Currently reading: Analysis: How Jaguar Land Rover and PSA could work together
If the rumoured tie-up, or takeover, happens, it could be good news for both parties
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5 mins read
31 May 2019

Jaguar Land Rover (JLR) recently revealed a £3.6 billion annual loss, much of which was due to it reducing the value of company assets and a recognition of a reduction in future earnings. 

The results came after two weeks of speculation that the PSA Group – owner of Peugeot, Citroën, DS and Vauxhall/Opelhad made a bid to buy JLR from Indian owner Tata

A ‘post-integration’ document was reported to have been in circulation at the British car maker. JLR boss Ralf Speth did not rule out discussions between PSA and Tata but suggested he was not party to them. For its part, Tata said there was no truth in the rumours that it was about to “divest its stake in JLR”. 

What Tata’s statement didn’t say was that it might divest some of its stake in JLR, entering a co-operation with PSA that could make sense for both companies. This currently looks to be the most likely outcome, according to Autocar sources. 

One investor said he believed that some kind of PSA-JLR tie-up was “inevitable”, a sentiment backed up by former Land Rover chief engineer Charles Tennant, who told the Coventry Telegraph that JLR was in a “death spiral”. 

So is JLR really in trouble, or is this major bump in the road simply due to the collapse of JLR’s sales in China? The hard figures suggest that there is trouble ahead

According to JLR’s accounts for 2018-19, sales in North America were up by 8.1% to 139,800 and up in the UK by 8.7% to 117,900 units. But sales across the EU were down by 4.5% and they crashed in China by 34%. North America is now JLR’s biggest market. 

Behind those headline figures, there were big drops in the 2018-19 sales of the Evoque and Discovery Sport (both down by around 30%) as buyers waited for the new models, but this should spring back over the next 12 months. A 20% fall in F-Pace sales is not helpful for a comparatively young model, though. 

However, sales of the E-Pace grew strongly, as did sales of the Velar. The Range Rover Sport was up to a profit-enhancing 80,000 sales globally. 

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Investment in the new MLA multi-fuel platform is weighing on the company, though. JLR spent a significant £3.8bn in 2018-19 on investment, of which 62% was on new products and 14% on electrification. 

Sources also told Autocar that the JLR operation in China is in particular difficulty. Rocky relationships with dealer networks need to be repaired after significant sales and marketing mistakes were made.

Sources also claim that JLR’s relationship with Chery, its joint-venture partner in China, is also not as settled as it might be. Rocky releationships with dealer networks need to be repaired after significant sales and marketing mistakes were made, with insider concern JLR won't be able to turn that operation around.

Stories of quality problems with Chinese production are also common in the local media. The JLR-Chery combine builds the Evoque, Discovery Sport, E-Pace and long-wheelbase XE and XF for the Chinese market. 

If we boil all that down, JLR’s predicament looks something like this: sales of less than 600,000 units across 13 model lines is a recipe for trouble down the line. And although the company is merging most of its cars onto the MLA platform, it is an expensive architecture and the investment needed to redesign its current bestsellers and launch three new model lines will be vast. 

Even selling more than 700,000 cars by 2021 may not generate the cash needed for the future of the business. Rival firm BMW, for example, sold more than three times that in 2018. Moreover, JLR’s financial projections predict profit margins in the 3-4% range for the next three years and 4-6% by 2023. Tricky, when a recession is entirely possible in the medium term. 

Take, for example, the current Evoque/Discovery Sport platform, which is due to be phased out in 2025, leaving no replacement architecture for these big-selling cars and, one investor claimed, no money in the bank for a project that needs to start in 18 months or so. 

Outline plans for a range of smaller, more affordable and low-CO2 ‘city Land Rovers’ are also dead. Jaguar’s future in saloon cars has to be in question, too, despite official protestations.

How could an alliance with PSA help JLR?

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Tata, Jaguar Land Rover's owner, is looking for a partner for a new medium-sized platform for its own future models. Chery was in the frame, but PSA could present itself as a better match

PSA’s well-regarded EMP architecture could be upgradable for the next Evoque and Discovery Sport, perhaps fitted with an electrically driven rear axle. It could also underpin a family of Land Rovers priced below £30k, helping JLR build much-needed scale and appease dealers. 

