UPDATE 1-Malaysia takes a shot at becoming SE Asia hub for energy-efficient cars

Mon Jan 20, 2014 5:15am EST

(Adds details on the policy, comments from Toyota Thailand, industry context)

* Malaysia to let foreign auto makers produce small hybrids

* Aims to export 200,000 eco-friendly cars by 2020, create 150,000 jobs

* Mazda, Perodua pledge $682 mln to build plants

* Toyota Thailand says boosting investment in Malaysia is not easy

By Yantoultra Ngui

KUALA LUMPUR, Jan 20 (Reuters) - Malaysia will let foreign companies such as Japan's Mazda and Honda make small hybrid cars in Southeast Asia's No.3 economy, which is competing with Thailand and Indonesia to be the regional hub for low-emission vehicles.

Malaysia, which until now only let foreign companies make larger cars, plans to offer new production licences, grants and lower taxes, just as flooding and political instability thwart Thailand's push to boost output and demand of small, eco-friendly cars.

Malaysia - known for beleagured national car Proton Holdings Bhd - wants to develop the auto market as it works toward its goal of raising the economy to developed status by 2020.

By that time, it aims to export 200,000 energy-efficient cars, achieve $3 billion of car component shipments and create 150,000 jobs, International Trade and Industry Minister Mustapa Mohamed said on Monday when announcing the country's automotive policy.

So far, Mazda Motor Corp and local manufacturer Perusahaan Otomobil Kedua (Perodua) have pledged 2.25 billion ringgit ($682.44 million) for investment in energy-efficient vehicle production, Mustapa said.

"We hope this National Automotive Policy (NAP) 2014 can enable us to become the energy efficient vehicle hub in ASEAN in the future," Mustapa said, referring to the Association of Southeast Asian Nations.

"We hope to raise total production volume to 1.25 million vehicles by 2020 from some 0.57 million vehicles."

The new policy opens the way for foreign auto makers to produce gasoline and battery powered passenger cars with engine sizes of 1.8 litres or less, Mustapa said.

This would immediately benefit Honda Motor Co Ltd, which already has a hybrid car manufacturing plant in Malaysia, as well compatriot Nissan Motor Co Ltd, which has production facilities and a distribution network for conventional gasoline-powered cars.

Toyota Motor Corp said Malaysia's attractiveness as a hub for energy-efficient vehicles is limited.

Boosting investment in Malaysia is not easy, said Kyoichi Tanada, president of Toyota's Thai unit, said at a separate news conference in Bangkok on Monday.

"Thailand is still in a better position given the size of market."

Toyota sold about 90,000 to 100,000 vehicles in Malaysia last year compared with 445,000 vehicles in Thailand.

Overall, around 652,000 vehicles were sold in Malaysia last year, over half of which were from Perodua and DRB-Hicom unit Proton, government officials have said.

That figure is roughly half of Thailand's 1.33 million vehicles and Indonesia's 1.22 million vehicles.

Malaysia was Southeast Asia's automotive hub before being overtaken in the early 2000s by Thailand, which has followed a more open policy toward foreign car makers setting up factories and selling cars domestically.

($1 = 3.2970 Malaysian ringgit) (Additional reporting by Manunphattr Dhanananphorn in BANGKOK; Writing by Niluksi Koswanage; Editing by Christopher Cushing)