honda Jazz Hybrid, others that qualify on the current exemption front are the Toyota Prius and Prius c, as well as the Honda Insight, Civic Hybrid and CR-Z. All are imported units, as is the Audi A6 Hybrid, which also qualifies as it is just under the 2.0-litre capacity ceiling.
As for commercially available electric vehicles (EVs), there’s the Mitsubishi i-MiEV and Nissan Leaf.
Indications are that the current duty-exempt status for imported hybrids may not be renewed after 2013, that the drafters of the new NAP at the most are only prepared to retain the status quo for CKD hybrids.
As it is, we are still unable to draw auto giants to set up base in the country to produce EEVs. What next? Are we already too late as we head towards this goal. This is the dilemma that drafters of the revised NAP have to face? What sort of goodies to give to further lure the auto giants?
Then again, we have yet to come out with a clear definition of what constitutes an EEV. Is it based on fuel efficiency, low carbon emissions or a combination of both.
This was the question posed by Datuk Ben Yeoh, the managing director of Bermaz Motor Sdn Bhd, the exclusive distributor of Mazda vehicles in Malaysia, at the launch of the Mazda CX-9 and Biante.
Does the definition of an EEV include fuel efficiency and low carbon emissions? If it does, then Mazda's Skyactif technology would qualify as it is reknowned for its progress in this area to encompass, in the words of Mustapha mentioned earlier, "the whole auto green lifecycle".
This was also echoed by Tetsuya Oda, chief executive officer of Mitsubishi Motors Malaysia, at the launch of the all-new 1.2-litre Mitsubishi Attrage, Malaysia’s first B-segment eco-sedan in the market, with outstanding fuel efficiency.
Oda hoped that the government would continue to provide incentives for the development of Malaysia as an EEV hub.
Whatever it is, it will not be an easy task for Malaysia in the face of stiff competititon from its Asean neighbors.
However, Thailand may have reached its optimal level in terms of infrastructural capacity and in the wake of natural disasters like the 2011 flood destruction, auto giants are having a re-think and looking to other emerging economies to expand their production capacity.
If we manage to lure some of them to expand their production capacity in Malaysia, it will give further impetus to the alternative of developing Malaysia as a hub for automotive vendors to become world-class component makers and suppliers to global automotive giants, complementing the advances of its Asean counterparts. For this to happen, a cluster of auto makers is required for the vendor sector to further mushroom.
Much will depend on whether the revised NAP will further liberalise the Malaysian automotive landscape for a much level playing field for all, whether local or foreign.
It will be interesting to see what the drafters of the NAP will be able to come up with come mid-January to chart Malaysia's automotive strides in the next decade.