CARSOME: Diesel Rationalization Exercise Expected to Have Minimal Impact on the Sale of Diesel Vehicles in Malaysia
By Aaron Kee, CARSOME Group Chief Business Officer
17 June 2024 - The recent rationalization of diesel fuel prices by the Malaysian Government is expected to have minimal impact on the sale of diesel vehicles, as alternatives remain impractical for users who rely on diesel vehicles for commercial and business purposes.
The government's recent move to rationalize diesel subsidy, which aims to alleviate the financial burden on national coffers, ensure fairer subsidy distribution, and address smuggling and misuse, is projected to result in savings of RM4 billion for the nation.
We believe that in the short to mid-term, the rationalization will have minimal impact on the sale of diesel vehicles in Malaysia based on the needs of three different primary diesel vehicle customers: small and medium business owners (SME), commercial fleet companies, and lifestyle users.
SME owners may not have the luxury of considering alternatives that meet their business needs. This category relies heavily on diesel vehicles for daily business activities, which often involve long-distance travel with heavy loads. For them, diesel vehicles remain a practical choice due to their durability, longer range, and fuel efficiency compared to alternatives.
Furthermore, if there is a move to rationalize petrol prices, these SME owners may not be sufficiently incentivized to switch to petrol. The current electric vehicle (EV) charging infrastructure is also inadequate to support frequent long-distance travel, making a shift to EVs impractical for this segment for now.
For commercial fleet users, these businesses are able to claim cash subsidies based on Fleet Cards under the government's Subsidized Diesel Control System (SKDS). Further, some business groups have announced that they have been paying unsubsidized diesel rates even before the rationalization was implemented. Thus, the impact on demand for diesel vehicles from commercial fleet operators is expected to be minimal, as the rationalization exercise will not significantly affect their costs or shift their dependence away from diesel vehicles.
Having said that, some commercial companies, such as Pos Malaysia, DHL Malaysia, and Lazada Malaysia, had proactively increased the number of electric vehicles in their fleets even before the rationalization for sustainability reasons. We believe the growth of this sustainability trend is highly dependent on the development of a more robust EV charging infrastructure in Malaysia, which is still at a nascent stage. It is our hope that this sustainability trend will continue to grow organically in the long term.
The segment whose preferences are most likely to be affected would be the lifestyle users, where the diesel rationalization may reshape their vehicle purchasing decisions, especially if they are not eligible for the Madani Subsidy Assistance Programme or Budi Madani. Historically, private car buyers have chosen diesel vehicles for their superior fuel efficiency and robust engine performance. However, rising diesel costs will reduce the savings gap.
Additionally, the Malaysian market's introduction of cutting-edge electric SUVs and 4WDs presents a compelling alternative, especially if lifestyle users primarily drive within areas well covered by EV charging infrastructure and are able to accommodate EV charging downtimes.
At CARSOME, we are closely monitoring these developments and are ready to support our customers and road users throughout the ever-evolving needs and landscapes of the automotive industry.
