Late entrant Jaguar Land Rover faces a long march in China

JLR sees sales in China exceeding European sales in fiscal 2014, but a slowing economy is a cause for concern
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First Published: Mon, Jul 22 2013. 12 50 AM IST
JLR has been working aggressively to catch up with rivals such as Audi, Bayerische Motoren Werke and Daimler in a rapidly growing market, having quadrupled China sales to 80,000 units in the fiscal ended 2013. Photo: Bloomberg
JLR has been working aggressively to catch up with rivals such as Audi, Bayerische Motoren Werke and Daimler in a rapidly growing market, having quadrupled China sales to 80,000 units in the fiscal ended 2013. Photo: Bloomberg
Updated: Mon, Jul 22 2013. 12 53 AM IST
Mumbai: Jaguar Land Rover’s China president Bob Grace has been living out of a suitcase for the past three years. During that period, he’s been criss-crossing the vast nation that boasts the world’s fastest-growing economy, opening dealerships.
China is important for JLR and its parent Tata Motors Ltd.
If JLR has been the engine driving Tata Motors, then China has been the main driver of sales for Jaguar and Land Rover.
JLR expects sales in China to exceed its European sales in the year ending March 2014, another critical statistic for Tata Motors: JLR makes its highest Ebitda (earnings before interest, tax, depreciation and amortization) per car in China, followed by the UK.
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For Tata Motors, the British unit contributed 90% of profit and more than 70% of revenue in the year ended March, making its continued good performance essential, given the dismal state of the domestic market and the parent company’s sluggish performance.
But there’s a long road ahead for a company that’s been a late entrant in the world’s biggest and fastest expanding market for luxury products, said analysts.
To add to that, the latest figures indicating the slowing of the Chinese economy should cause some concern, they said.
Growth in the world’s second biggest economy slowed in the second quarter to 7.5% year-on-year as weak overseas demand weighed on output and investment, Reuters reported on 16 July, threatening to put a dent in the earnings of companies that depend on continued Chinese growth for their prosperity.
With the latest data, China’s growth has slowed in nine of the last 10 quarters. The government’s official growth target for 2013 is 7.5%, the slowest pace in 23 years, said the report.
Grace, who has been heading the operations in China since 2010, is undaunted.
The luxury car market in China is expected to touch the 3-million unit mark by 2020, he said, quoting a McKinsey and Co. research report, from 1.1 million now. “Therefore, there is enough headroom for everyone to grow,” he said in a phone interview from Beijing, adding the average luxury car buyer in China is 15 years younger than in most developed markets and many of JLR’s brands are purchased by first-time buyers.
He expects newer models such as the Jaguar F-Type sports coupe and the Range Rover Evoque sports utility vehicle (SUV) to boost sales further—by 20-30%.
Grace, however, conceded that being a late entrant—it entered the country in 2010— JLR has to move with alacrity.
“In China, it’s action at a very high speed,” he said.
JLR has been working aggressively to catch up with rivals such as Audi AG, Bayerische Motoren Werke AG and Daimler AG in a rapidly growing market, having quadrupled China sales to 80,000 units in the fiscal ended 2013. “The sales you have seen in the last two to three years is the direct consequence of adapting ourselves to the Chinese marketplace. It’s a direct consequence of partnering with regional companies across the country and consequence of developing our brand familiarity with our consumer base in China,” said Grace.
Lagging rivals
Of the 160 sales outlets the company plans by the end of the fiscal, 118 are up and running. The rest are in various stages of being built.
The China market breaks itself down into tier I to tier V cities. There are more than 160 cities that have a population of more than a million, Grace said.
While the 160 outlets will give JLR a presence in 90 cities, it still has a mountain to climb.
JLR’s China June sales figure of 7,210 units, up 11% from the year before, pales in comparison to German rivals. Audi, leader of China’s luxury car market, sold 44,749 units (up 33.5%), BMW sold 34,481 units (up 44%) and Mercedes 19,549 units (up 16%) in the same month, according to a 15 July report by Religare Capital Markets.
“They have a lot of catching up to do with the three big German rivals—Audi AG, BMW AG and Mercedes-Benz,” said Ashvin Chotai, a London-based independent auto analyst.
JLR also has to compete with second-rung brands such as Lexus and Volvo that have also been pushing for a bigger presence in China, said Chotai.
In the first week of July, Grace and his team celebrated the third anniversary of JLR’s national sales company in China. This was part of 17 that were set up as part of Tata Motors’ strategy to enhance the unit’s global footprint and for being closer to the market after it bought the firm from Ford Motor Co. in July 2008.
“We have got a parent company that has given us an environment wherein we can be entrepreneurial, we can focus on developing the right strategies,” said Grace, who has been with JLR since 1985.
What has worked in favour of JLR in China is the novelty factor it enjoys in relation to its German rivals, said Boni Sa, Beijing-based analyst at IHS Inc., the sales forecast and market research firm. The growing demand for SUVs among Chinese buyers will also hold the firm in good stead, the analyst said.
Still, JLR’s sales in China are not as upbeat as they used to be. The growth rate in China has slumped from 72% in 2012 to 17% in 2013 so far and 11% in the past two months.
JLR’s dealer inventory in China increased sharply at the end of fiscal 2013, with retail volumes weak in subsequent weeks (April-May), wrote Joseph George, analyst at Mumbai-based brokerage IIFL Ltd, in his 14 June report.
To be sure, other premium car makers have also seen a slowdown in growth. The combined volume growth of BMW, Audi, and Daimler in China has slowed from 26% in 2012 to 9% in 2013 year-to-date, he said.
Grace said sales will get a boost once its joint venture (JV) with China’s Chery Automobiles starts production in 2014.
All its three German rivals locally assemble select models with joint venture partners. Grace declined to comment on the impact on the overall volumes the local assembly would have. “The JV with Chery is absolutely critical in our China growth strategy,” he said. “It’s the most important step in ensuring that we have a sustainable business as we move forward. It will have a marked sales impact on the volumes for our business here.”
Besides assembling some of the models locally, JLR will also produce new models along with Chery for the local market. Boni Sa of IHS said the company will, however, have to be careful that the models it chooses to produce don’t erode the brand.
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First Published: Mon, Jul 22 2013. 12 50 AM IST
More Topics: JLR | China | Bob Grace | Tata Motors | Europe sales |
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