Malaysia's Ministry of Investment, Trade and Industry (MITI), together with the Malaysian Investment Development Authority (MIDA) and the Malaysia Automotive, Robotics and IoT Institute (MARii), is targeting the rollout of a revamped New Customised Incentive Mechanism (NCM) for the automotive industry in 2027. The framework aims to strengthen localisation, encourage higher-value activities and ensure investments generate value throughout the domestic supply chain.

Investment, Trade and Industry Minister Datuk Seri Johari Abdul Ghani said the revised framework remains under development through consultations with government agencies and industry stakeholders.

"We are still in discussions and are targeting to release it next year, but whether it is January, March or June, we will decide later," Johari told reporters after launching MCE Holdings' new MYR 50 million (US$ 12.3 million) MCE Auto Hub manufacturing facility in Serendah.

Johari said a key objective of the revamped NCM is to establish a simpler and more transparent incentive structure that can be clearly understood by investors, industry participants and government agencies.

"First, we will simplify the NCM so that every stakeholder understands it clearly. When I speak to the KSU, deputy KSU and the deputy CEO of MIDA, they all understand it. Not only must the industry understand it, but industry players must also know exactly how to calculate it. We need to simplify what has already been introduced or introduce something new," he said.

The revised framework is expected to guide future automotive investments, with incentives increasingly linked to technology development, localisation and value creation rather than conventional vehicle assembly activities alone.

Focus shifts towards advanced automotive capabilities

Johari said the simplified NCM will prioritise the localisation of critical technologies instead of focusing only on traditional manufacturing activities.

"The simplified NCM aims to encourage the localisation of critical technologies rather than essential manufacturing components. The greatest value in the future automotive industry lies in areas such as design and engineering, software, electronics, battery technologies, advanced driver assistance systems (ADAS) and intelligent mobility solutions. These are the capabilities Malaysia intends to develop," he said.

He added that the government remains committed to developing these capabilities over time.

"It will take five years, it will take ten years; that does not matter. A starting point is necessary, and the government must work together with industry players to implement this strategy for the future of the industry."

Future automotive policies, including the revamped NCM, will continue to encourage foreign manufacturers to bring advanced technologies, engineering expertise and technology transfer into Malaysia while supporting local companies' integration into global supply chains.

Beyond vehicle assembly, MITI aims to encourage investment in automotive electronics, semiconductor integration, complex mechatronics, software development, battery technologies, ADAS and intelligent mobility systems.

"In a broader regional context, Malaysia should not seek to compete on volume alone. Our ambition is to become the ASEAN hub for automotive intelligence, including automotive electronics, semiconductor integration and complex mechatronics. These are industries associated with higher wages, deeper technological capabilities and long-term economic resilience," Johari said.

Greater emphasis on genuine localisation

A key element of the revised framework is ensuring that local content requirements generate genuine value throughout Malaysia's automotive supply chain. Johari said future incentives will be linked to local value creation rather than localisation practices involving only the assembly of imported components.

"It is equally important to ensure that local content genuinely represents local value creation. Looking only at Tier 1 suppliers no longer provides an accurate picture. We must trace value creation throughout the supply chain, from Tier 1 to Tier 2 and Tier 3, to ensure that incentives reward Malaysian capabilities rather than imported content presented as localisation," he said.

MITI also plans to monitor export performance on a net basis to assess investment outcomes and identify potential leakages. Johari reiterated that all vehicle manufacturers operating in Malaysia, including national brands Proton and Perodua, should increase local content progressively.

"Proton and Perodua collectively contribute more than MYR 15 billion in local purchase value. For many locally assembled vehicles today, the government wants them to incorporate substantial Malaysian-made content, supported by an increasingly sophisticated supplier base. We want every assembly plant operating in this country, not only local vehicle manufacturers, to make a meaningful effort to ensure the inclusion of local content across all aspects of their operations in Malaysia," he said.

Johari stressed that localisation should involve actual value creation rather than imported parts assembled locally. He also encouraged manufacturers to establish measurable localisation roadmaps.

