Malaysian analyst Affin Hwang Investment Bank has foreseen challenges for Malaysia to embrace electric vehicles (EV).
The research house said in a report on Wednesday that the rollout of the EV infrastructure in Malaysia and for Malaysia to become a suitable EV investment destination are still facing several challenges.
In terms of EV infrastructure, it said that the government’s target of achieving the 10,000 charging stations seems challenging.
“Malaysia’s ambitious goal of deploying 10k EV charging stations by 2025, with 9k alternating current (AC) chargers and 1k direct current (DC) fast chargers, appears challenging, in our view,” it said.
According to the report, presently, there are 1.2k charging stations in operation, consisting of 1k AC chargers and 0.2k DC fast charging points.
Affin also noted DC charging stations are limited and unevenly distributed.
“The uneven distribution of DC charging stations in Malaysia is not surprising to us, as it mirrors the distribution pattern of electric car ownership that is primarily concentrated in urban and developed areas,” it said.
However, it noted that the high density of chargers within Klang Valley, often leads to under-utilization and charging stations situated along highways and in rural areas may experience low usage throughout most of the year, only to face capacity shortages during peak holiday travel periods.
This unbalanced availability of charging infrastructure can, in turn, discourage EV sales in these underserved areas, presenting a challenge to broader market adoption, it added.
While the government has outlined nine initiatives to foster the development of EV charging infrastructure Affin said limited interest among potential entrants in this sector persists, primarily due to the significantly long payback period, which can deter investment.
“We believe that the high initial costs, coupled with low utilization rates and a relatively modest rate of EV adoption present challenges with the primary concern being the extended cost recovery period,” it said.
Affin also noted the shortage of suppliers in the market for DC charging stations stems from their hesitation to enter the industry until demand becomes more established and predictable.
As a result, it sees limited charging operators venturing into this segment.
According to the report, the primary deterrent for new entrants and operators is the substantial initial investment required, which can amount to around about MYR 300,000 ($64,048) for a 200kW DC charging station.
Additionally, even with this significant upfront expenditure, charging equipment typically has a limited operational lifespan of around five years, which results in rapid capital depreciation, further impacting the return on investment for charging station operators.
Besides, EV charging operators seem far from being profitable.
Based on Affin assessment in operating DC charging stations, the revenue from a single charging point, at MYR 1.30 ($0.28) per kWh, can only reach MYR 52 ($11.1) – MYR 104 ($22.2) per day based on a 40kWh – 80kWh consumption assumption of a mid-range priced EV.
It opined that this misalignment between costs and revenue presents significant profitability challenges for charging operators, especially considering the substantial capital investments required in this sector.
While Malaysia’s expertise in the EV ecosystem revolves primarily around midstream components and collaboration with cutting-edge electronics companies, Affin recognize that the landscape for four-wheel EV production is currently dominated by only a handful of key players.
While the government actively encourages major EV companies to invest in the country, it acknowledged the intense competition in Southeast Asia, with nations like Thailand, Indonesia, and Vietnam striving to establish themselves as leading EV hubs, each offering unique incentives to attract investments.
However, considering the flexibility of MRA AP, it believed that Malaysia has the potential to capitalize on the favorable entry of global EV players, thereby bolstering production in the downstream operations of auto players.
Notably, Malaysian automaker EP Manufacturing Berhad (EPMB) obtained a manufacturing license from the government to manufacture and assemble EVs and recently sealed a partnership with Chinese automobile manufacturers BAIC and Great Wall Motors for the local production of EV and internal combustion engine (ICE) vehicles.
Meanwhile, Affin opined that protective policies in Malaysia must be removed to attract foreign investment in EV.
According to the report, policies favoring local brands, like Perodua and Proton, lead to market inefficiencies.
Stricter regulations such as the preferential treatment that foreign investors are typically required to provide, such as taking on local partners or paying substantial premiums to introduce non-local brands, can also discourage foreign investment, in its view.
However, it understands that the market liberalization will be implemented gradually with a focus on strategic segments, which include: (i) foreign director investment-friendly policies and support, (ii) accommodating employment opportunities for foreign graduates in local campuses and (iii) reduced preferential treatment.
Despite the relatively small contribution from the EV segment to the companies, Affin also foresee as potential slowdown in local players EV sales due to pure EV players’ competitive pricing and attractive after-sales package tailored for the mid-income segment.