An alliance with PSA would also provide significant cover for JLR’s fleet CO2 rating, especially if JLR loses its derogation from meeting the 95g/km target in 2021. 

PSA’s alliance with Dongfeng in China is said to be rocky, so a bespoke PSA-JLR venture in the country could help both partners start with a clean sheet, and JLR would have access to PSA dealers, allowing a neat brand ‘ladder’ from Citroën to Peugeot, DS and then Land Rover as a flagship. 

PSA is also looking to get a foothold in the US, where JLR already has an established dealer network that it describes as “solidly profitable”. 

As a first step in a PSA-JLR alliance, this all looks like a sound move. Any deal would probably lead to some major changes in JLR’s future plans, rather than ensuring business as usual. But major upheaval for JLR looks unavoidable.

Premium car firms - how it was looking last year

Mercedes-Benz (brand)

Earnings/profit - £6.26bnProfit margin - 7.8%Research and development - £6.03bnSales - 2.38 million cars 

Audi (brand) 

Earnings/profit - £4.05bn Profit margin - 7.8% R&D - £3.62bn Sales - 1.88 million cars 

BMW Group 

Earnings/profit - £8.64bn Profit margin - 7.2% R&D - £7.05bn Sales - 2.12 million cars 

Jaguar Land Rover 

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Earnings/profit – £358m (£1.07bn in 2017) Profit margin – 0.7% (3.8% in 2017) R&D - £3.8bn Sales - 578,900 cars (614,300 in 2017)

Read more

Jaguar Land Rover boss plays down PSA sale report - but doesn't deny it​

Jaguar Land Rover posts £3.4 billion loss in final quarter of 2018​

Why Jaguar Land Rover faces tough times​

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mark2autoz 3 June 2019

JLR

I think JLR are ahead of the Germans - and JLR are definitively quicker to market with better tech, which is why they don’t want to share their tech. The German car companies haven’t had strong reliability since the early 1990s. I wouldn’t want to drive a German car past 100k miles, but I would drive a JLR product up to 200k miles. Also, interiors in German cars are all about PERCEIVED quality. If you have ever looked at the interior buttons on a 15 year old Audi then you will notice all the paint or whatever they use peeling off exposing just white plasticky buttons. Early 3rd gen Range Rovers (L322) interior suffered from this too since the interior used the BMW / German way of thinking with finishes on interior bits. When it was facelifted around 2006 (under Ford ownership) LR switched to real full color buttons / trim (not white plastic with painted on finish) and real aluminum bits, which is much more appropriate since the full-size Range Rover sits above brands like BMW and Merc. Full-size Range Rover is a Rolls and Bentley competitor but with awesome off-road capabilities that has a lower entry price based on engines, etc.

Anyway, hopefully the worst is behind JLR. I agree Jaguar should probably combine XE and XF into one model. Maybe like the extra long-wheelbase XE they use in China, which still has great proportions but offers tons of rear legroom. Lots of rear legroom is definitely a luxury and would make it very unique as a global product instead of just a China specific variant. Then maybe only raise the price a few thousand £/$ and then just move way up to the much larger XJ if buyers want much more in a sedan.

Regarding USA and UK trade relations, the USA / Trump Administration view the UK as very close friends, almost like family, and they have already said several times they’re just waiting for Brexit to happen and plan a phenomenal trade deal as soon as the UK is independent. So North America is JLRs biggest market and the UK could have the best trade deal of any nation with the USA.

Also, a bit off topic, regarding electric vehicles, the upcoming Porsche Taycan interior is so small and cramped inside. How can it compete with the Tesla Model S - SEE: https://m.youtube.com/watch?v=O2s68co4Xw8

CharlieBrown 3 June 2019

mark2autoz wrote:

mark2autoz wrote:

