The automotive sector has been hit particularly hard by the economic challenges posed by Covid-19.
The crisis has affected all car makers – particularly Jaguar Land Rover, Aston Martin and Bentley Motors.
For some it has made an already difficult situation worse and that is certainly the case as far as Jaguar Land Rover and Aston Martin are concerned.
Both Midland car makers were already facing some serious challenges so the coronavirus pandemic could not have come at a worse time.
Rightly the spotlight is focused on Jaguar Land Rover.
Britain’s biggest car maker, which has its global headquarters in Coventry, employs almost 40,000 people.
There are many more jobs in the supply chain that depend on its continued success too.
In these difficult times its future success is vital, not just to the Midlands and the North West but to UK manufacturing as a whole.
Predicting the future is always a difficult task but we have teamed-up with our go-to automotive expert, Dr Charles Tennant, to examine what Jaguar Land Rover could (and arguably should) do next.
Charles is well placed to offer expert analysis on the comp[any.
He is the former chief engineer at Land Rover and has also held senior roles at Tata Technologies and WMG at the University of Warwick.
What is the current situation for Jaguar Land Rover and how are its finances?
Charles Tennant (CT): “Jaguar Land Rover has started the new 2021 financial year with a set of Covid-19 savaged results for the April to June quarter, which saw a 42% slump in sales and huge losses of £413m.
“Obviously with factories and dealers shuttered around the world this was totally expected, and would have been much worse had the company not already embarked on a multi-billion pound cost saving programme last year.
“Now JLR is anticipating further losses due to subdued sales growth and is slashing costs and investment to carefully manage cash flow. And I’m afraid that means job losses, delayed and cancelled vehicle programmes, and possibly closing a factory.
“The all new electric Jaguar XJ saloon, which is seen as a key vehicle for revitalising the flagging Jaguar brand, was recently postponed until October 2021 – and the much needed short wheel base Defender has also been put back. And Jaguar’s Castle Bromwich factory has yet to reopen.
“Now with a new CEO – the ex-Renault boss and Frenchman Thierry Bollore – due to take the helm at JLR next month, I am sure that we can expect a major strategic review and product plan reshuffle as he stamps his authority on the company.
“With liquidity of £4.7 billion including £2.7 billion in cash, and a £1.9 billion undrawn revolving credit facility the stakes are high.
“With an expensive transition to electric vehicles the company now desperately needs new investment and rumours of a government bailout and new collaborative partnerships are awash.”
What are the issues around volume and sales?
CT: “When Tata Motors bought JLR in 2008 the company produced 300,000 vehicles per year from a range of just seven vehicles, but a ‘dash for growth’ strategy fuelled a bulging product plan and a £20 billion investment binge.
“The range swelled to seven Land Rovers and seven Jaguars and sales soared to more than 600,000 vehicles with the employee headcount tripling to over 40,000.
“With annual profits of £2.5 billion sales of a million vehicles per year seemed possible, as the company aimed for BMW like market coverage and scale.
“But JLR had put a lot of eggs into the Chinese market, which produced much needed and highly profitable sales growth, and soon overtook the USA as their biggest market with 25% of total sales.
“Then – like much of the auto industry – JLR began producing vehicles in China and production was expanded around the world with factories opening in India, Brazil, and Slovakia to satisfy growing global demand.
“Unfortunately sales did not continue on a growth trajectory due to multiple headwinds of a global slowdown – particularly in China – and a regulatory backlash against diesel engines. “With a hat trick of falling sales over the past few years and huge losses, the company has been forced into yet another huge cost saving programme to right-size itself back to a lower volume of 500,000 vehicle sales per year.
“Total sales last year were 508659 (down 12.1%) where Land Rover sales were 368066 (72.4%) whereas Jaguar managed only 140593 (27.6%).
“All major sales regions were also down across the board with North America being an impressive 25.4% of sales, but worryingly the important profitable Chinese market was demoted to 4th place at 17.7% of sales.”
You have talked in the past about Jaguar Land Rover revising its model range. Can you expand on that?
CT: “Now structural problems remain with a confusing and overlapping range of vehicles – built off too many platforms – that simply cannibalise sales from each other, a bloated cost base, over capacity and poor quality and reliability.
“To cap it all the debt ridden Tata Motors has now become a weak father with its own significant problems in the Indian market, where slumping sales and losses mean it is worth nothing without JLR – which may explain why Tata is hanging on to JLR at all costs.
“I would say the new boss needs to do some serious surgery to get it all back on track. “Although JLR have some of the best automotive engineers and facilities working out of their brand new Advanced Product Creation Centre at Gaydon, along with world class leading research at the National Automotive Innovation Centre at the University of Warwick, it’s not all good news as my own SWOT analysis demonstrates.
