Malaysia is poised to become a regional hub for the electric vehicle industry, the country’s trade minister said in an interview, stating that its existing electronics industry offers a strong foundation for Malaysia to be a crucial part of global EV supply chains.

Tengku Zafrul Abdul Aziz, minister of investment, trade and industry, told Nikkei Asia in Kuala Lumpur on Wednesday that Malaysia has had a strong foundation in the electric vehicle and semiconductor industry since the country ventured into industrialization in the 1970s, serving as a critical manufacturing hub in Asia.

“For over 50 years now, we have built the capacity for the local companies in the ecosystem, and now these local companies have become multinationals as well,” Zafrul said, adding that local companies have expanded as listed companies and have become suppliers in global value chains.

He said the country’s existing electronics ecosystem could benefit from EV development by supplying more than 1,400 components.

“EV is not just a car. It’s part of a different ecosystem,” he said. “When you look at why we are pushing for an EV platform … it will [not only] help us meet our sustainability targets, but it also helps build the right ecosystem for our industries.”

According to the minister, investments in Malaysia’s EV industry have reached 26.2 billion ringgit ($5.4 billion) from 2018 to March 2023, and the number of registered EVs increased to over 3,400 units in 2022 and exceeded 7,500 units by September 2023.

“We are so serious about it,” Zafrul said, explaining that the government has set up a cabinet-level committee on national EV strategy, which he chairs.

In the 2024 draft budget sent to Malaysia’s parliament earlier this month, the government announced a plan to introduce tiered tax incentives for investments in critical sectors, including EVs, ranging from a 60% to 100% tax allowance rate.

On top of that, the government will be announcing a new road tax for EVs, which will be cheaper than that for internal combustion engine cars, and will also relax regulations on the installation of charging stations to allow a quicker rollout.

“We have to incentivize them, we have to roll out fast, and we have to get the cars and motorcycles out,” he said.

Malaysia’s auto industry is also undergoing a government-led merger, bringing together two conglomerates, Sime Darby and UMW Holdings, to catch up with the rest of the world’s shift to electric vehicles.

The existing industrial ecosystem in Malaysia, according to Zafrul, is also among the key attractions for major global chipmakers, such as Infineon Technologies of Germany and Intel of the U.S., to invest in the country. Both companies have announced major investments in Malaysia.

He said Malaysia’s chip industry is advancing to the higher part of the value chain, from test and assembly to wafer fabrication and chip design, which will “strengthen Malaysia’s position as a major player in this space.”

“We need to take advantage of this because of the strong ecosystem that has been built over 50 years. It’s just moving up another level,” said Zafrul. “If you go to another place where there is not even a base, you have to start from step by step. You cannot just move up the value chain straight away into the high end.”

He said during the U.S.-China trade war and because of the realignment of the supply chain amid geopolitical tensions, businesses will have to move their bases, such as from China to Southeast Asia. “This is an opportunity for the region, our centers, to do it big, or else we will miss this opportunity.”