November 2022 Issue

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A little more than a week ago, I touched down in New York City for a few engagements with family offices and a host of venture capitalists. Kicked things off with tete-a-tetes to bring these investors up to speed, set things right and then consider a few issues and incidents. The last time I was in The City of Dreams was before the nightmares of Covid-19 occurred. This time I was on an assignment and was struck by how disconnected the narrative is from what is happening in the less fairy-tale land.

While the US government and corporations bang many of us over the head with endless sustainability, charging-station, and battery-operated narratives, I sat in the yellow taxi stuck in New York’s traffic, contemplating whether this developed world has given up on gas-guzzlers and if the country’s citizens would trade-in their diesel-consumed Chrysler with battery-powered Volkswagen or part-exchange fuel-pumped Lincoln with plug-in hybrid Prius. Does it really make sense to lead the green movement and force Asia and Europe into high-speed transformation mode while much of its developed and populated corners are still half a century away from green grids and modern in-action infrastructure for a truly smart city?

The lesson that I have learned from this battle with the city’s gridlock is that governments and corporate boards need to move out of liberal-populism land and deal with some hard facts that move within the borders of our daily life, evidently near facts. Pun intended.

To turn things around, we will need some inventive government policies and corporate commitment. We can speed up the transition by adopting policies that encourage citizens to buy electric vehicles and creating a network of charging stations so they are more practical to own. A nationwide pledge can help propel the supply of cars and drive down costs. The City of Dreams should emulate The City of Roses, California, which has committed to buying only electric buses by 2029 and banning the sale of gas-powered cars by 2035. Several countries in Asia and Europe too have announced goals to phase out fossil-fuelled vehicles in stages over the coming decades.

“To run all these electric vehicles we dream of having on our road, we would need a lot of clean electricity – a chief cause why it is imperative to deploy renewable sources and pursue breakthroughs in energy generation as well as storage. Electric vehicles are only as clean as their power supply!”

The readers of this newsletter could take a cue from the team at Penjana Kapital as they drive our attention and set our sights on another thematic release this month with the Electric Vehicles issue. But before you continue reading the imprint, I wish to share a few parting thoughts.

These questions are not to turn up the heat on the issue of sustainability. I want to point out the cold hard truth. For us to transition to a sustainable economy, we need to green the grid, fix our food system, and turn around how we travel.

“With climate challenges and costs lying ahead, we’d be firing up the presses and speeding up the transformation, now.”

Electric Vehicles (“EVs”) are expected to see tremendous traction over the next few years. The ASEAN EV market is envisaged to reach $2.6 billion by 2027, which translates to a CAGR of 32.7% from 2022 figures. This is mainly contributed by the demand from both public and private sectors for more sustainable and environmentally-friendly mobility solutions. Asia’s transport sector, one of the largest sources of greenhouse gas emissions, will need to play a pivotal role in driving this change.

Nonetheless, when it comes to Malaysia, our EV penetration is still very much lacking compared to our peers, with EV adoption standing at only 0.3% in 2021. Pivoting from internal combustion engine vehicles (“ICE”) to EVs requires a holistic approach and a complete ecosystem (much like our VC space). It requires all stakeholders, be it government, corporates or end users, to support the growing adoption. In other words, it requires demand to be cultivated by the necessary infrastructure and logical cost-benefit analysis.

Malaysian drivers are clearly interested in adopting EVs, especially due to its lower carbon emissions, lower interior noise and vibration, the convenience of home charging and lower dependency on fossil fuels, a depleting natural resource. However, a few factors still hinder the mass-market adoption of EVs in Malaysia.

While the cost of charging an EV might be relatively cheaper than refuelling an ICE from a charging vs fuelling standpoint, in the case of Malaysia, our petrol prices are still heavily subsidized by the government (Malaysia ranks among the top 10 nations with the lowest fuel prices in the world). This diminishes the attractiveness of EVs in terms of cost savings. However, fuel subsidies remain a contentious issue as they contribute a large portion of our government expenditure, putting its sustainability in question. As the government phases out fuel subsidies, owning an EV becomes more attractive.

However, it is also important to consider that the lower charging cost also comes with very long charging times. Depending on the EV model, type of charger used, i.e., AC vs DC, and level of charger, charging time can take up to 7 hours to charge an EV to its full capacity. Nonetheless, advances in EV charging technology have led to the invention of DC fast-charging, capable of charging EVs to their full capacity much faster than their counterparts. Effective implementation of DC fast-charging stations is, therefore, one of the key components to enable high EV adoption in any country. And this is where Malaysia is playing catch-up.

Unlike its closest neighbours, Malaysia still lacks sufficient charging stations to lure consumers towards EVs (even after considering population size). As such, proper studies that consider the exorbitant procurement and installation costs of DC charging stations, EV charging patterns and hotspots, and the feasibility of our current electrical infrastructures are needed. Only then will our “range anxiety” problem be solved.

