In the past few months there’s been a flurry of news about Jaguar Land Rover’s expanding production base.
The company has already opened a factory in Changshu, China, with local partner Chery. The Range Rover Evoque and its sister car, the Land Rover Discovery Sport, are being built there, and, eventually, the long-wheelbase version of the new XF.
However, the capacity of Changshu is limited to around 130,000 units at the moment and the localised production is mostly needed to avoid China’s significant import taxes.
Work on building a small plant in Brazil is also under way; this should start producing Discovery Sport models in 2016. The plant is quite modest, however, with an initial capacity of 24,000 units a year.
In addition, JLR has just signed a deal with Austrian company Magna to build vehicles under contract. Based in Graz, Magna has been building the Mini Countryman since it was launched and also builds other cars, including the Mercedes-Benz G-Class.
The British company won’t say what will be made at Graz, but the new Evoque Cabriolet is one of the most likely candidates.
There have been reports that JLR is considering a factory in Mexico. Although there's no confirmation, Mexico’s low wages and the North American free trade deal make it an ideal country from which to export to the US. Indeed, it has just been announced that Ford is moving production of the Focus and C-Max from North America to Mexico.
But none of JLR’s overseas production facilities will be as big as the one currently being finalised for a site that's tipped to be somewhere in eastern Europe.
Tipped to be a £950 million investment and have a capacity of up to 350,000 units annually, the new factory will be in either Poland or Slovakia, according to local media reports.
No car maker, especially when it is building lower-value vehicles, can ignore wages that could be as low as £6.25 per hour in Poland and £7.50 in Slovakia, compared with as much as £18 per hour in the UK.
Although neither country has publicly announced that it is in talks with JLR, Polish deputy prime minister Janusz Piechocinski said at the end of June that the country had reached the sixth round of negotiations with a premium car manufacturer for the construction of a new plant.
Local reports in the Polish press say that up to 6000 people could be employed at the new site. The timetable to get the plant running is tight, according to local reports, with construction getting under way later this year for a production start in 2019.
Not to be left out, Slovakia’s government has just revealed that it has changed the laws relating to the Act on Investments of Significance in order to win "the investment of the decade".
Economy minister Vazil Hudack was quoted as saying in 2014 that Slovakia had been missing out on big inward investments because it lacked the big industrial parks that companies wanted.
Hudack also said the decision on the new plant was expected to be made in mid-September.
Like many developing European countries that want to attract inward investment, Poland already operates Special Economic Zones. These benefit from the government offering state aid to inward investors as well as tax exemptions for the new business once they have been established.
Poland also seems to have the space needed for this big JLR plant. Polish reports say JLR is looking for 300-500 hectares, and the two front-running sites are at Środa Śląska and an airport at nearby Legnica.
Both are close to the big city of Wroclaw, although the airport site could be a little too small.
More importantly, a number of established car-making centres are within reasonable distance of this part of western Poland, including the Polish city of Gliwice (which has both a Toyota and an Opel plant).
These two potential sites are also not so far from Skoda’s Mlada Boleslav HQ and VW’s plant in Dresden. All of which is good news for JLR being able to access well-established component suppliers.
The announcement of such a big plant in eastern Europe will undoubtedly rattle nerves in the UK. But it’s becoming increasingly difficult to profit from car making in higher-wage economies, unless you are dealing with proper premium products.
To prosper over the longer term, JLR needs scale. This probably means an annual output of around 800,000 units.
Hitting this output also means it has to dip down into lower price (but still ‘premium’) brackets. But when it does this, wage costs become a much more important consideration.
Truth is, building more affordable cars in a low-wage country is probably necessary to secure the wider JLR operation during the next two decades.