News Analysis : Will troubled Tata Motors’ issues in India impact on Jaguar Land Rover?
Jaguar Land Rover Automotive plc (JLR) appears to be on something of a roll at the moment – retail sales during Q3 (the three months to 31 December, 2013) of the current 2013/14 Fiscal Year increased 27 per cent year on year to 112,172 vehicles which generated revenues of £5.328bn and an operating profit up 79.2 per cent year on year to £955m while, in last month’s issue, CAR Magazine majored on Jaguar with articles explaining why the marque’s much-anticipated Audi A4, BMW 3 Series and Mercedes-Benz C-Class rival ‘will redefine sports saloons’ and revealing details of six other new Jaguars which are to be launched between now and 2020.
Jaguar chose this week’s Geneva Motor Show to announce that the production version of what was previously codenamed the X760 will be called the XE and that the car will be the first to use JLR’s new Ingenium engines in four-cylinder, 2.0-litre petrol and diesel form. The new engine family will be built in the company’s £500m plus, 775,000sq ft UK Engine Manufacturing Centre which is located next to the M54 on the i54 South Staffordshire Business Park near Wolverhampton and which is scheduled to become fully operational early next year. However, in addition to that investment, JLR is also investing £1.5bn in the company’s existing Solihull facility where the Jaguar XE will be built – all in all, the company expects to create around 1700 jobs as a result of these investments.
Jaguar Land Rover’s global retail sales increased by 19 per cent in 2013 to 425,006 units but, while Land Rover accounted for 348,338 vehicles, Jaguar sales totalled 76,668 vehicles. Admittedly, that represented a 42 per cent increase over the figure for 2012 but, as CAR Magazine’s Editor, Phil McNamara, pointed out ‘BMW sells twice as many cars in the UK alone [and] the Jaguar brand remains loss-making.’ Interestingly, in researching his article, McNamara contacted high-profile Automotive Industry Analyst Max Warburton of Bernstein Research in Singapore – Warburton quoted ‘a JLR executive’ as telling him ‘Jaguar is not viable at 60,000 units. This is Jaguar’s last chance – if X760 fails, that will probably be the end for the brand.’
Tata Motors Limited, Jaguar Land Rover’s parent company, reportedly intends to invest circa. £2bn per annum in JLR through to 2017 and, if the XE succeeds, Jaguar could be selling 250,000 cars a year by 2018 with total Jaguar and Land Rover sales reaching 800.000. However, when Max Warburton concluded that ‘JLR is embarking on perhaps the most rapid and ambitious growth plan ever attempted by an OEM,’ he was clearly implying that this is a high-risk strategy… Indeed, close scrutiny of Tata Motors’ recent sales decline in the company’s domestic Indian market serves to underline that assessment.
Jaguar Land Rover’s encouraging performance in Q3 of the 2013/14 Fiscal Year resulted in Tata Motors posting a net income for the period of 48.1bn rupees ($771m) – almost triple the 16.3bn rupee figure from the same quarter in the preceding Fiscal Year. That profit may have exceeded the 35.1bn rupee median of 38 Analysts’ estimates compiled by Bloomberg but hides the fact that the company’s vehicle sales in India declined dramatically in the nine months to the end of December, 2013 – passenger vehicle sales fell 37 per cent while truck sales dropped 25 per cent in the same period. The former figure represented the biggest decline in sales recorded by any of the OEMs reporting monthly figures to the Society of Indian Automobile Manufacturers. The downward trend has continued into this year with India’s Economic Times last week reporting that Tata Motors posted a 35.56 per cent decline in total vehicle sales to 39,951 units in February (down from 61,998 vehicles in the same month last year) although passenger vehicle sales rose to 11,325 units in February, up from 10,613 units a year earlier.
Tata Motors’ problems in India must, at least in part, be attributable to the Tata Nano’s continuing failure to achieve anything like the sales of 250,000 units a year which the company originally envisaged. The Nano, which was widely touted as the world’s cheapest car, had a troubled gestation – in October 2008 Tata Motors was forced to abandon a new plant at Singur in the eastern state of West Bengal when faced with violent protests and political opposition over the acquisition of the 997 acres of farmland on which the factory was being built. The new plant was reportedly 85 per cent complete and represented an investment of 15m rupees ($343m) but the company nevertheless opted to build a second new factory for the Nano at Sanand in the western state of Gujarat.
