이 기사는 2021년 09월 17일 08:08 thebell 에 표출된 기사입니다.

A potential buyer of debt-ridden SsangYong Motor will have to put great efforts into strengthening the carmaker’s research and development (R&D) capabilities along with improving its financial structure.

SsangYong’s sale manager EY Hanyoung received bids from seven potential buyers on Wednesday.

SsangYong invested 50 billion won ($43 million) in R&D in the first half of this year. The R&D expenses decreased by 27.1% compared to a year ago, but maintained a similar level to the previous year, accounting for 4.9% of its total sales. This means the company has continued to invest in its R&D even when the carmaker was undergoing the rehabilitation procedures and sale process.

“I think that SsangYong could have survived this far thanks to its continuous investment in R&D,” said an official at SsangYong. “Our R&D investment to sales ratio is the highest among domestic automakers.”

SsangYong’s R&D expenses accounted for 4.4%-5.5% of sales between 2011 when the carmaker was acquired by Indian parent Mahindra & Mahindra and the first half of 2021. This is much higher than South Korea’s largest carmaker Hyundai Motor and Kia Motors which spend about 3% of their annual sales on R&D.

However, apart from the continuous investment in R&D, unstable performance is one of the challenges that the new owner of SsangYong will have to deal with in the future.

In the first half, SsangYong recognized 23.5 billion won of 56 billion won in total R&D expenses as intangible assets, recording a capitalization rate of R&D costs at 42%, which is up 13.7 percentage points compared to a year ago. Given that the carmaker’s R&D cost capitalization rate were 60.4% and 58.7% in 2017 and 2018, respectively, this year’s figure is difficult to be seen as positive.

The R&D cost capitalization rate is a proportion of funds recognized as intangible assets out of total R&D expenses. The higher the rate, the greater the R&D performance and the lower the cost burden. Companies like SsangYong, which have been relatively slow to switch to electric vehicles and have suffered capital erosion due to long-term losses, need to increase the capitalization rate of R&D costs.

SsangYong spent 189.5 billion won and 156.4 billion won on R&D in 2019 and 2020, respectively, with the capitalization rate standing at 37.4% and 28.3%. This means the company had to recognize more than 100 billion won as expenses for two consecutive years.

The company has reduced its R&D organization. Former executive director Lee Tae-won, who led the development of the company's first electric vehicle Korando e-Motion, which is set to hit the European market in October, was dismissed from the company in April. The position has reportedly been left vacant since Lee left the company.

“If the company is normalized (through the sale), we will need to recruit experts in each field to speed up the transition to electrification although it is hard to do so right now,” said the official. (Reporting by Doung Yang)