INDUSTRY OUTLOOK FOR AUTOMOTIVE

BACKGROUND

• This paper is a document that provides insight of Malaysian automotive ecosystem andaddress the opportunities as well as the potential of transforming the value chain ecosystemtowards National Automotive Vision.

• The National Automotive Vision as highlighted in the National Automotive Policy (NAP) 2020aims to make Malaysia a hub for:

i. Exports of vehicles;

ii. Exports of components and spare parts;

iii. Automotive research and development (R&D);

iv. Development of automotive and mobility related technologies; and

v. Vehicle component testing.

• As at today, Malaysian automotive ranked the third position in ASEAN after Thailand andIndonesia. With current capabilities of 27 vehicle manufacturers/assemblers in Malaysia and641 parts and components manufacturers. Over the years, exports of parts and componentsshow positive trends since 2015. Malaysia has big potential to out grows its own value chaincapabilities embarking the new era of automotive and mobility.

Natural Resources

Refineries

Iron Smelter

Steel Refiners

Petrochemical

Non Ferrous Smelters

Rolling Mills

Large foundries

Large forgers

Iron oreAluminium

Oil

Cast iron

Ca

st ir

on

, wro

ug

ht

iro

n, e

tc

Steel Steel

Machine Makers

Engineering Design

DESIGNERSProduct Design

Tool Makers

Mould Base, Die sets castings

Machine bed castingsForged Machine parts

Steel bars, plates, etc

Machine design

Tools design

Tier

2 a

nd

SM

Is

Par

ts

Man

ufa

ctu

rers

Tier

1

Co

mp

on

ents

M

anu

fact

ure

rs

Sub Assemblers

Assemblers(OEMs)

Markets

ComponentsParts

Parts

Mould, Jigs, Die etc

Pro

du

ctio

n

M/C

, Tra

nsf

er

M/C

Machine tools

Jigs, robotic etc

Plastic resins

Bars, Plate

Stee

l b

ars

, p

late

s,

etc

RESOURCE SECTOR

PRIMARY SECTORSUPPORT SECTOR

MANUFACTURING SECTOR

Vehicle Inspection

CentreRemanufacturing Centre

ATF Centre

Workshop

AFTERMARKET SECTOR

Parts & Components CentreConsumer

New Vehicle Dealership

Used Vehicle Dealership

vehicle

veh

icle

Tra

de

in v

ehic

le

Serv

ice

&

Ma

inte

na

nce

parts

Purchase parts

Roadworthy

Not roadworthy/ voluntary

parts

pa

rts

pa

rts

parts

recovered materials

parts

parts

vehicle

vehicle

parts

AUTOMOTIVE VALUE CHAIN ECOSYSTEM

FUTURE TREND AND OPPORTUNITIES

ARTIFICIAL INTELLIGENCE

BIG DATA ANALYTICS (BDA)

INTERNET OF THINGS (IoT)

ADVANCED ROBOTICS (SENSOR FUSION)

3D PRINTING

Manufacturing

ClusterExample Products

Metal

Chassis parts, cylinder head, suspension

system, exhaust system, wheels, engine

components, transmission components,

brake system

Plastic

Instrument panel, bumper, side mirror, fuel

tank, door trim, floor console, engine

cover

Electrical &

Electronics

Wire harness, sensors, switches, ECU,

batteries, headlamp, ADAS system,

alternator, aircondition system

Rubber

Weather strip, engine mounting, tyre,

radiator hoses, insulator, glass channel,

dust cover, fuel hoses

Others

Seat belt, airbag, floor carpet, seats,

automotive safety glass, insulator,

headlining, NVH components

MALAYSIA AUTOMOTIVE VALUE CHAIN

• Malaysia automotive industry ecosystem comprises of 641 suppliers from various

manufacturing cluster This cluster include cluster from metal, plastic, electrical & electronics

and rubber.

• By year 2030, the number is expected to grow to 1,285 suppliers, considering the total

production volume (TPV) growth in Malaysia is expected to increase to 2.03 mil unit vehicles

by 2030.

