Subs exclusive: Analysis behind Jaguar Land Rover's recent loss

Picture Jaguar Land Rover (JLR) as a farmer, watching his crops shrivel while on the horizon a rain cloud moves frustratingly slowly towards his fields. Replace rain with cash and that’s the situation JLR has been suffering between March and June. JLR lost over a half a billion pounds in the three months to the end of June, according to its latest figures, primarily because it was too slow building the new Range Rover and Range Rover Sport. “This was a disappointing quarter for us,” JLR chief financial officer Adrian Mardell admitted on an investor call on Wednesday. Both the Range Rover and Range Rover Sport are JLR’s biggest money spinners by far and it’s tempting to think because both have been revealed, the Range Rover as far back as last October, they must already be generating much needed cash for the loss-making company. They will. But it's been a tough slog to get production up to speed at the company’s Solihull plant, south-east of Birmingham. The chip shortage has been one issue, particularly at the beginning of the quarter, which hampered JLR’s ability to build out the remaining orders for the old-generation Range Rover Sport. That meant the company couldn’t transfer factory staff to the new facility within Solihull that makes the new models. JLR inked a new contract in the quarter with a particular chip supplier that will mean a much smoother flow of the precious semiconductors to the plant, Mardell said. “We are seeing the light at the end of a very, very long tunnel here,” he told investors. The sheer scale of the task JLR set itself with the production of the Range Rover and Range Rover Sport has also hampered progress, Mardell said. Both cars sit on the brand-new MLA platform and JLR built a new body shop and trim assembly line for the cars at Solihull. It also needed to train enough staff to move to a third shift at the facility. The result was that JLR built only 6000 Range Rovers and “almost zero” Range Rover Sports in the quarter. On top of that, the plant is now on its holiday shutdown, which means production won’t start again in earnest until 8 August. All this meant the Range Rover clocked just 5695 sales in the three months, against 12,300 for the same period in 2021, according to JLR figures. The much needed cash shower is definitely going to fill JLR’s starved coffers, however, as can be seen in the 200,000-strong order bank. JLR wholesaled (ie sold to dealers) only 72,000 cars in the three months, compared with 84,400 in the same period the year before, which gives a clue to the difficulties JLR has faced getting product to customers. “We have no concerns about demand at all,” Mardell said. Of that order bank, 62,000 are for the Range Rover and 20,000 for the Range Rover Sport. If we estimate an average selling price of £100,000 per unit, that’s £8.2 billion of revenue right there, nearly double the £4.4bn generated by the company in the last quarter. Margins are usually handsome on the biggest two Range Rovers, so JLR’s cash drought could be about to come to an end. How bad have JLR financial results been recently? Mardell pointed out that the company's free cash flow (ie the money it generates in that period to pay creditors) of minus £769 million “was the best [April-June] result in five years, incredibly”. Production is finally ramping up, or will after the summer break. The Range Rover started at 500 units per week in the quarter and went into July at 1300 a week, according to Mardell. The company is now going through the same process with the Range Rover Sport, although that will take “a couple of months”, he said. Frustratingly for the firm, the shortages of parts such as chips has forced it to park up built models to await the final pieces. JLR is not alone in this, but it’s tough for the company because it particularly affects high-end models. Of the 10,000 work-in-progress cars, 5000 are Range Rovers. “The richest value orders are the most complex ones and most difficult to build, and are still sat in our work-in-progress,” Mardell said. This also means it can’t quickly get cars to the loyal, big-money customers who were first in line. JLR’s other big-ticket model, the Defender, is faring better. The model still accounts for 47,000 of the 200,000 order backlog but production at the Nitra, Slovakia, plant is now “closest to normal levels than any other plant,” Mardell said. The plant is currently focusing on the newly launched long-wheelbase 130 model primarily for the US market. Orders for its more bread and butter models, including UK best-seller the Range Rover Evoque, are “flat”, Mardell said. “We need to stimulate demand in the lower-value nameplates,” he said. Despite its traditional popularity, the Evoque only narrowly beat the Defender on sales in the three months to the end of June, at 14,660 versus 14,526. Jaguar, meanwhile, continued to suffer, with just 15,207 sales globally for the three-month period, compared with 29,152 for the same period last year. Like all car companies, JLR is having to cope with inflation and has signalled extra costs of £160m due to higher prices of raw materials, chips and manufacturing. Like other companies, it has found it can raise prices to compensate without killing demand. “The desirability of our products is such that there is kind of magic happening here,” CEO Thierry Bolloré pointed out on the call. “Demand is increasing, the price is increasing, it’s clear profitability per car is increasing and we are doing more than compensating for inflationary impacts.” JLR now just has to focus its attention on getting its highest-margin models into the hands of customers desperate to receive them.