The automotive market is undergoing a gradual transition towards battery electric vehicles (BEVs), which is evident in Malaysia, where policy incentives and infrastructure development are influencing the sector.

A market research firm has projected that this transition will continue, with locally assembled completely knocked-down (CKD) BEVs benefiting from tax exemptions until 2027.

The research house noted that, although EV adoption is expected to increase and demand for gasoline vehicles is projected to peak eventually, this shift is unlikely to occur within the next five years due to infrastructure constraints.

It also observed that the new petrol subsidy mechanism could temporarily slow the transition, as middle- and lower-income groups currently have reduced incentives to switch from internal combustion engine (ICE) vehicles to EVs.

Malaysia has set a target for EVs to account for 20% of new vehicle sales by 2030, with a longer-term goal of 80% by 2050, including hybrid vehicles. The government is prioritising the development of the EV ecosystem, which includes the deployment of public charging points.

An earlier target for 2025 has not been updated, and deployment has achieved just over half of the proposed coverage to date. A total of charging stations have been proposed, with several already operational, alongside tax incentives intended to support adoption and local production.

For 2026, RHB Investment Bank expects EV sales to be dominated by CKD EVs, given the removal of tax rebates for completely built-up (CBU) EVs from 1st January 2026.

"EV manufacturers have begun planning for CKD production, such as Xpeng, which is expected to commence production at the end of 1Q26; BYD, whose CKD plant is scheduled for completion in 2026; and e.MAS 7 EV, whose CKD introduction was announced on 20 January 2026," the research house stated in a report recently.

RHB noted the continued development of CKD EV production in Malaysia. EV manufacturers are increasingly shifting towards local CKD assembly to qualify for tax exemptions until the end of 2027.

Xpeng partnered with EP Manufacturing as its CKD partner in mid-December 2025, with production of its G6 SUV and X9 MPV scheduled to begin in 2026. EPMB announced Phase 2 of its Melaka facility, increasing annual capacity, while Phase 3 is targeted for completion by the end of Q3 2026.

Proton introduced its CKD e.MAS 7, priced at MYR 103,800 (US$ 25,934) for the Prime variant and MYR 119,800 (US$ 29,931) for the Premium variant. These prices are lower than those of the CBU models, though a production timeline has not been specified.

BYD also announced plans to establish a CKD facility in Tanjung Malim (on KLK Land), with production expected to commence in the second half of 2026.

The tax structure for CBU EVs is expected to consist of a 30% import duty, 10% excise duty, and 10% sales tax, although the import duty may be adjusted under free trade agreements (FTAs) between Malaysia and other countries. For example, CBU EVs from China will incur a 5% import duty instead of 30%, resulting in a total tax burden of approximately 25% (5% + 10% + 10%).

"The impact on retail prices remains uncertain. Tesla has announced its 2026 prices for CBU EVs, which remain unchanged for the Model 3 and Model Y," RHB stated.

TA Securities Holdings (TASH) reported recently, that the adoption of xEVs in Malaysia is diversifying the market and affecting competitive and pricing dynamics for traditional passenger vehicles. The Malaysian Automotive Association (MAA) categorises hybrid vehicles (HV) and EVs collectively as xEVs.

TASH is a stockbroking company licensed by the Securities Commission Malaysia under the Capital Markets and Services Act 2007.

In 2025, xEV adoption increased compared with the previous year, with HV adoption rising and EV adoption more than doubling. Tesla is excluded from EV statistics, as it is not a member of the MAA.

According to TA Securities, xEVs represented approximately 8% of total industry volume in 2025, up from 5.6% in 2024. Pure EVs accounted for around 3.8% of the total. The MAA projects that xEVs will continue to account for a larger share of industry volume in 2026, with HVs contributing slightly more than half and BEVs slightly less than half of the projected total.