(July 28): On July 16, Deputy Finance Minister Liew Chin Tong told Parliament that Malaysia plans to spend RM40 billion on fuel subsidies this year. This amount, equivalent to RM1,900 per registered voter, is needed “to ensure that the people continue to be protected”, according to Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim.

Malaysia’s rising fuel subsidy bill highlights the country’s low electric vehicle (EV) adoption rate, which is both a cause of the high fuel subsidy bill and an effect of those same subsidies. Fuel subsidies make EV adoption less attractive, increasing demand for traditional internal combustion engines (ICE), further increasing the national fuel subsidy bill.

The fuel subsidy-EV conundrum appears to be further exacerbated by the national automotive policy.

Malaysia subsidises fuel, Thailand subsidises Evs

As petrol prices increase, consumer interest in switching to EVs has also heightened. An immediate effect of the current oil crisis is a surge in EV registrations in Malaysia, rising from 4,352 units in February to 9,272 units in April 2026.

While this seems impressive, it pales in comparison to neighbouring Thailand. In the first four months of 2026, Thailand outperformed Malaysia in EV sales with 61,899 units sold while Malaysia only had 26,944 units. Even though Thailand’s domestic new car market is about 25% smaller than Malaysia’s, it sold twice the number of EVs.

One cause of this difference is that Thailand’s fuel subsidy scheme is much more limited than that of Malaysia. Whereas Malaysian fuel subsidies are effectively unlimited, the Thai subsidy system relies on the oil fuel fund, which is capped at 150 billion baht (approximately RM18.7 million). Due to the limited size of the fund, Thai consumers do not count on the government to absorb future oil price shocks.

Instead, Thailand has allocated subsidies under its 30@30 policy, which targets having 30% of vehicles with zero emissions by 2030. As a major production hub for global car manufacturers, under Thailand’s EV3 and EV3.5 policies, Thai-made EVs can receive subsidies of up to 100,000 baht per unit (approximately RM12,000). The policy is seen as a measure to both accelerate EV adoption among Thai consumers, while simultaneously increasing domestic EV production.

In response to the current oil crisis, the Thai government plans to allocate 200 billion baht (approximately RM25 billion) from its emergency loan decree to accelerate the energy transition, including additional funding for EV charging points, increasing EV parts production, and supporting battery-swapping services.

With less than four years remaining and rising subsidies, Thailand appears on-track to achieve its 30@30 goals by 2030.

Malaysia opens EV door, then shuts it

Malaysia’s EV growth story began in October 2021, when then-finance minister Tengku Datuk Seri Zafrul Abdul Aziz announced a 100% import and excise duty exemption for EVs, leading to 2,631 EV registrations in 2022. This tax window brought in a significant number of luxury EVs as well as new entrants from China, such as BYD.

Since then, EV registrations have risen ten-fold in Malaysia, and affordable locally built units have come to market, such as the Proton e.Mas 5 and Perodua QV-E.

However, in July the Ministry of Investment, Trade and Industry (Miti) announced an end to its liberal EV policy. New rules effectively mean that imported EVs priced below RM300,000 are now excluded from the domestic market, while local assembly of less expensive imported EVs also face restrictions. Miti justifies these measures as “preserving marketspace for national players like Proton and Perodua”.

For Malaysian consumers, the decision could mean less choice and higher prices, slowing down EV adoption rates. For example, Geely, the 49.9% owner of Proton, sells its Geome Xingyuan (EX2) EV for 61,800 yuan in China (approximately RM37,200), nearly 40% less than the Proton e.Mas 5 in Malaysia.

Hybrids all over again?

In 2010 Malaysia took a similar approach to hybrid electric vehicles (HEVs) as it did with EVs in 2022: providing a 100% import and excise duty exemptions for HEVs. However when these incentives were removed in 2015, hybrid sales plummeted from 6,007 in H1-2014 to 3,333 units in H1-2015.

Although Miti’s policy of protecting Proton and Perodua has been consistent for the past 40 years, higher EV and HEV prices, less consumer choice and less incentive to switch could mean that Malaysia will remain well behind Thailand in EV adoption, and could also miss its own 15% EV by 2030 target. At the same time, continuing sales of ICE vehicles could mean decades of potential fuel subsidies, if Malaysia can afford them.

Money well spent?

Thailand’s RM25 billion investment in accelerating its energy transition stands in stark contrast to Malaysia’s RM40 billion fuel subsidy programme. While energy affordability and protecting domestic industry are important, they come at a high cost. This cost could increase further, as Malaysia delays its own energy transition.

Nur Shuhaila Daniella Jamel is a visiting research associate at the Asia School of Business (ASB), Kuala Lumpur, and a student at Mahidol University International College, Thailand. Pieter E Stek is a senior lecturer at ASB. The views expressed are solely those of the author(s) and do not represent the official position(s) of ASB or any affiliated institutions.

Originally published by The Edge.