JLR’s first electric car shines light on strategy
UK’s largest carmaker is contending with challenges including technology and Brexit
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Much like its new electric car, Jaguar Land Rover does not make much noise.
While upmarket rivals including BMW and Mercedes regularly update investors and the media about their plans on electric propulsion and self-driving systems, JLR instead beavers away in the background on new cars, only showing them to the world when they are ready.
On Monday at the Los Angeles motor show, JLR finally unveiled its first electric car — the Jaguar I-PACE — and this has served to put the company’s strategy under the spotlight.
Britain’s largest carmaker is late to join the fast-developing electric vehicle market, where industry upstart Tesla is threatening the position of established carmakers, including JLR. This in turn raises questions about whether the UK company’s relatively conservative approach to key technologies could harm its future prospects.
JLR is also grappling with the possible consequences of the UK’s vote in June to leave the European Union.
Ralf Speth, JLR chief executive, acknowledges the complex issues raised by Brexit, but rejects the idea the company is less innovative than core competitors, and believes the I-PACE sport utility vehicle is strong evidence of this.
“As a small company, we are more mobile than our competitors,” he says in an interview with the Financial Times.
JLR has enjoyed strong growth in revenue and profit since being acquired by India’s Tata Motors in 2008 — partly due to the success of the Range Rover Evoque — but it is now contending with major challenges.
The economic slowdown in China — JLR’s second most important market after the UK — was a key factor in the company in 2015-16 reporting its first decline in annual pre-tax profit during the Indian group’s stewardship. However, in the first half of 2016-17, JLR recorded a profit of £679m, compared to £481m one year earlier, when earnings were depressed by one-off charges.
The company’s financial performance has been affected by Brexit. Although JLR sells only 20 per cent of its cars to EU markets — compared to 80 per cent from UK plants run by Nissan, Toyota and General Motors’ Vauxhall unit — the company buys half its components from continental Europe. This has left JLR with higher costs following sterling’s fall in value since the EU referendum.
Privately, senior JLR directors are “concerned” about Brexit, according to two people who know several company executives well. The company has told the UK government that JLR must enjoy tariff free trade with the EU after Brexit if it is to remain competitive.
The company’s options for moving manufacturing from Britain — if the UK struggles to maintain satisfactory access to the EU single market — are limited because JLR does not own multiple factories in continental Europe.
The company has plants in Brazil and China, but the bulk of its manufacturing is done at its UK factories at Solihull, Castle Bromwich and Halewood.
A large new JLR plant in Slovakia, capable of making 150,000 cars each year as well as doing research and development work, is due to open in 2018.
But acutely aware of its UK heritage in the Midlands region, JLR insists it is not looking for excuses to divert work from Britain. “We want to stay here and make here,” says Dr Speth.
It is notable however that manufacturing of Jaguar’s new I-PACE, including the batteries, is being outsourced, because JLR’s existing factories are running at full capacity.
This is the first time the company has done this — the SUV will be assembled in an Austrian factory owned by Magna, a Canadian carmaker.
In the long term, JLR aims to move the I-PACE assembly to the UK, where the company is considering making batteries.
JLR has secured outline planning permission to build a battery factory in an area known as Whitley South, close to its headquarters in Coventry.
Plans for a much bigger expansion project in the Coventry area, which could provide the company with additional manufacturing capacity on up to 200 acres of land, are also lodged with local authorities, according to two people with knowledge of the proposals. This land could be used to make electric as well as conventionally powered cars.
JLR has been “slow to the party” on electric propulsion, according to Professor David Bailey, an industrial policy expert at Aston Business School.
“They have been sceptical about the electric car market,” he says. “But now they realise they have to enter the market. Tesla have taken a chunk of the premium market and they have to get into it.”
But the industry race is not confined to battery-powered cars. JLR will test a fleet of more than 100 driverless cars on UK roads over the next four years, and, like BMW and Ford, it is cautious about rolling out the technology until these systems can operate vehicles without any human intervention.
This contrasts with Tesla, for example, which is pushing ahead with partially autonomous vehicles now. Daimler’s Mercedes has a similar approach.
JLR will be less affected by the autonomous vehicle battle because “people who buy their cars will be less likely to demand driverless technology”, says one consultant who declines to be named.
Nevertheless, the company faces some “pretty tough headwinds”, including rising technology costs, adds this person.
“Why will people buy Jaguars or Range Rovers in the future? It’s because they want something a bit special,” he says. “The company has a bright future, but it is as a niche brand.”