ARTICLE: The attraction of hybrids

The Star Business: Saturday March 19, 2011

The attraction of hybrids

By EUGENE MAHALINGAM
eugenicz@thestar.com.my

THE current surge in demand for hybrid vehicles in Malaysia can largely be attributed to the Government's decision to grant full excise duty exemptions on such cars below 2,000cc until year-end. This was announced during the tabling of Budget 2011 in October 2010. It gives a glimpse of what we can expect when the country's automotive sector moves towards a fully liberalised and tax free structure.

Prior to Budget 2011, the demand for hybrid vehicles has been pretty low, mainly for two reasons the relatively high purchase price and a weak understanding of and appreciation for hybrid technology.
With lower prices after excise duty waiver, public awareness of the benefits of hybrid cars has picked up considerably, and with that, sales of such cars.

Honda is getting over 2,300 bookings for its Insight hybrid car.

 

Cars that were previously off limits no longer are, and consumers have more choices when it comes to buying new vehicles.

“As cars are more of a necessity these days, overpriced cars are inhibitive for customers,” says an industry observer.

“With access to hybrid vehicles, customers have access to some of the latest technologies that other countries have long enjoyed. This is a move forward for us,” he says, adding however that the current models are still not affordable for everyone.

“It's still a bit expensive. Hopefully, national car companies in Malaysia will take up the challenge of offering hybrid vehicles that are more affordable for the masses.

“For now, I feel that only the reasonably affluent can enjoy the benefits of hybrid technology.”

UMW Toyota says it has received over 700 bookings for its Prius hybrid.

 

According to reports, national car company Proton plans to start offering hybrid vehicles within the next two years while Perodua will still continue to manufacture cars with internal combustion engines.
Other industry observers believe that the excise duty exemption on hybrid cars is like a shot in the arm to this vehicle segment.

Says Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad: “Last year 327 units of hybrid cars were sold. This year, the hybrid car sales could jump five fold based on the number of bookings received by Honda Malaysia Sdn Bhd and UMW Toyota Motor Sdn Bhd.”

UMW Toyota Motor and Honda Malaysia currently offer the Toyota Prius and Honda Insight respectively. The Prius and Insight start from RM139,900 and RM98,000 respectively.

Kavan Mukhtyar believes 2011 will be a big growth year for hybrids in Malaysia.

 

When contacted, a UMW Toyota spokesperson says it has received over 700 bookings for its Prius to date.
While Honda Malaysia says the company has received over 2,500 bookings for its Insight.

Aishah says the incentive should be extended for at least another five years (and not on a yearly basis).
“This is because short-term and ad hoc incentives will not build market acceptance and create technology awareness among consumers. It is also difficult for the industry to draw up long-term plans to evaluate the feasibility of introducing more hybrid and electric cars.”

Frost & Sullivan partner and automotive and transportation practice head for Asia-Pacific Kavan Mukhtyar believes that 2011 will certainly be a big growth year for hybrids in Malaysia.

“We expect this year's volume to be around 3,400 units. Globally it is observed that when the price difference between an internal combustion engine vehicle and a hybrid is less than 20%, then the volumes start to pick up.”

Aishah believes the hybrid segment (below 2,000cc) could see the biggest growth in terms of percentage, but not necessarily in volume.

Liberalisation for all?

For now, the Government's incentives for hybrids are limited to vehicles below 2,000cc. Luxury hybrids, a segment of vehicles above 2,000cc, were overlooked at Budget 2011 and consumers of this segment are not exempted from excise duties.

Companies offering luxury hybrid vehicles in Malaysia are Porsche distributor Sime Darby Auto Performance Sdn Bhd, which offers the Cayenne S Hybrid, and Lexus Malaysia Sdn Bhd, which currently sells three models RX450h, LS600h L and CT200h.

However, the CT200h which comes with a 1.8-litre petrol engine qualifies for the excise duty exemption under Budget 2011. The CT200h starts from RM172,603 (on-the-road, with insurance).
Frost & Sullivan Asia Pacific automotive & transportation practice consultant Ahmad Faridz Dzulkarnain believes the exemption of import and excise duties should be extended across all hybrid models regardless of engine size.

“Essentially, the promotion of hybrids should be as clinical as possible to ensure all potential hybrid car buyers can benefit from the incentives provided,” he says.
“Many potential buyers and dealers of luxury hybrid models will definitely find this move encouraging,” he adds.

An industry observer concurred that by exempting duties across the board, it could help liberalise the local automotive sector and even encourage more foreign-player participation.
“There are many foreign companies that would like to enter Malaysia because it is the largest passenger car market in Asean.

“But not many will be able to sell their products due to limitations like that for hybrids. This will deter them from coming in and force them to seek opportunities elsewhere.”
Aishah says the MAA is supportive of excise duty exemption for all hybrid vehicles.
“It should be opened to all categories of vehicles, including commercial vehicles.”

Kavan concurs: “It should not be confined to just below 2,000cc engines. The Government should include all hybrid engine sizes, green diesel technology cars, environmental friendly cars, electric and others.”
Faridz says that with duties exemption, sales of luxury hybrid vehicles would improve just a small fraction of the total hybrid sales expected in 2011.

“This is because even with the exemption, the price points of these luxury hybrids will still be on the higher end. Hence, the purchase will still be limited to high-income group.”

Currently, the on-the-road (without insurance) price of the Lexus RX450h, Lexus LS600h L and Porsche Cayenne S Hybrid starts from RM520,000, RM976,699 and RM720,000 respectively.
Faridz reckons that with the excise duty exemption, Lexus and Porsche could see a 40% to 45% reduction in the price of their hybrid offerings.

That means luxury hybrid cars would be tentatively priced at RM286,000 to RM312,000 for the Lexus RX450h, RM548,000 to RM598,000 for Lexus LS600h L and RM396,000 to RM432,000 for Porsche Cayenne S Hybrid.

For Porsche, the new pricing of Cayenne S Hybrid would make the vehicle marginally cheaper than its petrol-based Cayenne (that starts from RM550,000), which is also the company's top seller.
Faridz says this could result in potential Cayenne buyers purchasing the hybrid variant simply because it is priced lower than the other variants.

“Although these buyers may not initially intend to purchase a hybrid, but because of the attractive price points, the hybrid variant appears to be the most appealing in the product line-up.”

Lexus Malaysia could not be reached for comment. However, Sime Darby Auto Performance chief executive officer Arnt Bayer is hopeful that the Government would consider opening up the hybrid market at the next budget.

“The Government's decision to exempt excise duties on hybrids below 2,000cc is definitely a good approach to drive the green environment strategy,” he says.

However, Bayer says the target would not be met if the exemption was not given across the board because some automotive manufacturers do not have such products with engine below 2,000cc.
“Porsche tries to introduce the hybrid concept in the luxury and performance segment but it cannot benefit from the scheme,” he says, adding that the company sold about 10 Cayenne S Hybrid models last year.

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