I think JLR are ahead of the Germans - and JLR are definitively quicker to market with better tech, which is why they don’t want to share their tech. The German car companies haven’t had strong reliability since the early 1990s. I wouldn’t want to drive a German car past 100k miles, but I would drive a JLR product up to 200k miles. Also, interiors in German cars are all about PERCEIVED quality. If you have ever looked at the interior buttons on a 15 year old Audi then you will notice all the paint or whatever they use peeling off exposing just white plasticky buttons. Early 3rd gen Range Rovers (L322) interior suffered from this too since the interior used the BMW / German way of thinking with finishes on interior bits. When it was facelifted around 2006 (under Ford ownership) LR switched to real full color buttons / trim (not white plastic with painted on finish) and real aluminum bits, which is much more appropriate since the full-size Range Rover sits above brands like BMW and Merc. Full-size Range Rover is a Rolls and Bentley competitor but with awesome off-road capabilities that has a lower entry price based on engines, etc. Anyway, hopefully the worst is behind JLR. I agree Jaguar should probably combine XE and XF into one model. Maybe like the extra long-wheelbase XE they use in China, which still has great proportions but offers tons of rear legroom. Lots of rear legroom is definitely a luxury and would make it very unique as a global product instead of just a China specific variant. Then maybe only raise the price a few thousand £/$ and then just move way up to the much larger XJ if buyers want much more in a sedan. Regarding USA and UK trade relations, the USA / Trump Administration view the UK as very close friends, almost like family, and they have already said several times they’re just waiting for Brexit to happen and plan a phenomenal trade deal as soon as the UK is independent. So North America is JLRs biggest market and the UK could have the best trade deal of any nation with the USA. Also, a bit off topic, regarding electric vehicles, the upcoming Porsche Taycan interior is so small and cramped inside. How can it compete with the Tesla Model S - SEE: https://m.youtube.com/watch?v=O2s68co4Xw8

You raise some interesting and valid points but I’m afraid the worst is just beginning for JLR (not nearly over) and their outgoing finance boss has already admitted they expect another loss for the next quarter, which is poor, especially as they’ve just borrowed hundreds of millions against unsold stock to make the last quarter look more rosy than it really was

Tonrichard 2 June 2019

All credit to Tata for their

All credit to Tata for their heavy investment in JLR but unfortunately they did not see the double whammy of the aftermath of dieselgate and the collapse of their Chinese sales. I think they have also been a bit cavalier tackling their long term quality inadequacies - probably thinking it was down to poor design and engineering which would be resolved as new models came on stream whereas it may be a more fundamental problem. JLR’s hugely ambiguous new model programme may perhaps have diverted resources away from a need for relentless focus on quality and increment manufacturing improvements. In my opinion, even in the premium auto market JLR are too small to go it alone because even if they pull themselves out of their current predicament they could in future be hit by other headwinds such as higher tariffs on exports to the US. I think Tata and India have too much of their prestige tied up one JLR so I cannot see a full sale to PSA but their must be scope for substantial cooperation especially platforms and engine sharing with the next generation of Discovery Sport and Evoke. That said it could be argued that a collaborative agreement with Geely may be a better fit. However that may not be possible because Geely have a large minority interest in Daimler - Mercedes-Benz parent company. I cannot help but think JLR have too many product lines with overlap between the brands - where does the Velar really fit and once the new Defender is launched the Discovery will Bev sandwiched between it and the Range Rover Sport. Perhaps the next XF should just be an extended wheelbase XE or a shortened XJ. Despite their best efforts Jaguar are always going to be also runs against the mite of the 3 Series, C Class and A4. I think the time has come for a bit of realism by JLR and Tata.

mark2autoz 1 June 2019

Meh

Meh, all rumors and speculation, but Tata has invested too much to let go of JLR - and they were making huge profits a couple years ago. Tata Group doesn’t think short-term. They’ll most likely hold on to JLR (hopefully) - and it sounds like their turn around plan is working. TATA GROUP as a whole is a behemoth!
TStag 2 June 2019

mark2autoz wrote:

mark2autoz wrote:

Meh, all rumors and speculation, but Tata has invested too much to let go of JLR - and they were making huge profits a couple years ago. Tata Group doesn’t think short-term. They’ll most likely hold on to JLR (hopefully) - and it sounds like their turn around plan is working. TATA GROUP as a whole is a behemoth!

I agree. I also think PSA could get in big trouble very quickly. It has very little going on with electric cars. Some people on here suggest JLR are late to the party (which isn’t true) but PSA are still trying to find out where the party is and if they have an invite. Quite genuinely Tata could by buying PSA itself within a few years as the group slides into trouble with ancient German car plants, lack of electrification, battery manufacturing facilities, etc. JLR have taken the investment hit already.

