KUALA LUMPUR: The automotive sector's total industry volume (TIV) is expected to decline 3.7 per cent year-on-year (YoY) to 780,000 units due to declining order backlogs and the end of excise duty exemption for completely built-up (CBU) electric vehicle (EV) models.

For the first eleven months of 2025 (11M25), Hong Leong Investment Bank Bhd (HLIB) said TIV remained high at 727,800 units, mainly supported by Proton Holdings Bhd and Perodua as well as foreign Chinese marques, namely BYD, Chery, iCar, Haval and Tank.

The firm expects TIV for 2025 to end at 810,000 units, down one per cent YoY from 818,400 units in 2024.

The expected softening of overall demand this year will drive the competitive landscape among original equipment manufacturers (OEMs), especially those from China, potentially affecting margins for the whole sector.

"The government's matching grant of RM4,000 for scrapping of vehicles that are more than 20 years old and the 100 per cent tax exemption for private hire cars and taxis to purchase Perodua and Proton marques (effective 2026) will provide some advantage to national OEMs, in our view," it said in a note.

HLIB also expects Bank Negara Malaysia to hold the overnight policy rate at 2.75 per cent throughout the year. However, a change of 25 basis points will impact the monthly instalment by RM15, based on an RM80,000 car price with a 90 per cent loan application and a nine-year loan period.

On EVs, the firm said that new EV registrations in 11M25 stood at 36,700 units, making up five per cent of new car sales.

"The growth was driven by new model introductions, aggressive sales campaigns and the ending of excise duty exemptions for CBU EVs in 2026. We expect EV sales to continue growing in 2026, mainly supported by cheaper entry-level completely knocked-down EVs introduced by Proton, Perodua and Wuling," HLIB added.

HLIB kept its "Neutral" rating on the automotive sector, as it expects the market to remain competitive in 2026.