"If you can bring 10%, tell us when you can bring 20%. How do you bring the local content to 20%? If you already have 20%, how do you bring it to 30%? If you already have 30%, how do you bring it to 40%?" he said.

"When you reach that level, I - as minister - will go around the world to promote your product. That's what I want to do because this can be considered a Malaysian-made product even though the brand is owned by all of you. This is what I want to do to ensure that we consistently build our capabilities locally," he added.

Johari said vehicles assembled in Malaysia with most components imported from overseas provide limited benefits to local suppliers, which may be restricted to supplying basic parts. Such arrangements also limit opportunities for technology transfer and participation in advanced component production, potentially affecting the long-term development of the domestic supplier ecosystem.

Protecting Malaysia's automotive ecosystem

Johari highlighted the scale of Malaysia's automotive ecosystem, which includes approximately 730 specialised automotive vendors supporting more than 700,000 jobs. The sector contributed MYR 84 billion to Malaysia's gross domestic product (GDP) in 2025.

However, he noted that Malaysia's trade deficit in motor vehicles and automotive parts has increased in recent years. The deficit rose from MYR 13 billion in 2020 to MYR 33.8 billion in 2025, partly due to increased imports of vehicles and components as the industry transitions towards electric vehicles and other new-energy vehicle technologies.

Johari warned that excessive reliance on imports, particularly from China, could place pressure on local suppliers and manufacturers if localisation efforts are not strengthened.

"Without a strategic and forward-looking response, there is a risk that imports could further dominate the market and place increasing pressure on the domestic supplier ecosystem. We must safeguard the more than 700,000 jobs that support this ecosystem," he said.

He added that integrating local vendors into manufacturers' supply chains would help Malaysia move beyond imported vehicle assembly and towards higher-value activities such as engineering, systems integration and component development.

Foreign investment remains welcome

Johari said Malaysia remains open to foreign automotive investment and welcomes companies seeking to establish assembly operations in the country. However, manufacturers receiving incentives under the revised framework will be expected to contribute to local supplier development, manufacturing capabilities and technology transfer.

"Every time investors come to see me, especially in the automotive sector, asking for approvals for their new vehicles, I always tell them, 'This country is not a place only to sell vehicles. We want you to come and bring technologies and components so that Malaysia can be used as a hub,'" he said.

The minister acknowledged that full localisation cannot be achieved immediately but expects manufacturers to progressively increase local content.

"We understand that no investment can achieve 100% localisation immediately, but after operating here for some time, we expect a substantial portion of vehicle manufacturing to involve genuine and effective localisation in this country," he said.

Johari also addressed requests from manufacturers seeking tax incentives while relying heavily on imported components.

"Some of them ask me, 'Datuk, we are here to bring in our vehicles and we want the government to provide import duty, excise duty and sales tax incentives.' I say, 'If you want that without localisation, then there would have been no need to build this ecosystem.' We already have 730 companies involved in this supply chain. We have created 700,000 jobs over the years. If everything comes from overseas, what will happen to these 730 companies and 700,000 employees in this country?" he said.

He added that foreign manufacturers establishing assembly plants in Malaysia would continue to receive government support and incentives if they demonstrate commitment to developing local suppliers and manufacturing capabilities.

"If you come to Malaysia only to sell vehicles, there is no need to establish an assembly plant. If you come to establish an assembly plant, we welcome you and will provide incentives, but you must also commit to developing the components industry and ensuring that local companies benefit," he said.

Building long-term competitiveness

Johari said the government's objective is to develop a globally competitive automotive industry rather than one dependent on protectionist policies. The revised NCM is being designed to encourage innovation, technology development and competitiveness while supporting local industry growth.

"Protection without competitiveness will inevitably become a liability. Industries insulated from competition rarely become global leaders. Success must come from continuous innovation," he said.

Through the revamped incentive framework, Malaysia aims to strengthen its automotive supply chain, increase technological capabilities, deepen localisation, attract investment and support the development of advanced automotive technologies and intelligent mobility solutions while positioning the country as a regional hub for automotive intelligence and high-value automotive manufacturing.