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    £300m capex for 5 Lotus models

    KUALA LUMPUR: Proton Holdings Bhd’s share price has remained largely muted despite the big splash its UK sports car unit Lotus made at the Paris Motor Show two weeks ago, with the unveiling of five new models scheduled for production in stages by 2015.

    Judging from the stock’s performance, investors have largely ignored the significance of the project, which management has billed as one of the important pillars of the Proton group’s five-year plan that has ambitious cash flow projection.

    However, given that a massive investment is involved, there is concern that Proton is throwing money at an unrealistically risky venture and that the project is a high-stakes game that Proton could not afford to lose.

    Explaining the economics of the Lotus project at a group briefing yesterday, Proton’s managing director Datuk Syed Zainal Abidin Tahir said it would cost Proton over £300 million (RM1.48 billion) to develop the five new models, and that the project was doable with fewer than 10,000 units in annual production volume.

    “In the super premium sports car segment, for every £70 million invested (to develop a model), it is doable (economically viable) with about 2,000 units in annual production volume,” he said.

    To reiterate, the five new models Lotus unveiled during the Paris Motor Show are Elan (2+2-seater sports car); Elite (2+2-seater grand tourer); new Elise (lightweight sports car); Eterne (four-door luxury sports saloon); and Esprit (Lotus flagship supercar).

    The production schedule for the five new models is ambitious, with the Esprit planned for production in 2013, Elan also in 2013, Elite in 2014, and Elise and Eterne in 2015.

    Syed Zainal said the five new models would have a lot of “carry-over” parts and components among them, hence reducing the development cost per model. For instance, the five models share two common platforms and all share the main instrument panel.

    “Lotus has a division Lotus Lightweight (Structures Ltd) manufacturing aluminium chassis, what we did was to extend the current platforms to make it stronger (for the new models that are bigger in size). And we are not developing our power train, we are getting the engine from Lexus-Toyota,” said Syed Zainal.

    Proton is pinning its hopes on the launch of five new models to turn around Lotus. Elite (pictured) is one of the models unviled at the Paris Motor Show this month.

    Proton is pinning its hopes on the launch of five new models to turn around Lotus. Elite (pictured) is one of the models unviled at the Paris Motor Show this month.


    “I spoke to Akio Toyoda (Toyota’s chief), Carlos Ghosn (Nissan-Renault’s chief), Mr (Martin) Winterkorn (CEO of Volkswagen AG) and the CEOs of Ferrari and Lamborghini, they said this (Lotus’ new models project) is remarkable, I don’t think they say this just to be nice…” he added.

    In terms of brand and product positioning, Syed Zainal said Lotus will initially position itself “lower” than Porsche and Aston Martin, with its pricing starting from £25,000 (Lotus Elise) to £140,000 (Lotus Eterne), but will move its way up from there.

    Industry observers say Lotus could get its critical 10,000 units volume if it hits the right formula. With this volume, management’s own assumption is that Lotus could generate between RM3.5 billion and RM4.5 billion in revenue.

    Note that Porsche sold 33,670 units in the first half of its financial year ended July 31, 2010, with revenue and operating profit of €3.16 billion (RM13.67 billion) and €329 million, respectively.

    In general, prices of Porsche range from as low as £34,726 (two-seater Boxster light sports car) in the UK to £164,107 (top-end performance model of the 911).

    In terms of financing for the Lotus project, Syed Zainal said the over-£300 million capital expenditure would be 80% funded by borrowings from local and international banks.

    “We are finalising the loans syndication. It is almost finalised. To be honest I had the same questions, I asked our people, are you sure that this (five new models) can be done. Well, we have the industry experts sitting on our advisory panel (who) said it can be done. Also the auditor has said this business plan is sound and feasible for implementation, which is why the banks are okay to lend us the money,” said Syed Zainal.

    The Proton managing director said the project was a bold attempt to rejuvenate Lotus and make it a profit centre instead of a cost centre that dragged down the group in terms of resources. Nonetheless, on what would be the impact on Proton if the billion ringgit investments failed, he said one of the options would be to exit Lotus, should management decide not to inject more capital.

    Group restructuring and consolidation
    The Lotus project is part of Proton’s group restructuring plan to create four core operating units that are each a profit centre, to be modelled after the Petronas group organisational structure.

    The four core units are Lotus sports car division, Proton-Lotus engineering division, Proton manufacturing division and Proton distribution division. It is learnt that a restructuring plan is due for implementation next year.

    In terms of technical collaboration as well as strategic partnerships in the areas of production and manufacturing, Proton is currently in talks with parties such as Nissan-Renault, Fiat and Hindustan Motor. One of the more interesting collaborations involves platform and engine sharing cum a joint production venture for a global small car project based on the Proton EMAS concept model, which was unveiled at the Geneva Motor Show a few months ago.

    Meanwhile, on industry consolidation, it is learnt that a proposal may be tabled at year-end for the government, being the ultimate major shareholder in the various national car and automotive projects such as Proton, Perodua (through UMW Holdings Bhd) and the motor division of Sime Darby Bhd, to consider consolidating its shareholdings in the diverse groups under a common holding vehicle.

    There have been talks for a while now, with the objective being to promote synergy and efficiency in the local auto industry.

    [Source]


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    Re: £300m capex for 5 Lotus models

    Sounds like they have a very realistic and strategic gameplan for the next decade or so. It's good to see the investment capital is at hand. I look forward to seeing them in the showrooms.


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    indeed shifting is ancient technology - so is a fuel burning engine..  I happen to like both :) 


    Re: £300m capex for 5 Lotus models

    The only problem I see is pricing, these new cars would easily be the end for Lambo, hurt AMG a bit, but they would only marginally hit ferrari and AM (because those people are buying image). They are too expensive to compete for most Porsche buyers and I do not think the super high end is big enough.

    If their prices were lower they would seriously hurt Porsche, but not at the projected prices.


    Re: £300m capex for 5 Lotus models

    I am really puzzled as to why they would not introduce their lowest cost Elise first in 2013... It is the lightweight entry backbone of the company and if that model with the new design language is successful, success of the other more upscale models will certainly be based on something...

    Besides that the biggest concern is the engine... Customers will know it's a Toyota heart under the skin... this will part an integral part on pricing.


    --

    indeed shifting is ancient technology - so is a fuel burning engine..  I happen to like both :) 


     
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