The launch of the Nano was, as a consequence, delayed by six months while production of the car was temporarily transferred to one of the company’s existing plants - the first Nano did not roll of the production line at Sanand until June, 2010. However, even at the time of the launch, Analysts predicted that the car would not make a profit for six years – Vaishali Jajoo, an Automotive Analyst at Mumbai’s Angel Broking, was quoted by BBC News as saying: ‘Even if Tata can sell 250,000 models a year, it will add only 3% to the firm’s revenues. That doesn’t make a significant difference to the top line and, for the bottom line, it will take five to six years to break even.’
Tata Motors’ plant at Sanand has an installed capacity of 250,000 units with the potential to be expanded by another 120,000 and has the capability to produce one Nano a minute but was last year down to one shift for three or four days a week – plant utilisation was at less than 20 per cent. Indeed, total Nano sales for the period from the car’s commercial launch in March, 2009 until October, 2013 stood at 241,000 cars while, based on data from the Society of Indian Automobile Manufacturers, Nano sales declined 71.9% on a year-on-year basis to 13,828 units in the nine months of the current 2013/14 Fiscal Year to 31 December, 2013.
Tata Motors has, according to the Economic Times, conducted a feasibility study into producing the ‘XO’, a new B-segment car based on a thoroughly updated version of the Tata Vista’s X1 platform, at Sanand ‘to offset low Nano numbers’ while, in an interview on CNBC’s Managing Asia last November, Tata Group Chairman Emeritus, Ratan Tata, admitted that Tata Motors had made a mistake in the marketing and positioning of the Nano, saying: ‘It became termed as a cheapest car by the public and, I am sorry to say, by ourselves, not by me, but the company when it was marketing it. I think that is unfortunate.’
The company has since sought to re-position the Nano as a ‘smart city car’ with last January’s launch of the Nano Twist - Tata Motors then Managing Director, Karl Slym, told the Economic Times that ‘with the new Nano Twist, and the [CNG-fuelled] Nano eMax a few months back, we have begun this journey of a Nano portfolio that stands true to its brand essence: a youthful, exciting car offering great value but [which], at the same time, builds in a different set of features to suit differing customer needs.’
However, while Ratan Tata suggested that the ‘Nano could also be marketed as a changed product in Europe’ in the interview referred to above, any plans which Tata Motors might have had for a European launch may well have been compromised by the results of a crash test on the Nano conducted by the German ADAC last December and which were published by Global NCAP at the end of January. AROnline’s readers can watch Global NCAP’s video of that crash test below but, suffice to say, the Nano received a zero-star adult protection rating and failed to meet even the most basic UN safety requirements – crucially, the Nano does not have any airbags.
Tragically, just four days before Global NCAP published the Nano’s crash test results, Tata Motors’ Managing Director, Karl Slym, who was in Bangkok to attend a board meeting of Tata Motors Thailand, fell to his death from the 22nd floor of the city’s Shangri-La Hotel. The Thai Police claimed that Slym, who was accompanied by his wife, had been experiencing marital problems and suspected that he had committed suicide.
Derby-born Slym, 51, was reportedly handpicked for the role of Managing Director at Tata Motors by Ratan Tata and appointed in August, 2012 – he had previously headed General Motors’ Indian operations from 2007 but then became Executive Vice President of SAIC GM Wuling Automobile Company Limited, a GM joint venture in China which produces Wuling micro-vans and Baojun entry-level cars, in January, 2012. Cyrus Mistry, Tata Group’s Chairman, said of Slym: ‘Karl was very passionate about the change he was bringing in the last 15 months, we must ensure that the biggest gift we can give him right now is to continue to do our best and strive hard to take his vision forward.’
