According to new financial results filed by Jaguar Land Rover (JLR), its once monumental profit margins have evaporated.
The days of leaping sales and big transaction prices (especially in China) have given way to slowing demand and significant sums have been invested in the new MLA platform, the I-Pace and the new Slovakia factory. In the financial year 2017-2018, JLR’s profit margin was just 3.5%.
The company says its new MLA platform strategy, significant cost-cutting and a reduction in complexity of future components mean it is getting its costs under control while still investing massively.
As well as adding as many as four new model lines over the next five to six years, JLR will also completely replace its model line-up over just six years, while increasing the complexity and sophistication of its products as global regulation and competition get ever more onerous.
Indeed, between 2019 and 2021, JLR will spend 12-13% of its turnover on research and development. The industry norm is just 5%. But, as one JLR source rightly points out, it is having to do in 10 years what the Germans did across 25 years or more.
So it’s no surprise that JLR thinks, in the medium term, profit margins will be between 4% and 7%, which is below what German premium car makers manage. Long term, JLR is aiming at a relatively modest profit margin target of 7-9%.
But you can’t fault JLR management’s strategy: invest and invest again in new product. It’s what the old British industry never managed to do, which is why it is long gone.