Setting a fast pace

JLR is following up the stunning success of its Evoque SUV with more models and manufacturing operationsNot long ago, JLR was facing the possibility of a factory closure amidst declining sales and a recession. Fortunately, the Evoque model had already been approved for production, and when this vehicle launched it was an immediate and resounding success. Having been planned as a model that would hit 50,000-60,000 units annually at its peak, in some years the Evoque has actually been produced at almost twice JLR’s initial projections. The car that saved a factory is now in its second iteration, with full production taking place not only in the UK but China, plus completely knocked down (CKD) assembly in Brazil and India.

This success gave JLR the confidence to extend the Evoque into cabrio format, its first four-seater, full-size SUV cabrio. The model has also provided the underpinnings for the Discovery Sport and the same platform is now being used to produce a second Jaguar SUV, the E-PACE. This vehicle will start production during Q4 2017 at contract manufacturer Magna Steyr in Austria and also at JLR’s joint venture with Chery in China.

The Evoque gained JLR both time and money, much of which supported the design and development of the D7a/D7u aluminium-intensive platforms for the company’s larger SUVs and sedans: the Range Rover, Range Rover Sport, Ranger Rover Velar, Land Rover Discovery and the Jaguar F-PACE, plus the Jaguar XE and XF sedans. In addition, the Evoque provided the impetus for JLR to shift from being a vehicle-maker with UK production and CKD operations overseas to become a truly global player. Besides the plant in China, JLR is set to open a factory at Nitra, Slovakia, by the end of 2018, while the wholly owned CKD plant that opened at Itatiaia, Brazil, in June 2016, could ultimately become a full manufacturing facility. JLR also uses a Tata-owned site at Pune, India, for CKD production aimed at the local market.

With regard to its financial health, JLR reported another record year to March 31, 2017; global sales reached 604,000 units, generating revenue of £24.3 billion ($31.9 billion), compared with £22.3 billion a year earlier. Its profits before tax of £1.6 billion represented a 3% rise on the 2015-2016 results. Yet its 2016-2017 profits were actually 40% below the record two years earlier when the Chinese market was at its peak.

In a move designed to prevent uninvited bids for JLR, the Tata Group has increased its own stake in Tata Motors, the quoted company that owns JLR; in September, it purchased an additional 1.7%, taking its holding to 36.4%. Under Indian law, the Tata Group can increase its stake in Tata Motors by 5% in each financial year without triggering an automatic 100% takeover offer, and additional share purchases in the current financial year seem likely.

Changes and challenges in the UKReflecting its position as the largest vehicle company in the UK, JLR’s opinions on national industrial policy carry weight, especially in the febrile Brexit environment currently enveloping the country. Recently, its CEO, Ralf Speth, has been outspoken about the need for the UK to do more to encourage investment in electric vehicles (EVs) in the UK. JLR seems to want to invest in building both EVs and electric powertrains in the country, but appears disappointed with what the government has done so far to support developments in this area. A particular concern is the provision of adequate power supplies, not just for customers to charge their vehicles, but also for facilities to produce batteries and electric powertrains as a whole.

Earlier this year, Speth said that JLR’s British vehicle plants actually have the potential to increase their output, despite regularly being described as at the limit of their capacity (over 300,000 units per year at Solihull, more than 200,000 at Halewood and 150,000 at Castle Bromwich). He specified that a rise of 20% would be “at the lower range” of possibility over the next three to four years if appropriate investment in these facilities takes place.

JLR is also looking to boost output through plant reconfiguration, improved logistics flows, better data usage and in-plant connectivity, including the implementation of 5G communications technology and other key aspects of Industry 4.0. In addition, Speth acknowledges that an SUV below Evoque and Discovery Sport is still possible; JLR has long been rumoured to be working on a project called D10, but this may be manufactured outside the UK, possibly in India or China. Yet he has also been reported as telling government and local politicians that a new JLR facility in Coventry, the company’s spiritual home, is also a distinct possibility.

The OEM already opened an engine plant at Wolverhampton in 2013, which started production with diesels then added petrol versions this year. As production has ramped up, JLR has reduced supplies of engines from Ford and PSA. In fact, the only engines still supplied by Ford are the petrol V6 and V8 units from Bridgend and some V6 diesels from Dagenham. JLR recently informed Ford that it will terminate its sourcing of engines from Bridgend in September 2020, rather than December as previously planned. These petrol engines will be replaced by in-line, six-cylinder units made at Wolverhampton. Diesel unit supply from Dagenham will continue after the Bridgend contract finishes.

One major challenge for JLR at present is the need to bring more suppliers to the UK in order to raise the local content of its vehicles. However, in one of the first and potentially worrying signs of the impact of Brexit, JLR admits that it is encountering difficulties in its attempts to do so. The OEM’s increasing production volumes are obviously attractive to suppliers but, with many other investment possibilities in Europe and further afield, and with limits on their investment funds, suppliers are currently very wary of investing in the UK when so much is uncertain regarding tariffs, customs duties, market access, employment conditions and residency rights for workers.