The purchase of the famous Jaguar and Land Rover auto brands in 2008 handed India’s Tata Group a challenge that had long frustrated Ford Motor Co., the British marques’ previous owner: How to eke out a profit.
For a while, Tata appeared to have found the answer. Within several years of the acquisition, Jaguar Land Rover Automotive Plc was tendering money. Its Range Rover Evoque, a compact SUV with a distinctive gnawed rear roof, was a runaway hit — so much so that the former Spice Girl Victoria Beckham got connected in a special edition. The Evoque powered JLR’s profits for years, reckoning for most of the parent Tata Motors Ltd.’s earnings in the first half of the decade. The company’s market value towered above $29 billion in 2015.
Then China’s slowdown hit sales in what was once the carmaker’s most prominent market; the U.K. voted to break away from the European Union, and India’s biggest conglomerate was wracked by a power struggle as Ratan Tata fired his handpicked successor. JLR was also slow to reduce its reliance on diesel vehicles in Europe. The standpoint is now so dire that Tata executives are said to be exploring the possibility of selling part of the luxury-car unit.
“JLR faces all these challenges and more, as it is the smallest of the mainstream luxury carmakers, barring Volvo,” stated Deepesh Rathore, London-based director at Emerging Markets Automotive Advisors. Sweden’s Volvo Cars are maintained by China’s Zhejiang Geely Holding Group Co.
Tata Motors announced Friday there was “no truth to the rumors” that it’s looking to sell its JLR stake, and declined to comment further.
Tata Motors, whose shares fell 60 percent last year, posted a record loss of 270 billion rupees ($3.8 billion) in the December quarter, the biggest for an Indian company, as the British unit strived. Shipments have collapsed in China, plunging 35 percent in the nine months to Dec. 31. The company is eliminating 4,500 jobs or about 10 percent of its global workforce, and on Feb. 7 took investors back with a plan to write down its JLR investment by $3.9 billion.
JLR, which also delivers the Jaguar XE sedan and the Land Rover Discovery SUV, requires to raise $1 billion in just over a year to replace maturing bonds — a bigger challenge after S&P Global Ratings downgraded the unit in December for the second time in five months. That pushed the company’s debt deeper into S&P’s junk category.
Essence problems have weighed on both marques: A J.D. Power survey of 31 brands in June 2018 put them in the bottom two slots. Jaguar had 148 problems per 100 vehicles and Land Rover racked up a dizzying 160. Top-ranked Genesis, the luxury brand of Hyundai Motor Co., had 68.
Quality concerns have added to JLR’s troubles in China, where the company had multiple recalls, said John Zeng, managing director of LMC Automotive Shanghai.
“This has greatly jeopardized Chinese consumers’ confidence in the brand value,” stated Zeng. JLR’s “quality control capability and its after-sales network are not good enough to support its volume expansion or help it compete with rivals.”
The marques were therefore especially vulnerable to China’s slowdown. The world’s biggest auto market shrank about 4 percent last year, the first such decline since the early 1990s.
As JLR struggles to restructure in China, it risks falling further behind German rivals. Competition is likely to grow “as German car brands such as Mercedes, BMW and Audi build more vehicles in the country,” Bloomberg Intelligence analysts Steve Man and Kevin Kim wrote Feb. 8.