Mumbai: Tata Motors Ltd-owned British auto maker Jaguar Land Rover (JLR) Automotive Plc is set to embark on a significant cost optimization programme across markets to boost revenue, two senior executives with direct knowledge of the matter. JLR is planning to shift production of at least four models from its British factories to its plants in low-cost markets such as China, Austria and Slovakia. At present, the E-Pace compact SUV (sport utility vehicle) and the I-Pace electric SUV are the only models that are not manufactured in JLR’s three British manufacturing facilities.
JLR makes 13 models across six locations in the world, in addition to the two assembly facilities in Brazil and India.
While the Chinese plant in Changshu district will soon see the production of the Jaguar E-Pace as part of the second phase of capacity addition, the electric I-Pace and two other Land Rover models may also be manufactured there in the near future, one of the people cited above said, requesting anonymity. The plant currently makes five JLR models, including the Discovery Sport and Range Rover Evoque, according to a company presentation.
The Slovakian and Austrian plants may also witness an increase in capacity over the next two years as they start manufacturing more models from the Jaguar stable. While the Austrian plant has been producing JLR vehicles under a manufacturing agreement with Austrian auto maker Magna Steyr since 2015, the Slovakian plant will come on full steam with the Discovery model by the end of this year.
“The poor financial performance in recent times accelerated the company’s desire to cut costs. Over the next two to four years, every JLR model manufactured in the UK will also be manufactured at one overseas plant," the person said.
Moving production out of the UK insulates JLR from geopolitical contingencies as well, this person said, adding that it remains to be seen whether the move will have an impact on jobs in the UK.
Mint could not ascertain the value of investment required to undertake capacity expansion and shift production out of the UK.
Earlier this week, JLR had reported a loss of £210 million (about ₹ 1,900 crore), its worst quarterly performance since it was bought by Tata Motors in early 2008. Factors such as a sales deferral in China owing to an impending import duty reduction, disfavour for its diesel-heavy portfolio and uncertainty over Brexit impacted JLR’s revenue and profitability.
JLR also plans to undertake other initiatives, including increased commonality and scale with the development of a new platform (Modular Lightweight Architecture) by 2025, building a global sourcing and supply base in low-cost countries such as China, Hungary and Slovakia, and increase in-sourcing (such as procuring engines from erstwhile parent Ford Motor Co.), the company said in an email response to Mint’s queries.
JLR’s short-term financials are, however, likely to remain bleak as the auto maker will continue to report higher depreciation and amortization, and higher marketing costs in the second half of the year to help drive volume, chief financial officer Ken Gregor said in an investor call on Monday.
The move will not show material results in the short-term on account of lower economies of scale and operating leverage, analysts said.
“For the next one to two years, there will be no quantifiable addition to profitability on account of shifting production as only increasing production without increasing capacity will help marginally", said Mitul Shah, vice president (research), Reliance Securities.
“It will surely help JLR on the margin front in the long term but it will be a sizeable impact only if the vehicles are sold in countries where they are produced. Capacity must be utilised fully," he added.