MALAYSIA's automotive industry is unique, to say the least in the sense that we have two national brands in a fairly open market and we hardly export any vehicles, which limits companies that ahve invested in the country.
Admittedly other Southeast Asian markets suh as Thailand and Indonesia are also insisting on local investments in theri automotive industry but these two economies have the advantage of market size when compared to Malaysia.
Thailand, for one has had a clear policy for their automotive industry and is continuing with their push for exports and rewarding local factories in that direction.
As they shift towards the electric vehicle market, Thailand continues to encourage investments that focus on export. To be fair, we do not know if carmakers will respond well to this new rounds of inccentives but in the past it has made them the global export hub for light duty pick-up trucks.
The shift in market had resulted in General Motors pulling out of Rayong and their manufacturing facilities was quickly snapped up by a Chinese brand and now we see several factories churning out vehicles from the new automotive superpower.
Smaller Japanese brands are planning their exit from Thailand but overall the industry has remained vibrant with Chinese carmakers offering higher wages to attract workers and continuing to undercut established brands with more competitive pricing.
While we are far from the final chapter of the EV transition, the opening scenes seem to favour those who have built and etensive supply chain of batteries and are now pivoting that massive production capability, not just towards the transition to EVs but the overall shift towards renewable energy.
The next few years are pivotal towards the end state of the automotive industry as the world begins to see pure electric vehicles claiming 10 per cent or more of their industry volume, indicating that an inflection point is just around the corner.
In the past, European and Japanese manufacturers dictated the technology that the world's drivers get to enjoy because they are the largest exporters of automobiles to the rest of the world.
Now we have China which has the capacity to build 50 million cars a year in their countless car factories.
Doubtless many of the smaller Chinese carmakers will be consolidated into larger conglomerates but their manufacturing capacity will likely remain in the net few years.
With the world's largest domestic market soaking up 30 milliion cars or so and with local brands completely dominating the EV scene, to such an extent that European carmakers are forming joint ventures just so that they are not left out, China is the undoubted leader of the EV industry.
Despite being ahead, they seem to have not lost their lust for blood, continuing to innovate in terms of technology and manufacturing honing their industrial might in a direction we have not seen in recent decades.
Popular EV brands from China, if news reports are to be believed, are planning for another round of price wars in 2025. Surprising since many industry watchers thought that many Chinese carmakers are losing money every car they sell.
They seem to be thriving in this pressure cooker and seem to be coming out with new models that surprise both in terms of pricing and specifications.
While no one knows for sure how they are doing it, some suspect that the Chinese automotive industry is on the apth to commoditise the hardware that makes up the car, they are nearly done turning the automotive indsutry mechanical to electronic.
CATL's recent announcement for off the shelf battery packs and skateboard platform is an important development because it will give China carmakers access to sophisticated platforms and battery systems while bypassing expensive R&D costs.
In the next two years we will see another explosion of new EV models with increasing levels of sophistication from China and this will be made possible as they draw from their eperience as a contract manufacturer.
China's EV makers will have no hangups on having propreitary technology unless it is something that will give them clear market advantage and if the phone industry is any indication, they know that price, specfifications and user interface is what really counts in the open market.
Their supply base will continue to develop ever more sophisticated modules for the EV makers and they will continue to churn out ever cheaper models.
And this is where it is actually good news for Malaysia.
If large critical modules can be bought off the market, then companies like Proton and Perodua can focus on what matters, user interface and specifications while still able to price the cars right.
The increasing modularity of the automotive industry is a natural transition as the product has come to rely more and more on electronics to make them viable and interesting.
Once the cars are software defined, a few companies will offer operating systems for the vehicle and they are likely to tech companies rather than carmakers and this will allow carmakers to focus on product differentiation.
We have seen how Xiaomi has become one of the most impressive automakers out of China, surprising everyone with their high ultra performance sedan, the SU7.
This phone and electronic device maker can now offer a complete ecosystem for the user and if Apple and Google's Android is anything to go by, ecosystem is the keyword for success in the electronics and information technology age.
Hopefully Perodua is looking in the direction of China suppliers for their upcoming electric car, because that is the only way they can make it work with the limited budget that they have.
Meanwhile, Proton should also consider such a path if they do not want to rely on Geely for everything that they need to produce.
At this point, the government has to decide if it wants to maintain the automotive industry as an engine of growth, I think it should because the car will become a more valuable source of income in the future as they become more connected and every service is subscription based, even the car itself.
Perodua and Proton has the advantage of decades making affordable cars for developing economies, they have an understanding that other carmakers may not have.
With the component industry fast becoming commoditised, one can say that the doors are opening wide for Proton and Perodua.
The current change in trends are also showing that no brand has any real advantage of legacy or history which is yet another reason why Proton and Perodua should quickly capture this market with their own products rather than rebadging.
No pressure Perodua.
But if they are successful in producing affordable electric vehicles, that platform could go far and wide and we might have the birth of something that will finally break outside of our little market.
And why not? Perodua is already chaliking up 44 per cent of the domesticc market, they have no other way to go but export.