I have been sitting on some news about Caterham during the past few weeks, waiting on some of the moves to play out. And it’s been fascinating to watch this minnow of the car industry become such a talking point on the global stage.

Knowing how sensitive the information could be, the first thing I did was speak to Caterham’s CEO, Ansar Ali to understand the impact of the changes and to ensure that whatever we published would not undermine the swift conclusion of any negotiations.

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One thing I hadn’t completely comprehended before speaking with Ansar, is that Caterham’s acquisition by Team Lotus Enterprise (TLE) was instigated by Ali himself – at a meeting with Tony Fernandes shortly before last Christmas.

It was an inspired move by Ali, securing a much brighter future for the Dartford based car company, but it was perhaps even more significant for Fernandes.

[/two_columns] [two_columns_last ]Ansar Ali, CEO of Caterham Cars[/two_columns_last]

You see in the game of chess that’s been playing between Fernandes and Group Lotus, the winning move was always perceived to be control of the Lotus brand, of which Team Lotus is just a part (implicitly if not legally). Good chess strategy suggests that your King’s safety is crucial, so Group Lotus focused on protecting their good name and keeping it out of Fernandes’ hands.

Despite Fernandes’ audacious moves with Team Lotus, Dany Bahar – Group Lotus CEO – knew he could play the long-game and win the battle as long as he reinforced his strongholds and raised the profile of his brand (hence the high-profile PR announcements we’ve been seeing). So, as of January 2011 the game was approaching stalemate (if not checkmate) and the acrimony between each side was settling in for the long-run.

So, I hear you asking – what’s changed?

Tony Shute joins Caterham

Tony Shute who until recently was Head of Product at Lotus Cars; responsible for engineering the Evora, Exige and Elise and a 20-year veteran of the company, resigned from Lotus and joined Caterham a few months ago. Shute has been joined at Caterham by several other Lotus employees and is now hard at work on Caterham’s next generation of road cars.

Ansar was keen to point out that Caterham did not poach Tony or any other personnel from Lotus, they made this choice themselves, but clearly Caterham will now benefit from the infusion of Tony’s knowledge and experience in developing a more mainstream road car.

Tony ShuteTony Shute, ex-Head of Product at Lotus Cars, who has now joined Caterham.

Proton sanctions the sale of the Elise and Exige platforms to Caterham?

We were originally led to believe that a deal had been done to sell the Exige and Elise platforms to Caterham, but I now understand this to be untrue – perhaps because Caterham have acquired a team with first-hand experience of developing these models. Proton still appear to be keen on selling the S1 Elise Platform, but interestingly, not the S2 (as demonstrated by the new Exige S and Exige R-GT launched in Frankfurt this week).

Nevertheless its quite telling, since the source of this information was a Kuala Lumpur based insider. Clearly Lotus’ Malaysian owners have become tired of the public spat with Fernandes and would like to see Lotus focus on achieving their 5-year plan – and help pay back the $270M syndicated loan borrowed in April to finance the development of Lotus’ new models and subsequent restructuring costs.

Proton have recently taken a beating on the Bursa Malaysia (previously known as Kuala Lumpur Stock Exchange), plunging to a 2-year low after concerns over its latest earnings results. The national car maker posted a 94.6% year-on-year drop in net profit to RM4.55mil for its first quarter ended June 30, 2011, compared with a net profit of RM84.68mil a year earlier, which was attributed to higher expenses incurred by Lotus Group International Ltd.

In turn the Malaysian group has been criticised for its “costly foray into the sports car market”, with Analysts arguing that Proton should instead invest in improving its product offerings, in particular its core models, or focus its efforts in collaborating with a strategic partner.

It’s worth noting that in the 10 years under Proton ownership, Lotus has yet to become profitable and continues to require significant investment from Proton – this has become even less palatable during the global economic downturn, since Proton’s major shareholders comprise government-linked companies (Khazanah Nasional Bhd, the Employees Provident Fund and Petroliam Nasional Bhd). Up to 50% of the total group capital expenditure (capex) for the next 12 months has been allocated to Lotus, with the remaining 50% going to Proton, so you can see why the market is taking news of Proton’s latest results so badly.

