Sales rule sets back Geely's Malaysia expansion
Mainland carmaker Geely is scaling back an ambitious plan to use Malaysia as a manufacturing springboard due to sales restrictions imposed recently by Kuala Lumpur.
The Malaysian government announced last month that foreign carmakers could build cars locally, but only if they exported 80 per cent of their output and earmark the rest for domestic sales.
The new guideline effectively trashes Geely's plan to build a Southeast Asian business anchored on strong domestic sales in Malaysia and complemented by exports.
Hong Kong-listed Geely, which will announce its full-year results on April 21, originally aimed to make 30,000 cars in Malaysia next year. That target has now been scaled back to 10,000.
Grace Mak, an automotive sector analyst at Merrill Lynch, said the Malaysian market would have provided 'a more straightforward starting point for Geely's export business in Southeast Asia', amid plans to lower vehicle export tariffs among members of Asean.
But some industry observers say Geely may not benefit from this due to its high production costs.
'Exports from Malaysia are not necessarily cheaper than exports from China. There is at least a 10 per cent tariff on cars exported from Malaysia to Thailand,' Yale Zhang, director of consultancy CSM Worldwide, told the South China Morning Post.
He said Chinese carmakers would also find it tough competing with regional manufacturing veterans such as Toyota and Honda.
Bai Xufei, deputy general manager of Hong Kong-listed Great Wall Auto, said many Chinese carmakers would prefer opportunities in Russia or the Middle East, instead of Southeast Asian, a market that is hard to crack. Great Wall Auto announced recently a US$70 million plant project in Russia.
Despite the restrictions, Geely expects its Malaysian partner, Information Gateway Corp, to order its parts by June.
Mr Zhang said Chinese carmakers can gain a foothold in Southeast Asia by focusing on small, low-cost models, but that it was time they sought Beijing's help in opening the region's vehicle markets.