Malaysia EV Market Size

According to the Malaysian Automotive Association, Malaysia sold only 274 battery EVs from a total industry volume of 508,911 vehicles in 2021. The brands that dominate domestic EV sales include BMW (48% of cars sold), Volvo (22.7% of cars sold) and Porsche (12.5% of cars sold). Based on the Malaysian Green Technology and Climate Change Corporation, there were only 3,919 EVs (including cars, motorcycles and buses) on the road as of June 2022.

Based on the above, most EV cars sold came from the market’s premium segment, showing that adoption is only available to the top earners in Malaysia. For context, the cheapest EV from the abovementioned marques is the Volvo XC40 priced at c. RM262,000. It should be noted that the above data were collected before less premium products (i.e. Hyundai Kona, Hyundai Ioniq 5, Mazda MX30) were released.

Malaysia Competitive Landscape

The competitive landscape for EV cars has further expanded in 2022 with new entrants and models available. Tabulated below is a non-exhaustive list of currently available brands, models and their price ranges:

Interestingly, more marques are considering bringing their EV models into Malaysia soon. These include BYD (Atto 3 and e6), Jaguar (i-PACE), Lexus (RZ), Peugeot (e-2008), Smart (#1), Toyota (bZ4X) and Volkswagen (Volkswagen ID.4). The new entrants are expected to push the average prices down further with the introduction of more mid-range models.

However, it will still be a steep uphill battle in terms of pushing for the adoption of EVs, considering the most popular car (i.e. Perodua Myvi) is a third of the price of the cheapest model currently available in the market (i.e. Hyundai Kona). On top of that, the local EV markets have always had ‘a chicken and egg’ problem – where local demand for EVs is heavily affected by the availability of charging infrastructure but charging infrastructure providers would only build up the network if there is sufficient demand.

The Bigger Picture

In September 2021, during the tabling of the Twelfth Malaysian Plan 2021 – 2025 (“12MP”), Malaysia set a goal: to become a carbon-neutral country by 2050 at the earliest. A main theme of the 12MP includes “Advancing Sustainability”, in which the government encourages private sector investments into next-generation vehicles, technologies and supporting infrastructures.

According to the Intergovernmental Panel on Climate Change, transportation contributes 15% of greenhouse gas (“GHG”) emissions. Hence EV, combined with low or zero-emissions electricity, offer the greatest potential to reduce GHG emissions in this sector.

Government Nudges

As highlighted in our previous edition of The Kapitalist, innovation, especially in riskier areas, require government support to socialise the risks involved. To spur a nationwide adoption of EVs, the government should lead by example through the adoption of the use of EVs, in which it has committed to procuring EVs for its vehicle fleets beginning in 2023.

The Ministry of Environment and Water has issued the Low Carbon Mobility Blueprint 2021 – 2030, outlining plans to assess the best options in energy and GHG mitigation planning in the transport sector. This blueprint outlines a whole chapter on action plans for the adoption of EVs through, among others, government-led adoptions, government incentives, and infrastructure developments.

Following through with its promises, the government introduced initiatives which include introducing consumer-focused incentive packages to attract investments into the EV ecosystem further.

Full import and excise duty exemptions for imported CBU EVs until 2023.
Full import and excise duty exemptions and SST waiver for locally assembled CKD EVs until 2025.
Road tax exemption and personal tax relief of up to RM2,500 for EV owners for costs relating to EV charging hardware and services until 2023.

Although the latest Budget 2023 has not yet been approved, it shows the government’s commitment to this cause through the proposed extension and expansion of initiatives for EVs. This would potentially attract more investments into the ecosystem.

Ecosystem Players

Gentari, a clean energy solutions provider wholly owned by Petronas, aims to capture a big market share on the charging infrastructure front by targeting 25,000 public charging points across the Asia Pacific by 2030 (9,000 by 2026). At present, the company is developing its public charging network in partnership with Mercedes-Benz Malaysia and EV Connection. It will also run a vehicle-as-a-Service model, which will offer EV leasing and subscriptions to businesses.

The above initiatives are now bearing fruit, and other key players are also investing in the local EV landscape. Some of them providing charging infrastructures include, among others, Tenaga Nasional Berhad, Sime Darby Motors, Yinson Green Technologies, as well as the Malaysia Automotive Robotics and IoT Institute together with the Malay Vehicle Importers and Traders Association of Malaysia

Illustrative Mobility Ecosystem

Malaysia has made big progress in getting private sector players on board in the EV sector.

Moving forward, it is important to create an ecosystem for mobility users that would enable these players to capture opportunities further and tackle challenges across the value chain.

Capital Connections 8.0 – Retail

Riding on our flagship event, we had our 8th Capital Connections on the 5th of October 2022. The theme for the event was Retail – Digital Consumer Behaviour and Changing Retail Trends, which was co-hosted with Shopee Malaysia.

“The Capital Connections series is to showcase the country’s fast-growing startups and bring the industry’s best minds for learning, networking, and collaborating because together we will reshape the future of our industries.” Taufiq Iskandar CEO Penjana Kapital. As one of the largest e-commerce platforms in the Southeast Asia region, we are pleased to partner with Sea, the parent company of Shopee. We are hopeful that this collaboration will not only scale local sellers for sustainable growth but also stimulate the Malaysian economy and make it more inclusive.

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Newsletter

November 2022 Issue

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