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Towards an energy efficient Malaysia

POSTED BY admin ON 31 March 2012

Source - Center of Automotive Research, Ann Arbor, Michigan.

In August 2008, Prime Minister Abdullah Ahmad Badawi announced the tax exemption of hybrid vehicles below 2000cc in his 2009 Budget speech. Between 2009 and 2010, only 599 units of hybrids were sold.

Two years later, Badawi’s successor Datuk Seri Najib Tun Razak, in his 2011 Budget speech, extended the tax incentive for hybrids until Dec 31 2011.

Malaysians have since warmed up to hybrids. Last year, hybrid sales grew 25 fold from the year before. There are now over 9,000 hybrids on the road, more than 50 per cent of them Honda Insights.

Hybrids are extremely complicated and only the big boys like Toyota and Honda can afford to invest in it. The Germans are only just starting to catch up in hybrids.

Less than a week after Najib’s Budget speech in October 2010, a small and somewhat eccentric carmaker in Hiroshima made a significant announcement. Without the resources of its bigger Japanese brethrens to invest in hybrids, Mazda thumbed its nose at the elitist technology.

Mazda confidently announced it had found a way to match the fuel economy of the expensive hybrids without resorting to heavy electric motors or battery packs.

The company said a new Mazda would be launched in a year’s time, delivering a fuel economy of 30 km/litre (Japanese 10-15 test cycle), which exceeds that of some hybrids.

A year later, the Mazda Demio, with a SkyActiv engine that increases fuel efficiency and engine output, was launched in Japan with a starting price of 1.4 million yen (RM52,250). The cheapest hybrid in Japan starts at 1.59 million yen (RM59,350) with a fuel economy no better than a SkyActiv engine powered Demio (known outside Japan as the Mazda 2).

Malaysia’s tax incentive to promote hybrids was made on the assumption that more hybrids would be sold, making it feasible for local assembly.

Many consulting agencies made various predictions and forecasts on the future of electric powertrains, including hybrids, plug-in hybrids and pure electric vehicles.

None of them were believed in its entirety. The market potential of electric vehicles depends very heavily on the political direction of a country and continued incentive support from the government.

Earlier last week, the president and CEO of Volvo Cars, Stefan Jacoby, criticised the “A European Strategy on Clean and Energy Efficient Vehicles” study by the European Commission which projected market share of electrified powertrain vehicles as 30 percent by 2030.

Jacoby said it was unrealistic considering the lack of coordinated governmental incentives and the high cost of the battery pack, and reckons market share for electrified vehicles will struggle to pass the one percent mark by 2020.

Internal combustion engine will still remain the dominant powertrain in the foreseeable future. Electric powertrains in all forms would be complementary at best.

However, in no way should we dismiss the importance of hybrids and its impact on the environment. The point is that all taxpayer-supported incentives must be justified with an achievable and quantified target.

While the government’s move to extend tax breaks for hybrids is to be applauded, taxpayers, like any company shareholder, ought to ask the hard question of what is the objective that we want to achieve?

If the objective is to encourage local assembly of hybrid models, then this is a rather long moon shot.

Shingo Nagamine, the chief engineer of the Honda Jazz Hybrid, was asked recently what were the considerations to setup plants manufacturing hybrid models outside Japan. Nagamine said it depends on the capability of the country to manufacture, process and recycle the batteries.
Like many things in life, you need to work on the basics to support a bigger dream.

The cheapest hybrid in Malaysia starts at RM94,800. It’s hardly a people’s car. Hybrids are elitist products and it is only a matter of time before apolitician challenges the logic of extending tax breaks for buyers of RM100,000 cars (which totalled less than 10,000 units last year).

The current tax incentive assumes all hybrids are created equal, which is not true. There are mild hybrids and there are strong hybrids. Mild hybrids are cheaper but they only provide minimal electric assistance and at higher speeds, the extra weight of the battery and electric motor becomes just another deadweight to be lugged around by the petrol engine.

At the same time, cost effective solutions like Mazda’s SkyActiv technology that delivers similarly good fuel economy don’t enjoy the same tax benefits.

Under the 2011 Malaysian Budget, RM11 billion was allocated to land transport fuel subsidy. But high oil prices meant that actual bill for 2011 reached RM16 billion. That is 8 per cent of RM212 billion national budget, giving Malaysia the dubious honour of having one of the highest fuel subsidies in the world.

We spent more on fuel subsidy (RM16 billion last year) than on education and healthcare. The Ministry of Higher Education got RM10.2 billion, and another RM576 million for scholarships while RM15.2 billion was allocated for hospital construction.

A more practical approach for Malaysia would be to incentivise low fuel consumption cars, irrespective of its powertrain, be it a hybrid, clean diesel or ultra efficient petrol engine.

Why should the powertrain type matter? We don’t have any vested interest in battery manufacturing industry to promote.

Now imagine if we have a multi-tiered incentive plan, that progressively lowers import and excise duties for cars that meet a minimum fuel economy of 5 litre per 100 km on a specific UNECE R101 driving cycle.

Suddenly a whole new market for affordable fuel efficient cars is created. Cars like VW Polo BlueMotion TDI or the Mazda 2 SkyActiv can now be priced at RM70,000. Even our very own Perodua, fitted with fuel saving features like idle engine-start stop and brake energy recuperation, can be in the game.

Denso would be encouraged by the local demand and start manufacturing high efficiency alternators and starter motors to support idle engine-start stop feature.

Because of the sheer volume of the (around) RM70,000 segment (at least 50,000 cars are sold annually in Malaysia) , its impact in lowering Malaysia’s total fuel demand would be measurable, effectively reducing our subsidy bill.

Now that’s a sustainable mobility future we can all take part in.

This article first appeared in March-28’s edition of CBT Quarterly Review.

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