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Malaysia is doubling down on the chip industry to capture growth in EVs

Tesla Inc. signage during a launch of company’s Model Y electric vehicle in Kuala Lumpur, Malaysia, on Thursday, July 20, 2023.

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Malaysia is doubling down on the semiconductor industry to capture growth in the growing electric vehicle market.

In an exclusive interview with CNBC’s “Squawk Box Asia” on Thursday, Trade and Industry Minister Zafrul Aziz pointed out that EV makers procure components from Malaysia “in the billions.

As such, “they want to realign the supply chain to ensure that security of [their] supply chain, resiliency of the supply chain is there, so they are coming closer to Malaysia and we are inviting many EV makers to come,” he said.

The goal was for EV makers to expand their presence in the country, he said pointing out that Tesla is already one of Malaysia’s major charging station providers. Some of the largest Malaysian companies are also Tesla’s suppliers.

The “end game” is for “the likes of Tesla, the rest of them [to come] and build their giga factory assembly in the country,” Zafrul said.

In August, Tesla set up a regional headquarters in Malaysia, and Prime Minister Anwar Ibrahim told CNBC’s Martin Soong at the time that “EV happens to be our priority.”

Zafrul told Malaysian media in December that he believed EVs would catalyze the growth of Malaysia’s manufacturing industry exports, and that Malaysia remained an attractive destination for electric car investors.

He pointed out said that semiconductors are integral to the manufacturing of cars, but even more so in EVs. A normal car contains about 5,000 chips, but an EV can require up to 15,000 chips, he said.

“So, Malaysia is there in that supply chain and we want to take advantage of that,” he added.

Moving up the value chain

To that end, Malaysia has set up a new national semiconductor taskforce, to allow the country to move up the value chain in the chips industry.

Zafrul said Malaysia aims to focus on what is known as the “front end” of the chips industry, instead of just the “back end.”

The “front end” of the chip manufacturing process involves wafer fabrication and engraving circuits, while the “back end” focuses on packaging and assembly of integrated circuits.

To that end, Malaysia established a national semiconductor strategic taskforce this week, in a bid to grow the country’s semiconductor ecosystem and attract strategic investments, Malaysian media reported.

In his statement, Zafrul reportedly said the industry was vital for the nation’s electrical and electronics (E&E) sector and other technology-based industries such as EVs.

Zafrul told CNBC that the taskforce highlights the importance of the country’s semiconductor sector — which accounts for 7% of the country’s gross domestic product and half of its exports.

The team will not only be looking at growing the semiconductor industry in Malaysia, but will also seek to ensure there’s a “talent supply chain” in the country.

Malaysia needs 50,000 electrical and electronics engineers every year, “of which we [have] a shortage,” he told CNBC.

However, Malaysia is still in a good position to achieve the goal of growing its semiconductor industry., he said.

“The good thing about Malaysia is this industry started in early 70s. So it’s been here 50 years. And the foundation is strong for us today to move up the value chain.”

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