Malaysia is expected to be among the faster-growing electric vehicle (EV) markets in Southeast Asia outside the region's two largest EV markets, Vietnam and Thailand, supported by consumer purchasing power, improving EV affordability and increasing competition among manufacturers, according to a research firm.

A financial data analytics company stated that Malaysia's consumer base and the improving competitiveness of the EV segment are expected to support medium-term growth in EV adoption despite the expiry of tax exemptions for fully imported EVs.

According to a research firm, 86% of Malaysian households are expected to earn more than US$ 10,000 in disposable income during 2025, with this proportion forecast to increase to 90% by 2030.

"Malaysia is particularly well positioned to lead this growth outside the two dominant markets, supported by one of ASEAN's most affluent consumer bases, with 86% of households earning more than US$ 10,000 in disposable income in 2025 and this figure forecast to rise to 90% by 2030," the company said.

A research firm noted that, while the removal of tax exemptions for fully imported EVs could create some pricing pressure in the near term, the impact is likely to be limited due to the presence of mainland China-produced EVs and China-made Tesla models, which remain price-competitive in Malaysia. The company added that competition among Chinese manufacturers, together with improving affordability, is expected to help EVs account for a larger share of new vehicle purchases over the medium term.

ASEAN EV market expected to expand

EV penetration is projected to reach 22.7% of passenger vehicle sales by the end of the forecast period. According to the report, ASEAN is evolving from an emerging demand centre into a manufacturing and supply chain hub as vehicle electrification accelerates across the region.

"Strong demographics, rising incomes and supportive government policies are driving rapid growth in vehicle electrification, while the expansion of Chinese automakers and the localisation strategies adopted by regional governments are reshaping the competitive landscape," a research firm stated.

Vietnam and Thailand are expected to remain the region's largest EV markets, accounting for more than 72% of ASEAN passenger EV sales in 2026, supported by policy measures and expanding model availability.

However, a research firm expects growth to become more diversified over time. By 2035, the combined share of Vietnam and Thailand is projected to decline to 64% as Malaysia and Indonesia account for a larger share of regional EV demand. The report also highlighted ASEAN's role within the global EV supply chain. Indonesia and the Philippines accounted for more than 68% of global nickel mine production in 2024, while Indonesia became the world's second-largest producer of refined nickel.

In addition, ASEAN has rare earth element (REE) resources. Vietnam accounted for approximately 20% of global REE reserves in 2023, while Myanmar, Thailand and Malaysia are established REE producers.

A research firm noted that these materials are used in permanent-magnet electric motors and advanced vehicle electronics, contributing to ASEAN's role in supply chains as automakers seek to diversify sourcing and reduce dependence on concentrated sources of raw materials.

Malaysian automotive market expected to moderate

While long-term EV growth prospects remain positive, a research firm has maintained a neutral outlook on Malaysia's automotive sector, forecasting a moderation in overall vehicle sales during 2026 amid intense price competition, regulatory changes and the growing presence of localised Chinese brands.

The research house forecasts a 4% decline in Malaysia's total industry volume (TIV) in 2026, in line with the forecast issued by the Malaysian Automotive Association. Despite the anticipated slowdown, a research firm expects demand to continue to be supported by replacement purchases and new model introductions. The firm also stated that Malaysia's fuel subsidy mechanism should continue to limit the impact of fluctuations in global oil prices on consumers despite ongoing geopolitical uncertainties in the Middle East.

"Fuel prices are still subject to the ongoing Middle East uncertainties but are expected to have minimal impact on vehicle sales volumes, as the Malaysian market remains protected by fuel subsidies and replacement cycles for electric vehicles, hybrids and motorcycles," the research house said.

A research firm expects manufacturers to continue offering discounts and rebates to attract customers, although the resulting competitive pressure is likely to affect profit margins. The firm expects national automotive brands to retain a large share of the affordable vehicle segment, while demand is expected to continue benefiting from a stable labour market, more consumer-friendly hire-purchase financing rules and a steady stream of new vehicle launches.

Localisation policies expected to support the domestic industry

According to a research firm, the government's latest EV policies are intended to encourage global manufacturers to establish production operations in Malaysia rather than relying solely on imported vehicles.

"By cutting off cheap imports, the government is deliberately creating a protected domestic sandbox to pressure global automakers into building local supply chains," the research house stated.

The brokerage expects companies with established local assembly operations to benefit as more manufacturers localise production. These include Proton, Perusahaan Otomobil Kedua (Perodua), Sime Darby, DRB-Hicom, Tan Chong Motor and EP Manufacturing. A research firm cited a booking backlog despite expectations of slower overall industry sales.

"In general, the industry's earnings visibility remains good, backed by a booking backlog as at the end of May 2026," it said.

More than half of the outstanding orders are for newly launched models. Among its preferred stocks, a research firm continues to favour Bermaz Auto (BAuto) and Sime Darby. The research house stated that BAuto is supported by its Mazda franchise, order backlog and dividend yield.

"We expect BAuto to benefit from the recent weakening of the Japanese yen against the ringgit, particularly as it expands its new Mazda launches towards completely built-up models," it stated.

For Sime Darby, a research firm expects gains from the group's regional automotive operations and its industrial division.

"We expect significant investment by its industrial clients over the next five years, translating into potential double-digit growth in both sales and margins for the industrial segment," the brokerage said.

Market expected to remain stable

A separate analyst forecast Malaysia's TIV to decline by approximately 5% in 2026 following several years of strong demand, as the market returns to more typical levels and consumers become increasingly selective amid rising living costs. However, the analyst does not anticipate a sharp downturn, citing employment conditions, stable interest rates, continued replacement demand and the growing presence of competitively priced Chinese automotive brands.

"However, we do not see a sharp downturn. The market remains supported by resilient employment, stable interest rates, continued replacement demand and the rapid expansion of competitively priced Chinese brands, which are broadening the addressable market rather than merely cannibalising incumbent players," the analyst said.

The analyst identified MBM Resources as a preferred stock due to its earnings profile, cash generation and dividend yield through its exposure to Perodua, Malaysia's largest mass-market automotive manufacturer.

"Overall, we favour companies with diversified earnings streams, dominant market positions or structural competitive advantages over those relying primarily on cyclical volume growth," the analyst added.