Bermaz cautious on EV demand even as it gets ready for XPeng G6 launch

This article first appeared in The Edge Malaysia Weekly on June 24, 2024 - June 30, 2024

EVEN as it prepares for the launch of the Chinese electric vehicle (EV) model XPeng G6 in the Malaysian market, Bermaz Auto Bhd (KL:BAUTO) is not planning on bringing in a huge volume of the car.

This is because the group believes the country’s ecosystem for EVs — from charging stations to technical expertise on maintenance and repairs — is still not there to entice a large segment of the automotive market to buy EVs.

Bermaz group CEO Datuk Francis Lee Kok Chuan says: “Some of the Chinese principals are bringing the ‘EV war’ to the Malaysian market. You know, we cannot jump on the bandwagon. I mean, we buy this car, and if the take-up is low, then what are you going to do? You have to offer discounts!

“That is not what Bermaz is all about. Bermaz is all about building the equity value of the brands we represent, so that people have confidence in buying the car, rather than waiting for discounts.”

Having said that, Lee admits that Bermaz has to be in the EV space, regardless of the readiness of the ecosystem. He says XPeng has agreed to take a slow and steady path of market penetration.

“It’s about making sure the brand is well recognised [in the market] and that people want to buy the car, rather than bringing in a huge volume and then waiting to see how well your car is going to do [in the market],” he points out.

EV brands came into the Malaysian market when the floodgates were opened in 2022, when the government exempted the import and excise duty, as well as sales tax, on fully imported EVs until 2025 and locally assembled EVs until 2027.

Budget 2022 also provided for road tax exemption of up to 100% for EVs. This was then replaced by a new structure of road tax on EVs, which is based on the electric motor’s wattage as recently announced by Transport Minister Anthony Loke.

As a result of these policies, many EV brands, especially those from China, marketed their models in Malaysia at surprisingly attractive prices. The total industry volume for EVs jumped 286% to 10,159 units in 2023, from 2,631 in 2022.

Chinese car manufacturer BYD, in collaboration with Sime Darby Bhd (KL:SIME), was the best-selling EV brand in the country in 2023, with 3,728 cars sold. In the first four months of 2024, BYD had already sold 2,563 cars — some 68.8% of the total volume it sold in 2023.

For the year to April 30, 6,234 EVs had been sold in Malaysia, representing 61.4% of total sales in 2023. These numbers show that the market for EVs in Malaysia is growing at an exponential rate.

In comparison, Bermaz sold 21,185 units in Malaysia in the financial year ended April 30, 2024 (FY2024), with the biggest volume coming from the Mazda CX-5 completely knocked down (CKD) model at 6,789 units.

In FY2024, sales of the Mazda CX-5 fell 15.4% year on year, whereas sales of the Mazda CX-30 CKD spiked 273.7% y-o-y to 5,833 units, making it the second-best-selling Mazda model in Malaysia.

This brought the total number of Mazda cars sold in Malaysia in FY2024 to 18,394.

Bermaz also has a presence in the Philippines, with 2,583 Mazda cars sold in FY2024. Combined, Bermaz sold a total of 23,768 cars in FY2024, up 11.2% y-o-y.

While the EV market is expanding fast, Bermaz has yet to have an EV “work horse” model that could compete against the BYD Atto 3 or the Tesla Model Y and that it could bank on to grab a meaningful share of the EV market.

Bermaz has been marketing the Kia EV6 since June 2022 and launched the EV9 in March this year. The EV6 is sold from RM316,000 and the EV9 from RM369,000, both of which, Lee concedes, are outside the price range of the majority of the Malaysian market. Furthermore, the South Korean brand has yet to enjoy the kind of premium that brands such as BMW and Mercedes do in Malaysia.

Since their launch in the Malaysian market, only 115 EV6 units and one EV9 unit have been sold, according to data from the Road Transport Department.

Nonetheless, Lee, who owns an EV9, believes Kia is Bermaz’s “new work horse” for growth over the next two to three years, replacing Mazda as the Japanese brand moves up the market to a more premium segment.

“Kia’s Asia-Pacific office is based in KL and they want to make the Asean project work because they are already good everywhere, except in Asean and China. So, now, they are putting a lot of emphasis on the Asean market,” he says.