Team Lotus becomes Caterham Team Air Asia in F1

You will no doubt have already heard the rumour that Tony Fernandes is to relinquish the Team Lotus name and rebrand his team as Caterham Team Air Asia for the 2012 F1 season. Caterham will remain liveried in Green & Yellow whilst Lotus will be coloured in whatever design Swizz Beatz can dream-up, or perhaps just remain Black & Gold.

Caterham Team Air Asia will move to Northants (taking over the old Super Aguri factory), leaving Hingham available for Caterham Cars and some F1 fabrication, and of course, modestly close enough to Lotus HQ in Hethel.

[two_columns ]Tony Fernandes, CEO of Air Asia and Team Lotus[/two_columns] [two_columns_last ]

Fernandes being a loyal and patriotic Malaysian could see the problems facing Proton back home and didn’t wish to add to their burden – but of course, being an astute businessman he would not surrender the Team Lotus name without adequate compensation.

Last month a share swap was agreed with Malaysia Air, the state-owned national carrier, with its owners gaining a 10% stake in Fernandes’ Air Asia, whilst Air Asia (via Fernandes-owned Tune Air), will receive a 20% stake in Malaysia Airlines.


This is the win-win Fernandes has long been talking about and has paved the way for a resolution with Group Lotus.

However, given the pressure upon Proton (and therefore Group Lotus) we understand Lotus’ investment plans are being trimmed back to the essentials, hence the Lotus Renault F1 team will now become a Renault sponsored by Lotus, rather than a Lotus powered by Renault – although of course the powerplant will remain Renault.

We also understand Lotus’ product development plans will be trimmed back, so that the Evora becomes the entry-level model (i.e. the Elise will not be replaced), with emphasis being placed on selling premium models with the highest net margins. Proton apparently don’t want cross-over product (and sparring) between Lotus and Caterham, as this (quite obviously) wastes money and opens them up to further criticism by the analysts.

So what does this mean for Caterham?

You’d have to admit that Caterham are sitting very pretty amidst all these moves. Ansar has long been trying to acquire blueprints for the Series 1 Elise from Lotus, but with Tony Shute on board he perhaps doesn’t need them any more (although they would certainly save a lot of money in homologating a future Caterham for the US markets).

Ansar Ali, CEO of Caterham CarsAnsar Ali, CEO of Caterham Cars.

Product wise, in addition to the Caterham 7 (which will live on) there is the SP/300.R, which seems to have experienced delays but should begin customer testing soon. The SP/300.R is due to participate on the F3/GT package but Caterham will need full grids – however Ansar sees it as providing a staircase for talent to migrate up from the numerous Caterham 7 series, both here in the UK and internationally.

So that leaves the way clear for Caterham to build a new range of affordable sports cars, filling the space left by the Elise and Exige, and designed from the outset to become a global product.

Ansar tells me that since news of Caterham’s acquisition he has been inundated with new opportunities, mostly it has to be said from overseas. That’s the other big change you’ll see from Caterham. Even before the sale to TLE, Caterham were selling more than half their cars outside the UK, and this will increase in future especially with access to Air Asia’s logistics and distribution network.

Fernandes has already said that he’d like to see Caterham cars being sold wherever his airlines fly to, which makes North America and APAC countries a no-brainer, and with a population of more than 4 billion people I could already sense that Ansar was wondering if he’d bitten off more than he could chew. But Fernandes is a pragmatic businessman and just as he’s done with his F1 racing team, he’ll be keen to see Caterham grow organically and sustainably.

There’s clearly much to do, Caterham are not yet geared up to operate as a global business, so Ansar will need to build new sales and distribution processes, new systems, establish a more outwardly-facing culture and learn how to scale Caterham’s DNA without diluting its very essence.

So the journey for Caterham has just begun, but there’s plenty for enthusiasts and British industry to feel optimistic about. Having long been a minnow of the car industry, the boys from Dartford just got teeth. I for one, can’t wait to see what happens next.

Written By

Steve Davies

Steve is an investor, private equity advisor and former Partner at KPMG, PwC and Bain.   Most importantly he's a life-long car enthusiast, mountain biker and active sports enthusiast. He designs and builds technology platforms and is the architect behind Transmission.

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