Mistry, who is also Non-Executive Chairman of Tata Motors, moved rapidly to establish a Corporate Steering Committee (CSC) which will, under his leadership, oversee strategy and ‘key aspects’ of operations at Tata Motors – the CSC’s main task will, no doubt, be to complete the implementation of the company’s Horizonext strategy which Karl Slym had announced in June, 2013 and which has four pillars:
- Intense product focus
- Focus on world-class manufacturing practices
- Enriched customer purchase experience
- Consistent quality of service
Indeed, any observers doubting Tata Motors’ commitment to Horizonext following Karl Slym’s untimely death, needed to look no further than the company’s stand at India’s Auto Expo 2014 which opened near New Delhi on 7 February - as Autocar India reported, the company displayed two production versions of the B-segment competitor which was originally referred to as the ‘XO’: the Bolt hatchback and the Zest saloon, which are powered by the company’s new four-cylinder Revotron 1.2-litre, turbocharged petrol engine and a Fiat-sourced 1.3-litre Multijet diesel, are both scheduled to go on sale in the second half of this year.
However, according to Autocar India, ‘Tata Motors’ big reveal at the Auto Expo’ was the Nexon Concept - a B-segment crossover which is also based on the updated X1 platform and which will compete against the likes of the Ford EcoSport following the expected launch of the production version sometime in the next two years. The Nano Twist Active Concept was also unveiled and, whilst that was the first Nano to feature an opening tailgate, airbags had not apparently been included in the updated specifications. The Bolt, Zest and Nexon Concept are all on display at the Geneva Motor Show this week and, as recently reported by Autocar here in the UK, the first two models will be sold through Tata’s European Dealer Network centred around Italy, Spain and Turkey before the end of the year.
The Revotron 1.2 T engine is the first of a series which will power the four to eight new models to be based on Tata Motors’ Advanced Modular Product (AMP) platform. The AMP, which is also called X4 internally, is being jointly developed by the company’s Coventry-based European Technical Centre and the Engineering Research Centre at Pune in India - the first car to utilise the platform should be launched by 2016.
Jaguar Land Rover has a Joint Venture with Chinese OEM Chery Automobile Company Limited which will see Chinese production of some JLR models commencing in 2015 and, as the Economic Times reported this week, Tata Motors and Chery Auto are currently engaged in talks ‘which may include sharing of vehicle platforms, getting access to the market in China for Tata Motors and even helping Chery to enter India.’ The Economic Times specifically refers to the development of the X4 platform and, given the context, implies that may be shared with Chery Auto – commercial logic suggests that Tata Motors’ poor domestic market sales performance must be putting pressure on the company’s ability to fund such ongoing future investment and so further cooperation with the Chinese OEM surely merits the CSC’s close consideration.
CAR Magazine not only revealed details of the Jaguar XE but also claimed that the X761, a smaller, production version of the C-X17 Concept SUV shown at last year’s Paris Motor Show, was expected to be confirmed for production early next year before going on sale in 2016. A further five new models were predicted for launch during the remainder of the decade:
- 2016 – The XF replacement which is codenamed X260
- 2017 – The XK replacement which may grow in size and become a competitor for the likes of the Bentley Continental GT
- 2018 – The XJ replacement which is codenamed X360
- 2019 – A new XJ Coupe to rival the just-launched Mercedes-Benz S-Class Coupe and which is said to hark ‘back to the XJ6/12 C and to the early XJS’
- 2020 – A new supermini which CAR Magazine reckons is ‘inevitable’ as ‘the EU emissions average of 95g/km looms in 2020.’
However, the sustainability of the 1,700 jobs which JLR expects to create and the company’s ability to generate sufficient revenue to cover the design and engineering costs which will be incurred in bringing all seven new Jaguar models to production may well not only depend on the success or otherwise of the new Jaguar XE but also on parent company Tata Motors’ capacity to underwrite the cost of that continuing capital investment for the foreseeable future – in the circumstances outlined above, that is by no means a certainty. No wonder, then, that Analyst Max Warburton’s contact at JLR implicitly thought the two companies were effectively ‘betting the farm’ on the Jaguar XE…