1) Management & Leadership

2) Financial System & Practices

3) Cost Structure & Analysis Tools

4) Global Sourcing & Marketing Strategy

5) Supply Chain Integration

6) Customer Focus

7) New Model Introduction Capability

8) Manufacturing & Quality

9) Safety

10) Technology Investment

11) People & Performance

TRENDS, OPPORTUNITIES AND GAP ANALYSIS

5.0

4.3

5.0

4.6

4.9

5.0

4.9

5.0

4.6

5.0

1 2 3 4 50

The benchmarking results indicates the

inability of automotive Malaysian SMEs

in major competencies such as:

• To understands the process on

how the organisations conceive,

manage and monitor their

strategic direction;

• To understand their products'

costs and control them;

• To develops and manages

technology, including production

technology;

• Managing quality through the

manufacturing process; and

• Engages with the global industry

3.8

2.8

3.3

2.4

3.1

3.0

3.4

2.1

3.2

3.2

3.4

*Avg: 3.1**Avg: 2.0

***Avg: 4.8

*Average Malaysian SME suppliers level, based on ASEP data

from 2013 – 2018

**Average Malaysian SME suppliers during early implementation

of NAP2014

*** Average global suppliers

• MARii conducted a benchmarking activities through Automotive Supplier Excellence Program

(ASEP) through 405 companies by measuring their 11 core of competencies as below:

• In summary, Malaysian supplier is at average 3.1 compared to global at average 4.8

Level1 Level 2 Level 3 Level 4 Level 5

Global Supplier

Engineering services

Component supplier / Tier 2

Engineering services

Component supplier / Tier

2

Original Design Manufacturer

(ODM)

Module supplier / Tier 1

Module supplier /

Tier 1

At this moment, the design and development capability benchmarking indicates that

only handful of local supplier are currently at level 3

Gap to be improved

Average Malaysia

Supplier

TRENDS, OPPORTUNITIES AND GAP ANALYSIS

ISSUES & CHALLENGES FACED BY THE AUTOMOTIVE SUPPLIERS

1.Saturated

domestic

production volume

2. Accelerated

change of

technologies

3. Emergence of

software as a key

differentiating factor

4. OEMs encounter

increasing

investment needs

and margin

pressure

5. Competition

between large scale

suppliers & SME

suppliers

Saturated domestic

production volume

will put current

supplier business

models at stake:

• New growth areas

needed

• Business model

review necessary

• Further

consolidation

pressure

• Drastic cost

reduction

requirement

Technology shifts

require suppliers to

invest in new and old

technologies in

parallel:

• High financial

burden

• No immediate ROI

• M&A with increased

importance

• New competitive

landscape

• Lack of facilitation

and financial

support to form

joint venture with

foreign vendors.

Suppliers need to

build up

competencies fast:

• Old competencies

will often not work

anymore

• New competencies

hard to build up

• Cultural mindset

change required

Suppliers will face

even higher cost

pressure:

• Further growing

pressure on

component prices

• Competitive

pressure from

disaggregation &

standardization

• Lower room for

differentiation

• Difficult access to

data driven

business model

Majority of the

suppliers are SMEs.

• High competition

with MNC/large

suppliers when

supplying goods

to other countries.

• Tend to have

limited resources

and a lower

threshold to

absorb risks,

especially when

operating in

intense

competitive

markets

Based on study conducted by MARii, the automotive parts and components industry has seen a

continuation of global growth where suppliers are expected to face five main challenges as per

below:

All rights reserved. The material may not be reproduced or distributed, in whole or in part, without the prior written permission of MARii.

Low HighEffort/Value

High

Low

Risk/Cost

VDP PRIOTISATION

1.Human capital developmenti)local manpower

ii)skill manpoweriii) professional

2. Enhancement of productivity and process

1.Centre of excellencei) Testingii) Design & simulation

2. Advance Technology3. Financial Assistance4. Export promotion5. Business diversify6. Dev of TDM

1. Development of local system Integrator to support IR4.0

1. ISO certification2. 5S

SUPPLIER COMPETITIVENESS LEVEL ROADMAP

THANK YOU