Granted, that eye-popping number is inflated by a one-off non-cash charge of £3.1bn. But even if you discount that as an ‘exceptional item’, it’s tough reading: a pre-tax loss of £273 million, compared with £90m in the previous financial quarter.
Whichever figure you choose to focus on – £3.1bn or £273m – neither is positive. And both, in different ways, lay out the challenges Jaguar Land Rover faces in the coming years.
The one-off £3.1bn non-cash charge effectively comes from Jaguar Land Rover adjusting down the value of some of its capitalised investments, such as factories and machinery, effectively recognising that money it has previously invested in them won’t be recovered.
It is understood a number of those investments relate to the production of diesel-engined cars, which have long made up the bulk of Jaguar Land Rover’s sales. That has left the company particularly vulnerable to the slump in demand for diesel, which, right or wrong, seems increasingly to be an irreversible trend. By reducing the ‘carrying value’ of its capitalised investments, Jaguar Land Rover says it will save around £300 million annually in deprecation and amortisation.
Effectively, this is Jaguar Land Rover trying to draw a line under past mistakes by taking one big hit, preparing the firm to move forward under its ‘Charge’ and ‘Accelerate’ turnaround and transformation plans. Through those plans, Jaguar Land Rover is targeting more than £2.5bn worth of savings, which we already know includes the loss of 4500 jobs, this year.
Jaguar Land Rover is also investing in the future; in the final three months of 2018, it invested £1bn, including funding for an engine manufacturing centre to build electric motors, and a battery assembly centre. Both will be located in the UK and help the firm’s plans to offer an electrified version of every model in its line-up from 2020 on.
So it is possible to spot some positives, but the challenge the company faces in staging a turnaround is highlighted by that £273m pre-tax loss in the last quarter. For Jaguar Land Rover to stage a recovery, first it has to halt the decline.
Jaguar Land Rover says the primary reason for that £273m loss was “challenging market conditions” in China, where car sales have dropped sharply in the past year. The firm’s October-December sales in China of 22,100 cars was down 47.1% year on year (compared with a market decline of 15%), enough to offset strong – and above industry average – sales growth in the UK (up 18.4%) and North America (up 21.1%).
Again, it is possible to spot some positives here. Along with the E-Pace, Jaguar’s I-Pace electric SUV was one of the firm’s few models to increase its sales in the last quarter (Jaguar’s saloons notably struggled). It is, however, notable that both those models are built under contract in Austria, so Jaguar’s margins on them will be lower.
The success of the I-Pace is well-deserved, given Jaguar beat the likes of Mercedes, BMW and Audi to the market with a premium SUV. But that raises questions: we know those firms are gearing up to launch vast ranges of EVs in the coming years. Publicly, at least, there are few signs of Jaguar Land Rover following up the I-Pace. While electric cars still represent a small fraction of the car market, it is a clear growth area that Jaguar Land Rover could capitalise on, particularly in China.