Jaguar Land Rover, long plagued by financial struggles, has staged a remarkable comeback. The British subsidiary of Tata Motors has slashed costs and raised prices, leading to impressive cash generation. With revamped models like the Defender SUV gaining traction, JLR’s fortunes are rising. While challenges persist, including Jaguar’s ongoing transformation and the need for improved reliability, the company’s focus on high-profit models has driven a significant increase in average sales prices. Despite concerns about sustainability, JLR’s financial resurgence positions it for a promising future.
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By Chris Bryant
(Bloomberg Opinion) – Jaguar Land Rover Automotive Plc’s financial performance has long failed to live up to its refined image. Regardless of how many Range Rovers chauffeured royals and celebrities to galas or clogged city streets near posh schools, the British subsidiary of India’s Tata Motors Ltd. contrived to lose money.
But these lean years appear to be over. Cost cuts and price hikes are helping JLR generate cash. Revamped models such as the Defender SUV have been smash hits, while component shortages that curtailed production and, in some cases, led to waiting times of more than a year have eased.
JLR’s quiet reinvention isn’t complete, however. Its Jaguar unit remains a work in progress, vehicle reliability and security require continued attention and the group’s 8% operating profit margin falls short of best-in-class.
But I don’t blame Tata shareholders for getting excited. Their stock has almost doubled over the past year, surpassing every other member of the Bloomberg World Auto Manufacturers Index. (JLR contributes around two-thirds of Tata Motors’ revenue but doesn’t have a separate listing.)
Like several of its high-end rivals, JLR has learned that building fewer cars and selling them at higher prices is a much better approach than pursuing growth at all costs.
The group crashed to a £3.3 billion ($4.2 billion) annual loss in 2019 when it was forced to write down investments and cut thousands of jobs.
New management ditched a goal of achieving 1 million in annual vehicle sales; retail volume, which exceeded 600,000 in 2018, is now around 400,000 yearly; to put that in context, Mercedes-Benz Group AG’s annual sales are around five times higher.
The British unit touts synergies with its Indian parent, but its lack of scale remains an impediment: JLR plans to invest around £3 billion a year.
But thanks to its efficiency drive, the company says it now requires only 300,000 sales to break even; and by focusing on its most profitable models — Range Rover, Ranger Rover Sport and Defender comprise around three-quarters of its order book — it has been able to raise average sales prices by around half since 2019 to more than £70,000.
Top-of-the range models fetch considerably more: A Range Rover SV sells for around £200,000 on average, and some customers pay far more for limited editions or for bespoke services to ensure the vehicle color or interior stitching matches that of their jet or yacht.
This upmarket shift has alarmed traditionalists, who worry that a Range Rover lifestyle is becoming unaffordable for the middle classes.
But the better sales mix and pricing have transformed JLR’s finances: It expects to generate £2 billion of free cash flow in the fiscal year ending in March. By the following year, it aims to have zero net debt — a far cry from its nadir in 2022 when net indebtedness exceeded £4 billion.
There have been false dawns in the past, and the current state of the car market isn’t doing JLR any favors. High interest rates are sapping demand for luxury vehicles, while China’s economy is in the doldrums. However, the company is still working through a large order backlog and so far hasn’t had to offer big discounts. Meanwhile, efforts to consolidate its factory footprint should improve capacity utilization in the coming years — car production at Castle Bromwich (near Birmingham) is being wound down.
Readers worried about our overheating planet may struggle to cheer JLR’s return to form — after all, this stems from selling oversized cars that belch a lot of carbon dioxide. (JLR has in the past purchased emissions credits and operated an emissions pool with Tesla Inc. to comply with pollution regulations.)
However, the company’s failure to build on a promising start in electric vehicles — the well-received Jaguar I-Pace was launched in 2018 — could prove financially advantageous in the short-term as EV demand is starting to wobble. A fully battery-powered Range Rover goes on sale later this year; electrifying its most expensive model represents an important test.
JLR customers have often had plenty to complain about: Reliability issues led to high warranty expenses, and subpar vehicle security has contributed to a surge in thefts and astronomical insurance rates.
There’s been progress on these fronts. JLR claims thefts of its models built since 2022 are very low, thanks to enhanced security features. But new problems have emerged too. Recently, customers have complained about delays obtaining spare parts.
Jaguar, whose sedans and sports cars have lost some of their luster, remains the area requiring the most attention. The brand is being relaunched with an entirely electric offering in 2025, and it expects pricing to start at around £100,000 per vehicle, which is quite ambitious.
This new investment is questionable, given Jaguar contributes little profit, but there’s at least one good argument for offering it another chance: JLR’s reinvention of Defender has been massively successful. Built in Slovakia, the SUV has quickly become JLR’s top-selling model thanks to a clean, modern design that appeals to wealthy urbanites.
Providing customers keep paying top dollar for its Chelsea tractors, Jaguar Land Rover can afford to take a few risks. Indeed, on current form it may soon have more money than its clients.
© 2024 Bloomberg L.P.
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