Malaysia's auto sector faces moderate outlook amid competition, forex challenges

Malaysia's automotive sector is anticipated to maintain a moderate performance, facing challenges from increasing market competition and adverse foreign exchange rate movements, according to CIMB Research. Despite these headwinds, the research firm projects a stronger showing for the total industry volume (TIV) in the latter half of the 2026 financial year.

This expected improvement in the second half is attributed to several factors, including the continuation of subsidies, typical seasonal demand patterns, the growing momentum of electric vehicles (EVs), and stable financing conditions. CIMB Research has maintained a "neutral" rating for the sector, noting that the TIV for the first five months of 2026 (5M26) saw a slight year-on-year decrease of 1.2 percent, reaching 315,476 units. However, the firm anticipates a recovery, with 2H26 performance aligning with historical seasonal trends.

Key drivers for the anticipated rebound include the ongoing Budi95 subsidy program and the expansion of the Budi Diesel subsidy. The Malaysian Automotive Association (MAA) expects the Budi Diesel expansion to stimulate demand in the pickup truck segment, which experienced a 16.7 percent year-on-year sales decline in the first five months of 2026.

Simultaneously, EV sales are projected to continue their upward trajectory in the second half of 2026, fueled by more aggressive promotional campaigns and increased production from national automakers like Proton and Perodua. Government policies, such as raising the minimum Cost, Insurance, and Freight (CIF) threshold to RM200,000 and lowering the minimum motor power requirement to 180 kilowatts (kW), are making locally assembled EVs more competitive. CIMB Research believes these policy shifts will not deter long-term EV adoption, as consumer demand remains robust. The firm forecasts a 6.9 percent year-on-year increase in the automotive sector's net profit for FY2026, largely driven by stronger earnings contributions from Sime Darby.