CIMB: Budget 2025 Will Shape RON95 Subsidy Changes and EV Momentum

As we look ahead towards Budget 2025, which will be tabled on Oct 18, CIMB Securities Research (CIMB SR) outlined that all eyes are on how the government’s plans to roll out the RON95 subsidy rationalisation and the electric vehicle (EV) adoption momentum is further accelerated.

While no major surprises are expected for the auto industry in this budget, it’s likely that we’ll get a clearer picture of how the RON95 subsidy changes will take shape. This could become a key factor influencing the automotive market in 2025.

It will be also good to see how the PADU database system will be put into use in implementation of the RON95 subsidy rationalisation.

CIMB is forecasting a softer end to 2024, especially in the fourth quarter (4Q24), mainly because of the looming fuel subsidy cuts. But there’s hope that other measures, like the newly introduced EPF Account 3 and pay raises for civil servants, could help keep car sales afloat.

On the EV side of things, the government is expected to stay focused on green mobility with continued tax breaks, rebates, and infrastructure investments for EVs, which ties in with Malaysia’s broader push towards EV adoption.

The 2024 budget included tax discounts for EV rentals in addition to personal income tax relief of up to RM2,500 for EV charging equipment, which was extended until 2027. These policies are already having an impact; in 2023, sales of cars will consist of 45,000 hybrid and electric vehicles, or 4.8% of all sales.

In the long run, the government's Low Carbon Mobility Blueprint calls for a 15% EV adoption rate by 2030.

CIMB notes that Sept 2024 sales were robust, driven by discounts for Malaysia Day and the introduction of new models such as the Mitsubishi Xpander and the Proton X70 facelift, despite the predicted decrease in 4Q24.

While the Malaysian Automotive Association (MAA) is expecting a 4.3% drop in total industry volume (TIV) to 765,000 units, CIMB on the other hand is even more cautious, predicting a 6% decline to 751,000 units.

A big part of this outlook comes down to the end of sales tax exemptions, higher RON95 prices, and increasing competition from premium EVs and Chinese carmakers.

Additionally, inflation may increase as a result of the elimination of the RON95 gasoline subsidy, which could reduce consumer expenditure. Adding to that, the financial industry is tightening up, with vehicle loan approval rates has also dropped to 58.1% in the first seven months of 2024.

Following a record-breaking July, TIV decreased somewhat by 0.8% month-over-month (m-o-m) to 71,162 units in August 2024. Car production, on the other hand, actually went up 5.2% to 73,966 units, largely due to a boost from national brands like Perodua, whose production jumped 8.5% to 35,241 units.

The MAA attributes the TIV drop to weaker commercial vehicle sales, which CIMB links to the removal of the diesel subsidy in June.

Despite these challenges, CIMB is still optimistic about the Malaysian auto sector, maintaining an “overweight” rating. While the industry’s net profit is expected to fall by 19% this year, following a strong 25% increase in 2023, the sector is trading at a relatively attractive price-to-earnings ratio of 10.1 times for 2025, compared to its five-year average of 12.5 times. Plus, there’s potential for dividend yields of 6.1% in 2024 and 6.3% in 2025.