Why is a Proton X70 cheaper than a Honda CR-V by RM53k? What's the difference in taxes?

Hans/Apr 15, 2020 12:37 AM

The most expensive Proton X70 Premium X variant sells for just RM 122,800. A similarly equipped Honda CR-V 1.5 TC-P sells for RM 175,900. Both cars are from the same segment but there’s a whopping RM 53,100 difference in prices!

To give you a better perspective, for the price of a top specs Honda CR-V 1.5 TC-P, you can buy the most expesive Proton X70 variant, then head over to a nearby Perodua showroom to buy another mid-specs Perodua Myvi 1.5H, and still have some change left!

Nevermind comparing against same-class rivals, the Proton X70 is priced low enough to compete with a lower B-segment Honda HR-V.

There’s no other way to put it, if you want an SUV, doesn’t matter what size, you can’t leave out the Proton X70. Its value proposition is just too good to ignore.

So why is a Proton X70 so cheap? Is it because it is based on a Chinese car and like all Chinese products, they are produced a very low cost?

Economies of scale

Yes the China factor is part of the reason, but it’s not because manufacturing cost there is lower. That might be true 20 years ago. Today, labour cost in China is actually higher than Vietnam or Thailand, or even Indonesia.

Geely is not relying on cheap labour. Lu Rongliang is a Chinese equivalent to a Takumi (Japanese for master craftsmen). His hands are able to feel deviations of 30 micrometers - half the thickness of a strand of hair.

Instead, manufacturing cost in China is kept low because of their greater economies of scale. A factory’s tooling cost is more or less the same irrespective of location. The more it can produce and sell, the lower the unit cost is for each finished product.

China's car market is worth over 25 million cars a year. It’s the world’s largest car market, ahead of USA’s 17 million. Thailand and Indonesia sells slightly over a million cars while Malaysia can only do about 600,000 cars a year.

Their labour cost structure is also less complicated, without the high cost European (IG Metall)/American (UAW) style workers’ union representation and wage negotiations.

In 2019, Geely sold 232,237 units of the Geely Boyue (including Boyue Pro) in China, the donor car for the Proton X70. Honda sold 213,306 units of the CR-V in that same 12-month period in China.

To put the put the numbers in perspective, sales of just one Geely model in China alone is already more than double that of Proton’s total annual sales, nevermind Honda Malaysia. Again, the theory of economies of scale plays to Geely’s advantage.

Last year, Geely sold 1.36 million cars worldwide, over 1.2 million of it coming from China.

The Chinese market Geely Boyue is priced from around CNY 90,000 to CNY 120,000 (about RM 55,000 to RM75,000) but don’t bother comparing it to local prices of the Proton X70 because the Chinese market Boyue has lower specifications, including 6-speed manual variants and it doesn’t come with advanced driving aids.

Geely Boyue Pro

The model with a comparable equipment level to our Proton X70 is actually the Geely Boyue Pro, priced at around CNY 160,000 (about RM 100,000), but it also comes with a fancier looking dashboard and a new front-end design that we don’t get.

Geely Boyue Pro

Converting the Chinese left-hand drive Boyue to a right-hand drive Proton X70 also costs money and the lack of other right-hand drive markets sharing the cost means that Malaysian buyers will have to absorb most of the additional cost, thus explains the big price gap between a Chinese market Boyue and our Proton X70.

Chinese Geely Boyue is 70% cheaper than Honda CR-V, but Honda still holds its ground

Even in China, the Geely Boyue is significantly cheaper than a Honda CR-V (about CNY 170,000 – CNY 277,000), over 70 percent cheaper!  

Why? Although the Chinese Honda CR-V is assembled in China, a lot of its parts are still imported from Japan, and these are taxed accordingly.

The Geely Boyue uses mostly Chinese produced parts, which escape tax. Still the surprising thing is that despite the huge gap in prices, sales of the Honda CR-V in China is still quite close to that of the Geely Boyue, just 9 percent behind.

For a car that's 70 percent cheaper, Chinese consumers didn't buy that many more Geely Boyue than the Honda CR-V, Perhaps Chinese consumers see something that we don’t?

Honda's stronger presence in big Chinese cities is also a factor. Geely's acceptance in big Chinese metropolitian cities is not as great as Honda and many of Geely's sales are still coming from smaller cities, where buyers are more attracted to Geely's excellent value for money.

How much tax does the Proton X70 and Honda CR-V pay?

It is no surprise that being a Proton, the X70 gets away with paying just minimal taxes. The Proton X70 pays just around RM 6,000 in taxes. The Honda CR-V, despite being locally-assembled, pays a whopping RM 35,000-plus in taxes.  

So every time someone buys a Honda CR-V, they are paying enough tax to buy the Ministry of Finance a new Perodua Bezza.

Without taxes, the Proton X70 sells for just RM 88,700 – RM 115,800, while a Honda CR-V sells from RM 117,300 to RM 138,500.

Remember that it actually costs more for Honda Malaysia to locally-assemble the CR-V in Malaysia than to import one from Japan or Thailand - low volume, high cost local plant vs high volume, low cost main plant. Of course, this is before our punitive taxes on imports are applied and turn the business logic upside down. 

Contrary to popular opinion, the reason the Proton X70 gets away with paying so little in excise tax is not because it is a national car.

Technically, Malaysia no longer has a national car policy, as both Proton and Perodua are now privately owned entities, albeit with ties to government-linked corporations.

The reason the Proton X70 gets away with paying so little tax is because the Ministry of Finance offers discounts on excise duties based on how much local investment a car manufacturer makes and the value of locally-soured parts purchased.

Naturally, no other company operating here will spend as much as Proton/Perodua.

For a global company like Honda, with its many R&D centres around the world, it makes no sense to invest in Malaysia to develop a CR-V here when the CR-V’s biggest markets are China and USA.

So although Malaysia no longer favours any national car brands, the way discounts on excise duties are given out mean that the status quo will remain unchanged. Locally-assembled or not, any car that’s not from Proton/Perodua, will still be taxed higher.

So every time someone buys a non-national brand car, they are also paying the equivalent of a smaller, cheaper car in taxes – the sum adds up to about RM 10 billion annually.

Malaysia is not the only country in the region that penalizes imports to protect our own local manufacturing sector. When Proton X70 is exported to neighbouring countries like Indonesia, the tables will be turned against Proton. We have covered that topic here and here.

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