Apart from the EV6 and EV9, Kia also markets the Sorento and Carnival sports utility vehicles (SUVs) — both of which are locally assembled at the Inokom plant in Kulim, Kedah — in Malaysia. The Sorento is priced from RM210,000 and the Carnival comes at a special introductory price of RM198,500.

Kia is also assembling the all-new Sportage at the Inokom plant. This model will be the next volume key driver for Bermaz, with the group aiming to sell 4,000 to 5,000 units a year.

This model is set to become Bermaz’s volume generator, as the Mazda line-up is going to be more expensive, with the new generation of models coming in over the next two to three years.

“The Sportage is selling very well worldwide; in fact, they don’t have CBU (completely built up) cars for us to bring in,” says Lee.

He adds that Bermaz will sell the internal combustion engine variant of the Sportage first before moving to the hybrid engine variant later. The Sportage will compete with models such as the Honda CRV and Toyota Corolla Cross.

Meanwhile, Bermaz’s tie-up with Chinese EV manufacturer XPeng will provide the group with a model that could compete in the same price bracket as the BYD Atto 3 and Tesla Model Y.

In Thailand, the XPeng is sold around THB1.5 million (RM192,600). The BYD Atto 3 is sold at RM149,800 and the standard range variant of the Tesla Model Y is priced at RM199,000.

There are other Chinese EV models being sold in the sub-RM200,000 price range in Malaysia, including the Chery Omoda E5 at RM146,800 and the MG MG4, which starts at RM103,999, and the MG MGZS, which is sold at RM125,999.

Then, there is the GWM Ora Good Cat, which is priced from RM113,800 for the base variant, and the Ora O7, which starts at RM169,800.

It is common knowledge that Malaysia does not allow fully imported EVs to be sold below RM100,000. Hozon Auto’s Neta V, however, is marketed at RM99,800.

Chinese EV manufacturers have proliferated in Southeast Asia, including Malaysia, in recent years. This comes at a time when Chinese EVs are being subjected to higher tariffs in the US and European Union (EU).

In May, US President Joe Biden announced that tariffs on imported EVs from China would be increased to 102.5% of the ex-factory price, up from 27.5% now.

Meanwhile, the EU has threatened to impose tariffs of up to 38% on Chinese EV makers that do not cooperate with the European Commission in its investigation into what it claims is a flood of cheap, government-subsidised Chinese cars in the trade bloc.

Financially, FY2024 was a record year for Bermaz as it sold the highest number of cars ever and registered the highest revenue and profit, says Lee. The group chalked up revenue of RM3.93 billion for the year, up 11% y-o-y.

Its net profit rose 14.7% y-o-y to RM351.04 million from RM305.84 million, or roughly 106% of consensus analyst estimates.

Expected slowdown in car sales weighing on Bermaz

Nevertheless, the anticipated slowdown in the automotive market this year — after two consecutive years of strong growth fuelled by sales tax exemptions during the Covid-19 years — is weighing on the outlook for Bermaz and other automotive players.

While recommending a “buy” on Bermaz, Maybank Investment Bank assigned a lower target price (TP) to the counter of RM3.04 from RM3.48, despite raising its estimated core net profit (CNP) for FY2025 and FY2026.

“We raise FY2025/FY2026 CNP by 5%/3%, but lower TP to RM3.04 from RM3.48, based on 10 times FY2025 PER (price-earnings ratio) (20% below five-year 12-month forward mean; previously 12 times FY2025 PER or mean), as we impute for risks of vehicle sales slowdown due to rising competition in the mass premium vehicle segment, and the potential impact of the fuel subsidy rationalisation and an impending High-Value Goods Tax,” the research firm says in a June 12 report.

RHB Research also lowered its TP for Bermaz to RM3.25, from RM3.35, although with a “buy” call. Meanwhile, HLIB Research recommended investors to “hold” the stock with a TP of RM2.46.

Over the last year, the stock has appreciated 15%, closing at RM2.54 last Friday, valuing the group at RM2.93 billion.

Bermaz declared dividends of 26 sen per share in FY2024, with a dividend payout of 86%. Analysts are now expecting a payout ratio of around 84% for FY2025.

Asked whether FY2025 would be another record year for Bermaz, Lee is sanguine about its prospects.

“It will be good enough for me if we can maintain this year’s performance [FY2024] in FY2025,” he says.

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