• Strengths – strong brand image, foothold in key markets, vehicle styling;
• Weaknesses – small scale, platform architecture, sales cannibalisation;
• Opportunities – collaboration, quality and reliability, electric vehicles;
• Threats – competition, global slowdown, green legislation, over capacity.
“As a premium and luxury vehicle designer and manufacturer brand image is everything to JLR and its customers. But in the annual report of the automotive industry brands in 2020 (published by Brand Finance) neither Jaguar nor Land Rover figure in the ten most valuable brands, where Mercedes holds the top position and BMW sits fourth with Audi at ninth place. “Land Rover sits at 18 out of 100 and Jaguar is further down at 36.
“Interestingly the American electric car company – Tesla – is now the fastest growing brand in the auto industry with a rapidly growing global footprint of production and sales, that saw it soar by 65% to twelfth place and it is sure to be in the top ten soon.
“The real question now is whether JLR has the right product plan in place to produce high margin profitable sales in the future, and what annual production levels should it plan for?
“The 14 current vehicles off five platforms are expensive and not efficient, and I fear a major product rationalisation, based on fewer platforms is desperately required.
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“With a brand new Modular Longitudinal Architecture (MLA) platform already on the drawing board and a BMW collaboration on electric vehicles and powertrain sourcing in place this has started. But is it enough?
“The starting point for the new product plan should be an analysis of the current 14 vehicles assessing which are profitable.
“My own views on this are shown in the table below.
“In the case of Land Rover I would say that even though (except for the Evoque) all saw lower sales last year they are all profit contributors, except maybe the full size Discovery 5, which has not been well received due to its somewhat awkward style and is well below the 50,000 plus sales of the previous model.
“The Evoque and Discovery Sport are clearly drivers of volume whereas the so called full fat Range Rover and Range Rover Sport have very high profit margins and are at very respectable sales volumes.
“For Jaguar the picture is a very sorry tale of mediocre sales performance – particularly with the XE and XF saloons – but apart from the award winning all electric I-Pace even the much sought after and popular SUVs are now in decline.
Vehicle sales – % change – profitable
Range Rover 47,290 (16.2) Yes
Range Rover Sport 74,277 (7.6) Yes
Range Rover Evoque 85,106 +24.7 Yes
Range Rover Velar 52,902 (18.4) Yes
Discovery 33,674 (17.5) No
Discovery Sport 74,568 (15.2) Yes
Defender 249 (new model) Yes
Jaguar XJ 3,535 (model run-out) No
Jaguar XF 11,726 (56.7) No
Jaguar XE 21,949 (27.9) No
Jaguar F-Pace 43,388 (17.6) Yes
Jaguar E-Pace 37,894 (18.9) No
Jaguar I-Pace 15,867 +40.0 Yes
Jaguar F-Type 6,234 (20.8) No
So, what does the company need to do as regards its model line-up?
CT: “It would seem that the Land Rover side of the business can do no wrong but I do question the need for the full size Discovery 5 vehicle, as it is now clearly blurred between Range Rover and Defender.
“So maybe Land Rover can get by with six vehicles in the range, with an opportunity for a £25k Baby Land Rover and a stripped out lower cost version of the new Defender (and maybe a pick-up truck) to drive utility sales.
“And I would not bother with a co-called Baby Range Rover leaving that market to the volume players.
“Clearly it is Jaguar where the most serious thinking is required. I would simply can the poor selling XF saloon and focus on electrifying the XJ, XE, J-Pace SUV and drop the F-Type sports car.
“Tesla have proved there is a strong global market for sporty and luxury electric saloon cars, and Jaguar have an opportunity to design some stunning looking high end vehicles with luxury interiors to capitalise on this demand.
“I would be sorely tempted to eventually drop the I-Pace, F-Pace and E-Pace Jaguar SUVs, leaving those market segments to Land Rover, who should focus on SUVs and definitely not succumb to the idea of more road orientated cars – just leave that job to Jaguar.
“The four door electric XE saloon could go slightly larger than the current vehicle with a two door coupe and hatchback added to the range.”
Could partnerships be key going forward – perhaps even a tie-up with Tesla?
CT: “Interestingly the CEO of Tesla – Elon Musk – has recently said that he is open to licensing software and supplying batteries and electric drive units to other automakers.
“Tesla produces vehicles in the full size luxury sedan, compact executive sedan, mid-size SUV and compact crossover market segments.
“All areas of opportunity for Jaguar especially if the offer was extended to included platform sharing.
“This would then leave Land Rover to focus on the in-house MLA platform. And we know JLR are on the hunt for further significant collaborators.”