Malaysia's Path to Market Liberalization and EV Ambitions

Malaysia has embarked on a journey of market liberalization as Prime Minister Anwar Ibrahim's administration aims to enhance the nation's competitiveness, attract substantial investments in the electric vehicle (EV) sector, and guide the economy towards a net-zero carbon future.

Traditionally, local players in industries such as automotive and power generation have enjoyed preferential treatment in Malaysia. Foreign investors have typically been required to form partnerships with local entities and, in some cases, pay significant premiums to introduce non-local brands. This policy, deeply rooted in an affirmative action approach favoring the ethnic Malay majority, has somewhat dulled Malaysia's competitive edge.

The government is now determined to change this situation.

Tengku Zafrul Aziz, Malaysia’s Minister of Investment, Trade, and Industry pointed out that, "We have been overly protective of certain industries, with the belief that they should improve. But how long can we continue to protect them? Local players become complacent, and suddenly, our competitiveness wanes. It's time to show some tough love, and I believe we need to open up."

Earlier this year, Prime Minister Anwar set the ambitious goal of positioning Malaysia among the top 30 economies globally and within the top 12 in the Global Competitiveness Index within a decade. Currently, Malaysia holds the 27th spot on the index, having climbed five positions from 32nd in 2022.

Zafrul noted that Malaysia was among the top 10 in the 1990s, mainly due to its first-mover advantage over most of its regional peers. He added, "We were once the darling of investors. Now, China and other regional countries have made significant strides. While Malaysia has also improved, it hasn't done so as rapidly. It's time to initiate these changes today."

Among the changes being implemented is allowing foreign investors to have full ownership of their Malaysian operations, a move that has already attracted major players in the EV industry.

Tesla officially commenced operations in Malaysia in July, unveiling its first office in Southeast Asia. Although Zafrul didn't disclose details of Tesla's investment plan, he confirmed that they met the requirements for full ownership of their Malaysian operations.

He explained, "Currently, you can see the cars, charging stations, and service centers. But our overarching goal is to become part of the Tesla supply chain," without providing further elaboration.

In August, Prime Minister Anwar revealed ongoing discussions with Tesla about the potential establishment of a battery manufacturing plant in Malaysia. Concurrently, talks with Chinese automakers are also in progress to establish EV operations in the country.

Malaysia's steps towards market liberalization and its ambitions in the EV sector signify a significant shift in the nation's economic strategy, embracing global trends and aiming for a more sustainable and competitive future.