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Jaguar Land Rover Books its Biggest-Ever Annual Loss. Sales Collapse in China

Summary:
China deliveries in its fiscal year: -34%. And not getting better: in April, -45%. By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET. Britain’s largest automaker, Jaguar Land Rover (JLR), owned by  India’s Tata Motors, plunged £3.6 billion into the red in its fiscal year 2018, ended March 31, as the financial fallout from slumping Chinese demand and sinking diesel sales in the UK and Europe took its toll. It was the company’s biggest ever annual loss. Global retail deliveries fell 5.8% to 578,900 vehicles, and global revenues fell 6.1% to £24.2 billion. Investors in Tata Motors had already been expecting the worst, because the worst of the news had already been telegraphed in February, when JLR posted a gargantuan £3.4 billion loss for the third quarter of its fiscal year

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China deliveries in its fiscal year: -34%. And not getting better: in April, -45%.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

Britain’s largest automaker, Jaguar Land Rover (JLR), owned by  India’s Tata Motors, plunged £3.6 billion into the red in its fiscal year 2018, ended March 31, as the financial fallout from slumping Chinese demand and sinking diesel sales in the UK and Europe took its toll. It was the company’s biggest ever annual loss. Global retail deliveries fell 5.8% to 578,900 vehicles, and global revenues fell 6.1% to £24.2 billion.

Investors in Tata Motors had already been expecting the worst, because the worst of the news had already been telegraphed in February, when JLR posted a gargantuan £3.4 billion loss for the third quarter of its fiscal year that included £3.1 billion in write-downs. And in January, it had announced layoffs of 4,500 employees, of whom 4,000 would be in the UK.

The decline in sales was “due to China,” JLR said. In China, until recently JLR’s fastest growing market, deliveries plunged by 34% from the prior year, to just 98,900 vehicles. The company is now on its fourth consecutive quarter of declining Chinese sales. If anything, the trend appears to be worsening: in April, JLR’s deliveries in China collapsed by  45% from a year earlier.

For decades, China has been a boon for global automakers. Every year since 1990, annual sales have gone up, often by double digits. Between 2005 and 2017, new vehicle sales multiplied by a factor of six, propelling China to pole position as the world’s biggest car market. But that multi-decade trend came to a shuddering halt last year as light new-vehicle sales fell 4.1%, to 23.7 million units. Since July, China has registered 10 straight months of declining registrations.

The reasons for the slowdown are myriad — from slowing economic growth and declining consumer confidence to the escalating trade war between China and its biggest trading partner, the U.S., and simple, good old-fashioned market saturation — but the effects for global automakers are plain to see.

To reanimate sales, some have begun offering cheaper prices while the government has introduced tax cuts to spur consumer spending, but to little avail. The juiciest discounts are being offered by premium producers, such as JLR, as they try to offload their most expensive vehicles, but so far with disappointing results. Between January and March, registrations of JLR’s two biggest selling premium segments, SUV4 and SUV5, fell 19% and 15% respectively, even as retail prices dropped.

But in two of JLR’s three biggest markets, the U.S. and the UK, sales are rising, though not nearly enough to offset the shrinking sales in China.

In the U.S., now its largest market, registrations rose 8.4% last year to 139,800 units, almost double the number of registrations in 2014/15. The Land Rover division is clearly benefiting from the broad switch from cars to trucks and SUVs. US sales now accounts for 24% of JLR’s global sales.

In the UK sales were up 8.1%, to 117,000 vehicles, while in the rest of Europe they slipped 4.5%, to 127,600 vehicles.

In these markets the challenges facing JLR are also steep. In the EU and the UK uncertainty around Brexit, diesel regulation, and the possible introduction of C02 taxes could take a heavy toll on vehicle purchases. In the U.S. there’s the risk of import tariffs being imposed on European automakers. And like all automakers, JLR faces the rise of the electric vehicle; it is frantically pouring funds into developing all-electric, PHEV and MHEV models. Last year saw the launch of its all-electric Jaguar I-PACE.

But time is of the essence. JLR is still heavily exposed to the fast-shrinking diesel vehicle market. And in March, S&P responded to the announcement of JLR’s “one-off” £3.1 billion write-down by downgrading the firm’s credit rating one notch from BB- to B+, four steps into junk, considered “highly speculative.”

JLR responded to the downgrade by promising improved financial results in the fourth quarter. And so now, for Q4, it reported a pre-tax profit of £120 million and cash flow of £1.4 billion. The company – which employs around 40,000 people in the UK — puts this improvement down to the efficiency gains resulting from its decision in January to ax 4,500 jobs and shift production of its Land Rover Defender to an assembly plant in Slovakia, where it cashed in €125 million of investment aid from the Slovakian government. By Don Quijones.

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Jaguar Land Rover Books its Biggest-Ever Annual Loss. Sales Collapse in China

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