As Jaguar Land Rover Generates Good News, Hurdles Will Take Some Jumping

Jaguar Land Rover (JLR) has produced some good news. It reported the first quarterly profit in 2 years, said sales jumped as the chip crunch subsided, and announced an extra shift to raise output of its big-selling Land Rover Defender.

There’s more. JLR’s owner Tata Motors of India revealed it will boost the switch to electric cars by setting up a battery cell factory in Europe.

JLR will also be in the spotlight when it reveals its new CEO. Former CEO Thierry Bollore left last year, and Adrian Mardell is interim leader.

Experts differ on the preferred course of action for the new CEO to put the company back on a healthy trajectory, not forgetting that it wasn’t that long ago the target was 1 million sales a year, more than twice current capacity. Suggestions for the new CEO range from taking a leaf out of the Jaguar plan and moving the whole operation upmarket into or above Aston Martin territory where sales would be modest but profits huge. Others say JLR isn’t big enough to compete on cost with the likes of BMW, Mercedes, Toyota’s Lexus, VW’s Audi or Hyundai’s Genesis, and should seek a merger or takeover.

Professor David Bailey of Birmingham Business School says JLR needs a partner, with BMW having the inside track because of its joint collaboration agreement to develop electric vehicle technology, adding he never understood exactly what Bollore’s “bizarre” strategy was and was sceptical about his legacy.

“Take the whole thing upmarket? I don’t think that would work. You would still have all the research and development costs. Like everyone else they were constrained by the chip crisis and prioritized sales on the highest-margin vehicles like the rest. They still need volume to generate profit, but that 1 million target is long gone, and what the target is now isn’t clear,” Bailey said in an interview.

Jaguar is going upmarket and all-electric in 2025. Land Rover gets its first all-electric model in 2024. JLR has said the volume target is 500,000 a year.

“Electric cars are a must. I thought (the potentially top-of-the-range electric Jaguar) XJ was very impressive, but Bollore cancelled that and wasted a lot of money and JLR is now lagging behind on electrification. The (electric Jaguar) I-Pace is a cracking car but so far it’s a one-off and JLR didn’t use the platform (basic engineering) for anything else,” Bailey said.

“The electrification strategy has been botched and it is now lagging badly and JLR will have to look for partners; that looks increasingly like BMW because of the current collaboration,” Bailey said.

Since 2019, JLR and BMW have been jointly developing electric car technology.

Last week, interim CEO Mardell told analysts normal production without constraints would be about 40,000 vehicles a month, up from around 27,000 currently.

“Today we are a long way from normal. I believe the challenge through 2023 will continue to be supply rather than demand,” Automotive News Europe quoted him as saying.

In the third quarter ended December 31, 2022, JLR earned profit before tax of £265 million ($320 million) compared with a loss of £9 million in the same period of 2021 and has forecast “near breakeven” for the whole financial year. Sales to dealers in the quarter increased 15% to just under 80,000. At the end of the quarter the order book was 215,000.

S&P Global Mobility autos analyst Ian Fletcher said JLR has made progress in cutting costs and lowering its breakeven point and agrees it lags in the electric race. He is much more positive on the ultimate outcome for JLR and doesn’t expect Tata to sell it.

“The latest financial results are positive, and the foundational work done to reduce costs has helped hugely. JLR has cut its breakeven volumes to around 280,000 units, well below where it had been. Keeping the business lean and keeping a handle on costs will be as important to the long-term future of the business as the right products, given the upheaval that the industry is going through, especially now that it feels that JLR is somewhat behind the electrification curve despite getting the I-Pace to market before many of its rivals,” Fletcher said in an email exchange.

Fletcher also sees problems if Land Rover tried to join Jaguar in the rarified Aston Martin stratosphere.

“I can see the argument for cutting back Land Rover to focus on lower volume/higher profit vehicles like the Range Rover, Range Rover Sport and Land Rover Defender, but I think it would be brave to do so and would require significant structural changes to the business. I also don’t think that Land Rover’s smaller models like the Discovery Sport and Range Rover Evoque are such a dead loss as some Jaguars,” Fletcher said.

“The sedan space is so hard to compete in that the XE and current XF (sedans) didn’t have much of a chance, while the E-Pace (SUV) hasn’t really done anything for the brand. By contrast, the Discovery Sport and Evoque are both currently solid choices in the premium compact/mid-size SUV category despite being based on ageing architectures and the competition in this space,” Fletcher said.

Fletcher said JLR might develop a smaller Defender which could replace the Discovery Sport. He doesn’t expect Tata to sell JLR. Fletcher also wonders why Bollore cancelled the electric XJ.

“I don’t expect Tata Motors to look to sell JLR. It has been a big contributor to its business in the past and they will see it as doing so again if everything goes to plan. Plus, I still think they see there are opportunities to leverage JLR’s engineering and tech in Tata brand products,” Fletcher said.

Professor Stefan Bratzel, director of Germany’s Center of Automotive Management (CAM), is firmly in the need-for-a-partner camp. It was difficult for JLR to compete against segment leaders because it was too small while trying to move into a higher segment would be very difficult and expensive. He wasn’t impressed with the I-Pace, describing JLR’s electrification as not very successful. Electrification and state-of-the-art connectivity required massive investments, and that doesn’t include the need to also spend fortunes on autonomous capability.

“At the moment I don’t see how JLR could be successful alone,” Bratzel said in an interview.

Priorities for the incoming CEO?

“Much faster electrification, along the lines shown by Mercedes, BMW and VW who are building up their own electronic architectures, and investment in connectivity services,” Bratzel said.

Birmingham Business School’s Bailey said the challenge between now and 2030 is to get a whole load of electric cars to market quickly.

“Will they want to keep Jaguar? It might have been better to resurrect Daimler as the luxury brand. I doubt if they’ll keep Jaguar. What was the logic in building the I-Pace on a separate platform which just added extra cost? So it looks like they will sell it off,” Bailey said.

Asked to comment, JLR made this statement.

“Through our Reimagine Strategy we are delivering a modern luxury vision to make the most desirable cars for the most discerning of customers. This means producing lower volumes of more luxurious, higher margin vehicles. Already our most desired and most profitable collections, Range Rover, Range Rover Sport and Defender, are delivering greater revenues each quarter.”

“We are creating new vehicles which epitomize modern luxury, and the rapid electrification of the product portfolio, with accompanying investment, continues. Range Rover BEV will be launched in 2024 while the transformation of Jaguar into an all-electric modern luxury brand is on track and the first new vehicles will be with clients in 2025.”