2026 EV Price Shock - What Happens When the Tax Break Ends!

Imported electric vehicles (EVs) will lose their tax-free status on Jan 1, 2026, as Malaysia ends excise duty exemptions for fully built-up (CBU) models. The move, outlined in the Ministry of Finance’s Fiscal Outlook and Federal Government Revenue Estimates report, will see the current exemption end on Dec 31, 2025.

The government expects excise duty collection to rise 2.3% to RM12.79 billion in 2026, partly due to the end of the tax break. But for consumers and automakers, the change could reshape the local EV market almost overnight.

With the clock ticking, many expect a rush in CBU EV sales through 2025 as buyers and distributors race to take advantage of the final tax-free year.

Once the exemption lapses, imported EVs are expected to face a combination of import and excise duties, on top of the existing 10% Sales Tax. While the exact rates have not been confirmed, industry players anticipate around 30% Import Duty and 10% Excise Duty based on current structures.

Disclaimer: Prices shown are indicative and for knowledge purposes only.

Even under these additional duties assumptions, the difference is stark. The BYD Atto 2 could rise from RM100,000 to around RM143,000, the Tesla Model 3 Long Range RWD from RM185,000 to RM264,550, and the XPeng G6 Long Range from RM178,888 to RM255,810.

Such hikes would make EVs less accessible and risk slowing adoption just as momentum is building. Locally assembled (CKD) EVs, however, will retain full tax breaks until 2027, giving automakers a narrow window to localise production.

Proton, Geely and DRB-Hicom are developing the Automotive Hi-Tech Valley (AHTV) in Tanjung Malim, while Perodua readies its own EV plant in Rawang. BYD is partnering with KL Kepong in Tanjung Malim, Chery is expanding from Shah Alam and Kulim to Lembah Beringin, Leapmotor will assemble with Stellantis in Gurun, GWM with EPMB in Melaka, and Wuling with Tan Chong Motor in Segambut. 

Zeekr is also expected to assemble at AHTV, while XPeng has yet to confirm if it will establish its own CKD facility or collaborate with Bermaz Auto in Kulim.

Still, several brands remain cautious, citing policy uncertainty beyond 2027 and the long-delayed Open Market Value (OMV) revision. Without clarity, investment could stall.

The uncertainty could also affect infrastructure. Malaysia remains far from its target of 10,000 EV chargers by 2025, and many Charge Point Operators (CPOs), who receive no direct government support, are already scaling back expansion amid low demand. A sharp jump in EV prices could weaken uptake further and slow charger rollout.

Malaysia’s goals are ambitious - 20% of new vehicle sales to be electrified by 2030, 50% by 2040 and 80% by 2050. But hitting those targets will be difficult if EV prices surge next year.

The end of the CBU exemption marks a turning point for Malaysia’s EV journey. It may accelerate local manufacturing, but also risks stalling adoption before the market matures. 

Policymakers face a delicate balance between promoting local assembly and keeping EVs affordable. A gradual phase-out or extended incentive period could help sustain growth as Malaysia moves toward a greener future.

Still, with Q4 left in the year, there’s always a chance the government might pull a U-turn and extend the exemptions. If that happens, both the panic-driven EV rush to clear inventories and the industry’s call for an extension will have been achieved. Checkmate.

Disclaimer: Prices shown are indicative and for knowledge purposes only.