Newsbreak: Third national car may see Perodua’s participation

This article first appeared in The Edge Malaysia Weekly, on August 19, 2019 - August 25, 2019.
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THE third national car project, anchored by Malaysian company DreamEDGE Sdn Bhd and technologically backed by Daihatsu Motor Co Ltd, may end up leveraging the second national carmaker to start off the line.

It is understood that DreamEDGE has put out feelers to Perusahaan Otomobil Kedua Sdn Bhd (Perodua) to rope the latter into the endeavour.

While it is early days yet and nothing is finalised, an expected possible arrangement could be that Perodua becomes a contract assembler for the third national carmaker. Market talk has it that Nissan and Honda have also been approached.

Other possibilities in the air is that Perodua may assist in the design process for the first model of the third national car project, which DreamEDGE said on March 9 is slated for launch by March 2021.

DreamEDGE founder and CEO Khairil Adri Adnan did not respond to queries via phone call and text, nor has Perodua replied to emailed questions on the matter.

To recap, DreamEDGE was unveiled as the Malaysian anchor company to drive the project by Minister of International Trade and Industry Datuk Darell Leiking in a March 9 press conference.

“[DreamEDGE was chosen] because they have a good business model that we believe can work. They have briefed the prime minister and he is convinced that as long as it is privately funded and that it is run by experts from DreamEDGE, then why not,” Darell told reporters in Cyberjaya.

The announcement came two days after Prime Minister Tun Dr Mahathir Mohamad told reporters in Japan that Nissan, Toyota and Daihatsu could be among the foreign partners to assist in the third national car project.

Speaking while on a four-day working trip to Fukuoka and Oita, Mahathir said a Malaysian company has taken the initiative to seek cooperation with Toyota and Nissan, but did not name the company.

Bringing Perodua on board as a contract assembler would not be surprising, as it would be less risky — and cheaper — than starting an entirely new production facility.

It is worth noting that Daihatsu Motor Co controls about 30% of Perodua, being the technical partner since its founding in 1992.

Perodua has capacity to spare. Its overall production capacity currently stands at 320,000 units per annum on a two-shift cycle, following a RM1.3 billion expansion in 2016 which more than doubled its capacity.

According to Perodua, it produced 220,558 vehicles at its plant last year. The expected production volume this year is 249,000, leaving 71,000 in extra capacity.

Last year, Perodua sold 227,243 units. It initially forecast sales  to hit 231,000 units this year, but revised that figure to 235,000 last month.

However, industry sources believe key hurdles to bring Perodua on board will include reconciling potential conflict between Perodua’s existing offerings and what the third national carmaker intends to roll out.

Should the cooperation extend to design assistance from Perodua, both parties may also have to navigate ownership rights associated with vehicle parts currently produced by Perodua.

Khairil previously said that the first model is likely to be a hybrid C-segment sedan. Note that Perodua’s key models at present are the Myvi (B-segment), Bezza and Axia (A-segment), Alza (compact MPV) and Aruz (SUV).

However, funding the entire endeavour will be the first hurdle for the third national car project. On Aug 9, Khairil was non-committal on the sum needed, but said it will take “a few hundred millions”.

“We are still in the midst of discussions about the total amount of the funding, but it will probably be a few hundred millions. We are still looking at a few fundraising options. We would like to have a look [as to] which scheme will be the best for the company,” Khairil told reporters.

Founded in 2007, DreamEDGE has a paid-up capital of RM19 million, according to data from credit reporting company CTOS. In the financial year ended Dec 31, 2017 (FY2017), it reported a net loss of RM856,278 from RM20.66 million in revenue, its second consecutive year of losses.

The company has total assets amounting to RM54.58 million versus RM42.2 million in total liabilities as at FY2017. Total company charges come to RM21.48 million.

Khairil holds a 43.11% stake in DreamEDGE, with another 4.26% held by company general manager and co-founder Azhan Abdul Aziz. The remaining 52.63% is held by VentureTech Sdn Bhd, a wholly-owned unit of Malaysian Industry-Government Group for High Technology (MIGHT).

According to its website, MIGHT is a non-profit company limited by guarantee that acts as a technological think tank under the purview of the Prime Minister’s Department.

However, Mahathir has clarified that he did not approve the investment by MIGHT into DreamEDGE and that it happened before his current tenure.

Khairil separately stated that the effective shareholding of VentureTech in DreamEDGE is 10%. Reports say VentureTech had received redeemable convertible preference shares in exchange for funding a DreamEDGE project back in 2017.

 

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