CharlieBrown 2 June 2019

 

 

 

TStag wrote:

mark2autoz wrote:

Meh, all rumors and speculation, but Tata has invested too much to let go of JLR - and they were making huge profits a couple years ago. Tata Group doesn’t think short-term. They’ll most likely hold on to JLR (hopefully) - and it sounds like their turn around plan is working. TATA GROUP as a whole is a behemoth!

I agree. I also think PSA could get in big trouble very quickly. It has very little going on with electric cars. Some people on here suggest JLR are late to the party (which isn’t true) but PSA are still trying to find out where the party is and if they have an invite. Quite genuinely Tata could by buying PSA itself within a few years as the group slides into trouble with ancient German car plants, lack of electrification, battery manufacturing facilities, etc. JLR have taken the investment hit already.

But JLR have made very poor investment decisions hence having to write off a third of their asset value and Tata Motors are already $14 Billion in debt and their home market in India has just crashed so eventually the money will just run out

TStag 2 June 2019

CharlieBrown wrote:

CharlieBrown wrote:

 

 

TStag wrote:

mark2autoz wrote:

Meh, all rumors and speculation, but Tata has invested too much to let go of JLR - and they were making huge profits a couple years ago. Tata Group doesn’t think short-term. They’ll most likely hold on to JLR (hopefully) - and it sounds like their turn around plan is working. TATA GROUP as a whole is a behemoth!

I agree. I also think PSA could get in big trouble very quickly. It has very little going on with electric cars. Some people on here suggest JLR are late to the party (which isn’t true) but PSA are still trying to find out where the party is and if they have an invite. Quite genuinely Tata could by buying PSA itself within a few years as the group slides into trouble with ancient German car plants, lack of electrification, battery manufacturing facilities, etc. JLR have taken the investment hit already.

But JLR have made very poor investment decisions hence having to write off a third of their asset value and Tata Motors are already $14 Billion in debt and their home market in India has just crashed so eventually the money will just run out

 

Tata Motors is part of Tata Group so you kind of need to look at the wider picture. JLRs write downs are mostly to do with The Jaguar XE and XF selling badly. Land Rover is performing strongly as are Jaguars SUVs. 

The write downs now mean that they won’t have to take them later. Tata Motors has just launched several new models amongst them the Land Rover based Harrier which if Autocar covered is gearing up to enter the European market and looks like it will give Kia a good run for its money. But whose dealers will Tata need to use? My guess Land Rovers.

I’m not saying JLR shouldn’t want to merge with another car maker but PSA is the weakest big car maker it could merge with.

CharlieBrown 2 June 2019

TStag wrote:

TStag wrote:

CharlieBrown wrote:

 

 

TStag wrote:

mark2autoz wrote:

Meh, all rumors and speculation, but Tata has invested too much to let go of JLR - and they were making huge profits a couple years ago. Tata Group doesn’t think short-term. They’ll most likely hold on to JLR (hopefully) - and it sounds like their turn around plan is working. TATA GROUP as a whole is a behemoth!

I agree. I also think PSA could get in big trouble very quickly. It has very little going on with electric cars. Some people on here suggest JLR are late to the party (which isn’t true) but PSA are still trying to find out where the party is and if they have an invite. Quite genuinely Tata could by buying PSA itself within a few years as the group slides into trouble with ancient German car plants, lack of electrification, battery manufacturing facilities, etc. JLR have taken the investment hit already.

But JLR have made very poor investment decisions hence having to write off a third of their asset value and Tata Motors are already $14 Billion in debt and their home market in India has just crashed so eventually the money will just run out

 

Tata Motors is part of Tata Group so you kind of need to look at the wider picture. JLRs write downs are mostly to do with The Jaguar XE and XF selling badly. Land Rover is performing strongly as are Jaguars SUVs. 

The write downs now mean that they won’t have to take them later. Tata Motors has just launched several new models amongst them the Land Rover based Harrier which if Autocar covered is gearing up to enter the European market and looks like it will give Kia a good run for its money. But whose dealers will Tata need to use? My guess Land Rovers.

I’m not saying JLR shouldn’t want to merge with another car maker but PSA is the weakest big car maker it could merge with.

Ok fair enough let’s look at the bigger picture where the Tata Group has debts of $40 Billion

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