KUALA LUMPUR: The impending rationalisation of RON95 fuel subsidies is expected to raise vehicle ownership costs and influence demand patterns in Malaysia's automotive sector, according to RHB Investment Bank Bhd (RHB Research).
Its analyst Syahril Hanafiah said that while ownership costs could increase, the policy could accelerate electric vehicle (EV) adoption or lead some consumers to downtrade, especially given the limited affordable EV options.
He added that public transport may gain traction as an alternative, but much will depend on how the policy is executed.
Prime Minister Datuk Seri Anwar Ibrahim has reaffirmed the government's commitment to remove the blanket subsidy as planned.
While specific details remain scarce, Syahril noted that earlier indications may point to a rollout in the second half of this year.
On performance, he said corporate earnings for the auto and autoparts sector in the first quarter of this year largely fell short of expectation.
Out of the four companies under its coverage, two underperformed while the remaining two met forecasts.
He said total industry volume (TIV) is expected to weaken further in the second quarter, weighed down by shorter working quarters from festive holidays and scheduled factory maintenance shutdowns by major carmakers.
The firm kept its 2025 TIV forecast at 730,000 units, an 11 per cent year-on-year decline, in line with TIV of 248,700 units recorded as of April 2025 that makes up 34 per cent of the full-year estimation.
"We do not see any compelling catalysts for 2025 auto sales to be maintained at the current elevated levels.
"Therefore, we remain cautious in our outlook due to the ongoing price competition in the non-national segment and softening order backlogs," Syahril said.
He said that while the impending expiry of the tax exemption on completely built-up (CBU) EVs post-2025 could result in a surge of EV sales volumes this year, the local EV market remains modest, accounting for about 2.0 per cent of total car sales.
Therefore, he said it is unlikely that a surge in EV demand would significantly impact TIV in 2025.
RHB Research maintained its "Neutral" call on the sector and Sime Darby as its sole "Buy" recommendation with a target price of RM2.20 a share.