JLR plans major expansion and will invest £11bn over the next four years

Jaguar Land Rover is planning to spend £2.75 billion each year for the next four years on new products and new production capacity around the world. But chief executive Ralf Speth insists that the rapid global expansion will not come at the expense of its interests in the company’s British heartland.

“It is absolutely critical that we diversify production around the world, but to be absolutely clear, we have an absolute commitment to the UK and will continue to invest there as long as we have free and fair trade,” Speth told Autocar. 

“But a global footprint is critical to our UK stability. That is why we already assemble cars in India (the XF and Freelander), which is a low-volume first step there, we are working on our joint venture with Chery in China, and we are investigating possibilities in Saudi Arabia, where we can see a flourishing automotive business thriving one day.”

JLR has a number of advantages in its quest to dramatically increase sales and expand its global footprint. It is enjoying booming sales and the SUV market is increasing.

“You have to invest in big amounts of seed in order to reap the harvest, which is what we are doing,” said Speth. “We see the cycle as powering growth. The amounts we are investing are very large, but I think we can keep that momentum. It is not a case of investing now and then pausing; as we invest in product and deliver more cars, I expect we can keep going forward at the same rate.”

But the company will probably have to borrow to feed the massive investment that’s being planned. JLR’s profits for 2012-2013 are expected to exceed £1.6 billion. Profit margins in the final three months of 2012 slipped to 14 per cent from 17 per cent, but that’s still way ahead of BMW’s 10.9 per cent margin in 2012.

Indeed, JLR has used up half a billion pounds that it had in the bank last autumn and has already borrowed money on the markets to feed the massive investment plans. Analysts say JLR is likely to spend all the money that it makes on investment as well as borrowing very significant sums.

Why take the risk? JLR has to make a break for much bigger volumes and build a far wider range of models if it is to prosper over the longer term.

Last year JLR sold 355,000 vehicles. Jaguar shifted about 60,000 cars, and more than a third of Land Rover’s output is accounted for by one model: the Range Rover Evoque. Indeed, in the second half of last year the Evoque and Freelander accounted for 52 per cent of all sales. A solid basis for long-term growth requires a wider sales footprint. 

JLR also has too many different platforms and is racing to reduce is reliance on engines bought in from rival companies. That’s why the company is spending so much money, so quickly. JLR’s new engine plant is in the final stages of construction and it is building a new factory in China. 

In Saudi Arabia, JLR has secured a source of competitively priced aluminium that potentially gives it a technical lead over its German rivals as it moves to all-aluminium cars.

As Autocar revealed last year, it has a 16-model Land Rover range in its sights and a slice of the 20-million-unit-plus global SUV market. And Jaguar hopes to slice away a profitable chunk of the premium market dominated by the BMW 3-series and Audi A4, with a new range of compact cars.

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Comments
16

4 April 2013

How times have changed you now believe this will happen.  I'm looking forward to seeing the new cutting edge all-aluminium cars particularly in the 3 series sector.

4 April 2013

With all that money finally they can move the xkr more upmarket with a new generation and mabye make a supercar 

BJN

4 April 2013

Tata are determined to make JLR major players in their sector and therefore this investment is necessary, as is the gradual transition to global sourcing and assembly: it is the only way to take on the established (mainly German) elite. As long as UK jobs are safe-guarded (as promised in the article), then this has got to be a good thing. However there is something that nags away at me, when it comes to big business and its 'intentions' :  "free and FAIR trade" ?  I wonder what the scenario will be in 15 years' time? 

Wide cars in a world of narrow.

4 April 2013

I'd say that's the bare minimum to compete with the German's.  It sounds a lot, but in the whole scheme things it isn't.  Although I never thought JLR would ever get to these levels of investment if you asked me the same question say 10 years ago.  That's the great thing with car industry always adapting and changing.

4 April 2013

£2.75 Bn investment in each of next four years, yes OK, but on backdrop of record profits of £1.6 Bn annually when they're really flying. Depends of course on the return (extra profits) on their investment, but seems mighty ambitious to me, and would interesting to know the period they plan to borrow over.

Didn't they want a government handout not so long ago?

LR seem to be producing products people really want at the moment, but they're still vunerable to a fast change in market conditions if SUVs/4x4 suffer a big backlash, and their new products, while moving in the right direction are still hardly lightweights are they?

Jaguar for me is a basket case. Only 60,000 cars in 2012? That's peanuts, and can't be sustainable from an investment point of view. They seem to want to become a bigger volume producer by going lightweight and different, which I wish them luck with, but they'll have to charge a premium and I can't see their brand being able to carry that off vs the Germans.

4 April 2013

JLR requested a LOAN and not a HANDOUT.

Why is Jaguar a basket case? Are they losing money? Why do you think that they are expanding their range with 4 cylinder petrol/diesels, a 3 series competitor, X5 competitor, AWD and replacing the current model range?

  • Jaguar Land Rover North America sales increase 4 percent for March 2013; best JLR March sales since 2006
  • Jaguar U.S. sales increase 7 percent; highest monthly sales volume in last 30 months
  • Jaguar XF (+30%)

4 April 2013

I think this is the first time in a long time that JLR has had a parent with the ambition, intention and funding capability to develop it into a sizeable business.

The RR and LR product range seems to be headed in the right direction. The Evoque has been the hit it was expected to be, and the new RR and (I hope) RR Sport appear to have what it takes well to do well in the segment. The new RR, RR Sport and Evoque are at the right time in their product life cycles to generate plenty of sales and cash flows over the next few years, which will help pay for the investment in subsequent models, technologies and engines. The Freelander is very dated now, but I hope the newer ranges will have the ability to compete with the X3, Q5 and the others in the space.

I think the problem with Jaguar products has been and still is, is that they are operating in a space (large executive / luxury saloon cars) that has been rapidly declining. They have not had estate cars (bar the ill-fated X Type, and the only recently launched XF Sportbrake) in their range, nor have they had small diesels till the recently launced 2.2D in the XF. I was actually surprised they did not launch the XF Sportbrake earlier in the current XF product life.  The move into the 3 series / C Class / A4 space will be interesting to watch, and if they can get the product right, they will be able to substantially increase their volumes.

What I think as being radically different now for JLR is that the management seems genuinely focussed on making this a truely international business it needs to be to effectively compete. The increased focus on the growth markets (China, India, South America), identification of profitable niches (4WD for saloons focussed at the snow belt in the US, Scandinavia and Russia), investment in new technologies (aluminium, low emissions etc) are all signs to me that Tata seems to know what to do. The ingredients for success seem to be there, whether they can pull it off remains to be seen.

4 April 2013

It appears that JLR's Indian owners are prepared to back JLR far better than the previous German and American owners.

What a pity most British industry invests more money per year in their company car fleet than in new efficient machinery and plant.

maxecat

4 April 2013

'free and fair trade' - what a loaded phrase that is, i agree with Herald.

what is it, a shot across the anti-EU bows?

also, paul dalgarno is surely right to say jag is a basket case on 60,000 vehicles a year. that's half of porsche, and what are jags profit margins??

4 April 2013

parsley wrote:

also, paul dalgarno is surely right to say jag is a basket case on 60,000 vehicles a year. that's half of porsche, and what are jags profit margins??

A basket case at 60,000? They were selling 45000 in 2009, so 60K is actually good progress. And serious volume makers are in the pipeline for the next years.

About the gross profit margins: they stood at 17% (FY2012), twice the gross margin of Audi (8.7%) and almost triple the industry average of 5.9%.

I am quite sure that Tata has more of a clue about whether to invest 11bn than anyone on this forum...

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