Jaguar Land Rover’s most recent financial results are hard to ignore. The company’s balance sheets will show that it suffered a loss of PS3.4 billion in pre-tax income during the last three months of 2018.
This eye-popping figure is exaggerated by a one-time non-cash charge of PS3.1 billion (Rs 28 619 crores). Even if that is an ‘exceptional item,’ it still makes for difficult reading: A pre-tax loss of over PS273million (Rs 2,520crore) compared to PS90m (831 crores) in previous quarter.
Whatever figure you choose to concentrate on, PS3.1bn and PS273m, neither one is positive. Both figures outline the challenges Jaguar Land Rover will face in the next few years in different ways.
Jaguar Land Rover’s one-time non-cash PS3.1bn charge is essentially a result of adjusting the value of some capitalized investments such as factories and machinery. This effectively acknowledges that money it previously invested in them will not be recovered.
It is believed that some of those investments are related to investment in diesel-engined cars. These have been the mainstay of Jaguar Land Rover’s sales. This has made the company vulnerable to the decline in diesel demand, a growing trend that seems irreversible, right or wrong. Jaguar Land Rover claims it will reduce the ‘carrying worth’ of its capitalized investments by around PS300 million (Rs 2.770 crore) yearly in amortization and deprecation.
Jaguar Land Rover is trying to erase past mistakes by taking one major hit. This will allow the firm to continue under its ‘Charge’ and ‘Accelerate’ turnaround and transformation plans. JLR plans to save more than PS2.5 billion (Rs 23080 crore), including 4,500 job losses.
Jaguar Land Rover has also invested in the future. The three-month investment of PS1 billion (Rs 9.232 crore) includes funding for an engine manufacturing centre to build electric motors and a battery assembly facility. They will both be located in the UK and help Jaguar Land Rover’s plans to offer an electrified model for every model it makes starting in 2020.
It is possible to see some positives. However, the pre-tax loss of PS273 million (Rs 2.520 crore) in the quarter before tax is a reminder of the challenges the company faces in achieving a turnaround. Jaguar Land Rover must stop the decline before it can make a recovery.
Jaguar Land Rover claims that the main reason for the PS273m loss is “challenging markets conditions” in China. China’s car sales have fallen sharply over the past year. JLR’s October-December sales of 22,100 cars in China were down 47.1 per cent year-on-year, compared to a decline of 15.0% in the market. This was enough to offset strong and above-industry average sales growth in the UK (18.4%) and North America (21.1%).
There are some positive aspects to this model. Jaguar’s I-Pace electric SUV and E-Pace were among the few models that increased sales in the quarter. Jaguar’s saloons were particularly weak. It is noteworthy that both models were built in Austria under contract, so Jaguar’s margins on them will be lower.
Jaguar has beaten Mercedes, BMW, and Audi to the premium SUV market. This is why the I-Pace’s success is so well-deserved. This raises some questions as these companies are preparing to launch a wide range of EVs over the next few years. JLR is not publicly following up on the I-Pace. Although electric cars represent only a fraction of the market, this is an area Jaguar Land Rover could capitalize on, especially in China.
Jaguar Land Rover is responsible for past mistakes by taking the PS3.4 billion hit. Next is to figure out the best way forward. The new Range Rover Evoque and the forthcoming Land Rover Defender should be helpful. Bolder actions might be necessary: Autocar UK already disclosed that Jaguar is being considered an electric-only brand. This plan has yet to be approved.
Jaguar Land Rover’s recent actions show that its bosses are willing to make difficult decisions to ensure the company moves forward. Even though Jaguar Land Rover can’t hide a PS3.4bn loss, it is a positive sign for the future.