This article first appeared in The Edge Malaysia Weekly on June 8, 2026 - June 14, 2026

THE year 2026 is shaping up to be a less exciting one for the automotive sector, with vehicle sales expected to soften after four consecutive years of growth.

That said, automotive parts players are still expected to benefit from the ecosystems of Perodua and Proton, which together accounted for nearly 70% of Malaysia’s vehicle sales in April this year.

Most research houses have a “neutral” stance on the sector, citing cautious consumer spending and intensifying competition from Chinese brands, which are eroding market share for non-national marques.

TA Research even maintained the “underweight” call on the sector, expecting the sales momentum to gradually weaken in the coming months as recent growth was partly driven by festive-related deliveries and new model launches.

“In addition, fading order backlogs, cautious consumer spending amid rising living costs and intensifying competition within the auto segment may continue to weigh on overall industry demand,” it says in a May 21 note.

CGS International’s top pick for the auto sector is Sime Darby Bhd (KL:SIME), which is seen as a beneficiary of the potential shift in demand towards electric vehicles (EVs) and the mass market affordable segment in Malaysia’s auto market given its 38% stake in Perodua via UMW Holdings.

“Furthermore, we expect Sime Darby’s industrial division to benefit from increasing mining activity, supported by improving global industrial activity and potential reconstruction-related demand arising from geopolitical conflicts in the Middle East,” it says in a May 20 note, noting that Sime Darby is trading at an undemanding forward price-earnings ratio (PER) of about nine times while offering an attractive dividend yield of 6.7% based on forecast earnings and dividends for 2027.

Kenanga Research favours Bermaz Auto Bhd (KL:BAUTO) for the continued demand for its Japanese domestic market models, and Hong Leong Industries Bhd (KL:HLIND) for its exposure to the higher-margin premium motorcycle segment. The research house notes that both companies are less susceptible to price hikes arising from the open market value (OMV) mechanism and offer attractive dividend yields of 6%.

Meanwhile, Hong Leong Investment Bank Research says the impact of lower sales and rising operating costs in the automotive sector will be largely cushioned by a stronger ringgit against the US dollar and yen.

Its top picks in the sector are MBM Resources Bhd (KL:MBMR) and Sime Darby.

“MBMR benefits from its strong exposure to Perodua, while Sime Darby is supported by sustained strength in its Industrial segment (particularly in Australia), recovering China Motor division and stronger contribution from UMW across all sub-segments. Both MBMR and Sime Darby also offer attractive dividend yields of 5%-6%,” it notes.

One automotive analyst points out that car upholstery manufacturer Pecca Group Bhd (KL:PECCA) is expected to continue to benefit from Perodua’s ecosystem. However, its relatively rich valuations may cap its upside. Trading at a PER of 19.6 times, the stock commands a premium compared with peers such as Feytech Holdings Bhd’s (KL:FEYTECH) 13.1 times and MCE Holdings Bhd’s (KL:MCEHLDG) 11.4 times.

Connie Go, CEO of automotive seat maker Feytech, is of the view that stricter localisation requirements can benefit local vendors, not as a protectionist measure but as a way to ensure that more of the value created by automotive growth stays in Malaysia.

“The real economic benefit comes when local suppliers participate meaningfully in the value chain, rather than imported supplier networks dominating the market,” she says.

While modern EV interiors are more complex than conventional ones, largely because of the deeper integration of electronics and systems, Malaysia is well positioned for this, given the country’s robust electrical and electronics (E&E) industry that is already operating at global standards, according to Go.

“The capability exists in this country. The opportunity is to connect that industrial strength to the automotive supply chain more deliberately and that is exactly the kind of localisation that creates lasting value,” she notes.

Feytech has formed a joint venture with Wuhu Ruitai Auto Parts Co Ltd to design and co-create seats and covers for some of the vehicles under Chery.

To date, Feytech remains the only total solutions provider for both seat covers and complete seating systems. The influx of new original equipment manufacturers (OEMs) is expected to offer more opportunities for the group to pursue vertical integration into other automotive components, hence further strengthening its position as a Tier-1 automotive parts supplier, says Go.

She adds that deeper localisation creates the conditions for the kind of technical and higher income jobs that Malaysia’s TVET agenda is working to build.

“If procurement stays offshore, those roles would not follow. Malaysia would end up with downstream employment rather than the higher-value and knowledge-based economy the government is investing in developing,” she continues.

Dr Goh Kar Chun, group managing director of MCE, believes localisation in electronics and integrated systems in modern vehicles is highly feasible for Malaysia, which already possesses strong automotive, E&E and semiconductor capabilities.

For example, he says MCE has been designing, engineering and manufacturing automotive electronic and mechatronic systems for carmakers, progressively moving up the value chain into areas such as infotainment systems, technologies related to Advanced Driver Assistance Systems (ADAS), electronic control systems and EV charging solutions.

Apart from supplying to national carmakers, its products are also exported within Asean as well as to Taiwan, Brazil and the US.

MCE has established a joint-venture company in India, serving as a technical provider for the Indian domestic market. This, he says, demonstrates that Malaysian automotive vendors can compete internationally in terms of quality, engineering and cost competitiveness.

As more foreign carmakers, including EV players, expand their presence in Malaysia, he hopes to see the deepening of local supply chain participation that will enable local companies to showcase their capabilities in meeting the required standards for quality, technology, cost and delivery.

“We understand that localisation decisions are ultimately driven by commercial and operational considerations, and OEMs will source locally when suppliers are able to offer the right balance of capability, quality, cost competitiveness and operational readiness,” he says.

To capture the benefits of localisation, Pecca executive director Hugo Teoh Zi Yi says the group has continually invested in automation and upgrading to prepare for this shift.

“Our solutions have grown beyond leather upholstery into full seat assembly and complex integrated interiors. Today, we apply the same high standards to our automotive work as we do for the aviation and locomotive sectors.

“Our ongoing exports to markets like the US and Indonesia demonstrate that our quality is already recognised at a global level. Just as we continually support the growing needs of local automakers, we are ready to provide the same world-class expertise to foreign brands seeking a reliable local production partner,” he explains.

With the upcoming RM200,000 minimum price and 180kW threshold for imported EVs, Teoh says foreign brands now realise that local assembly is the only way to compete in the mass market here.

He also shares that Pecca has seen increased enquiries from foreign brands looking for a partner who can help them hit localisation targets without execution risk.

“To tap into this core segment, they need a partner who is rigorously vetted. While we cannot comment on our peers, our focus remains on our execution. Our future project pipeline reflects healthy interest from both our national partners and other potential new EV entrants who want premium, locally integrated interiors,” he notes.

Teoh believes the country’s auto policy will pave the way for Malaysia to become a regional automotive powerhouse for the electric age in the next three years.

Read also:
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