R&D cuts and sharing models to help Proton, says analyst

Proton and its new Chinese partner, Geely, has set a 5-year plan to return to profitability


Cuts in research spending, a temporary halt in development of new models and sharing Zhejiang Geely Holdings Co Ltd’s existing line-ups could speed up Proton Holdings Bhd’s financial recovery.

Perusahaan Otomobil Nasional Sdn Bhd (PONSB) — which appointed Dr Li Chunrong (picture) as its new CEO — would not be able to plug financial holes during the planned time-frame due to the high cost of research and development (R&D) and the roll-out of new models.

Economist Dr Hoo Ke Ping said for the last three years, the carmaker’s R&D has purportedly been about RM1.5 billion per year.

“So, it would be a wise move for Proton-Geely to not push for R&D for the time being.

“At the same time, they should not be looking at developing brand new models as it will cost (in terms of investment and development) them a lot to develop a good car. This will make it harder from them to break even within the time span expected,” he told The Malaysian Reserve.

Proton — the parent company for PONSB — and its new Chinese partner Geely has set a five-year plan to return to profitability.

But the automotive business is an expensive venture. Development of a single new model could cost more than US$1 billion (RM4.23 billion) including the R&D cost, platforms and components.

Hoo said for Proton to break even, Proton-Geely would need to cut down on the number of models as too many versions require different parts, more suppliers and stocks, subsequently pushing the cost higher.

“The new CEO would need to figure out new and innovative ways to boost sales for Proton. The intention of launching Proton’s first mid-range SUV based on Geely’s Boyue will help boost sales as it is also popular in China,” he said, adding that adoption of Geely’s models would reduce the product development cost.

He said any effort to remove the excise duty on Geely cars in Malaysia would profit the Proton-Geely partnership, but will create an unfair competition in the market.

Meanwhile, an industry analyst said Li’s appointment was positive and he would make it possible to break even at the carmaker within the next four years with Geely’s active involvement.

“With 30 years of experience under his belt and having worked with major international automotive brands such as Honda, Kia and Dongfeng, Proton will definitely benefit from his appointment.

“His first task as CEO is to fix Proton’s customer perception deficit,” said the analyst. Li would also need to relook and rationalise all Proton’s underperforming vendors.

“With Geely’s past records of turning around for Volvo Cars and The London Taxi Co, Proton is in good hands.”