As competition and price war starts shaping the local automotive industry, analysts expect the sector to remain resilient in the second half of 2026 despite a modest slowdown in vehicle sales, supported by new model launches, stable interest rates, stronger national carmakers and accelerating electric vehicle (EV) adoption, according to Hong Leong Investment Bank (HLIB) Research.
The research house however maintained its “Overweight” call on the automotive sector, citing resilient earnings, attractive dividend yields and continued strength from national marques Proton and Perodua.
Top sector picks remain MBM Resources Bhd and Sime Darby Bhd due to their significant exposure to Perodua, which continues to outperform the broader market.
Industry Volume Moderates
Malaysia’s total industry volume (TIV) declined 1.5% year-on-year to 315,600 units during the first five months of 2026, reflecting fewer working days, scheduled maintenance shutdowns at Perodua’s manufacturing plants and softer demand among major Japanese automotive brands.
Despite the overall slowdown, Proton emerged as one of the strongest performers, recording a 39.6% jump in sales driven by the successful launch of its new-generation Saga and the e.MAS electric vehicle range.
Mazda also posted robust sales growth of 35.6%, supported by the introduction of its competitively priced Mazda3 1.5-litre variant.
Meanwhile, Chinese automotive brands continued expanding their presence in Malaysia through competitively priced vehicles featuring advanced technology and enhanced specifications. Brands such as BYD, Jaecoo, Jetour, iCAUR and Zeekr have steadily gained market share amid intensifying competition.
Looking ahead, HLIB expects Malaysia’s TIV to reach approximately 780,000 units in 2026, representing a modest 5% decline from the previous year but remaining at historically healthy levels.
The forecast is underpinned by continued model launches, accommodative financing conditions and aggressive promotional campaigns by manufacturers.
National Carmakers Strengthen Dominance
National automotive brands continue to consolidate their leadership in Malaysia’s passenger vehicle market.
Combined market share for Proton and Perodua reached a record 67.6% during the first five months of 2026, compared with less than 50% before 2019.
HLIB attributed Proton’s sustained growth to Geely’s strategic investment since 2017, which has enabled the company to introduce a series of competitive new models across both internal combustion engine and EV segments.
Perodua, meanwhile, continues benefiting from its reputation for affordability, fuel efficiency and strong value proposition.
The rise of Chinese manufacturers has also reshaped Malaysia’s automotive landscape.
Since entering the market in earnest in 2023, Chinese brands have increased their collective market share to 7.8% among major manufacturers, largely at the expense of Japanese automakers.
Japanese brands’ market share has declined to 21.1% from 35% previously, while European manufacturers have fallen below 2%.
EV Adoption Accelerates
Malaysia’s transition towards electrified mobility is expected to gather further momentum during the second half of 2026.
EV sales reached 25,500 units during the first five months of the year, raising market penetration to 8.1%, more than double the 3.8% recorded in 2025.
Proton currently leads the domestic EV market following the launch of its affordable e.MAS range.
The company sold 9,356 units of the e.MAS 5, priced between RM57,000 and RM70,000, alongside 2,286 units of the higher-end e.MAS 7.
BYD’s Atto 3 ranked among the strongest-selling imported EVs with 1,873 units sold.
HLIB expects the competitive landscape to evolve following the Ministry of Investment, Trade and Industry’s revised policy governing imported completely built-up (CBU) EVs, which took effect on July 1.
The revised framework restricts imported EVs to models with a minimum cost, insurance and freight (CIF) value of RM200,000 and minimum power output of 180kW.
While this reduces the availability of lower-priced imported EVs, manufacturers can continue offering more affordable vehicles through local completely knocked down (CKD) assembly programmes.
The policy is expected to benefit national manufacturers, particularly Proton and Perodua.
Perodua recently strengthened its EV proposition by reducing the price of its upcoming QV-E model to RM63,500 under a battery leasing programme, or RM87,500 for outright purchase.
Budget Measures Support Local Carmakers
HLIB said measures announced under Budget 2026 are expected to provide an additional boost to domestic vehicle demand.
The government introduced a RM10 million matching grant programme encouraging owners of vehicles more than 20 years old to scrap their cars and purchase new Proton or Perodua models.
Eligible buyers can receive rebates of up to RM4,000, comprising RM2,000 from the government matched by participating manufacturers.
Taxi and private hire vehicle drivers will also receive full exemptions on excise duty and sales tax when purchasing new Proton and Perodua vehicles.
The research house believes these initiatives will support sales volumes for both national manufacturers.
Stable Policy Environment
HLIB expects Bank Negara Malaysia to maintain the Overnight Policy Rate at 2.75% throughout the second half of 2026, providing a stable financing environment for vehicle buyers.
The brokerage estimates that any 25-basis-point adjustment would have only a marginal impact on monthly instalments, amounting to approximately RM15 per month for a typical RM80,000 vehicle financed over nine years.
Meanwhile, the government’s implementation of revised Open Market Value (OMV) calculations for CKD vehicles has been postponed by another six months to January 2027.
The Ministry of Finance has indicated that the revised methodology is expected to have minimal impact on vehicle prices.
HLIB also forecasts the ringgit to strengthen gradually towards the end of the year, averaging RM4.10 against the US dollar for 2026.
A firmer ringgit would lower the cost of imported vehicles, CKD packs, components and raw materials, potentially supporting margin expansion across the automotive industry.
Competition to Intensify
While competition is expected to become increasingly intense as Chinese manufacturers continue expanding aggressively, HLIB believes national brands remain well-positioned to defend their dominant market positions through affordable pricing, extensive dealer networks and continued product innovation.
The research house expects the sector to remain supported by resilient consumer demand and favourable policy conditions despite growing competition across all market segments.
