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Jaguar Land Rover invests for the big league

Jaguar Land Rover invests for the big league

JLR plans major expansion and will invest £11bn over the next four years

Jaguar Land Rover is planning to spend £2.75 billion each year for the next four years on new products and new production capacity around the world. But chief executive Ralf Speth insists that the rapid global expansion will not come at the expense of its interests in the company’s British heartland.

“It is absolutely critical that we diversify production around the world, but to be absolutely clear, we have an absolute commitment to the UK and will continue to invest there as long as we have free and fair trade,” Speth told Autocar. 

“But a global footprint is critical to our UK stability. That is why we already assemble cars in India (the XF and Freelander), which is a low-volume first step there, we are working on our joint venture with Chery in China, and we are investigating possibilities in Saudi Arabia, where we can see a flourishing automotive business thriving one day.”

JLR has a number of advantages in its quest to dramatically increase sales and expand its global footprint. It is enjoying booming sales and the SUV market is increasing.

“You have to invest in big amounts of seed in order to reap the harvest, which is what we are doing,” said Speth. “We see the cycle as powering growth. The amounts we are investing are very large, but I think we can keep that momentum. It is not a case of investing now and then pausing; as we invest in product and deliver more cars, I expect we can keep going forward at the same rate.”

But the company will probably have to borrow to feed the massive investment that’s being planned. JLR’s profits for 2012-2013 are expected to exceed £1.6 billion. Profit margins in the final three months of 2012 slipped to 14 per cent from 17 per cent, but that’s still way ahead of BMW’s 10.9 per cent margin in 2012.

Indeed, JLR has used up half a billion pounds that it had in the bank last autumn and has already borrowed money on the markets to feed the massive investment plans. Analysts say JLR is likely to spend all the money that it makes on investment as well as borrowing very significant sums.

Why take the risk? JLR has to make a break for much bigger volumes and build a far wider range of models if it is to prosper over the longer term.

Last year JLR sold 355,000 vehicles. Jaguar shifted about 60,000 cars, and more than a third of Land Rover’s output is accounted for by one model: the Range Rover Evoque. Indeed, in the second half of last year the Evoque and Freelander accounted for 52 per cent of all sales. A solid basis for long-term growth requires a wider sales footprint. 

JLR also has too many different platforms and is racing to reduce is reliance on engines bought in from rival companies. That’s why the company is spending so much money, so quickly. JLR’s new engine plant is in the final stages of construction and it is building a new factory in China. 

In Saudi Arabia, JLR has secured a source of competitively priced aluminium that potentially gives it a technical lead over its German rivals as it moves to all-aluminium cars.

As Autocar revealed last year, it has a 16-model Land Rover range in its sights and a slice of the 20-million-unit-plus global SUV market. And Jaguar hopes to slice away a profitable chunk of the premium market dominated by the BMW 3-series and Audi A4, with a new range of compact cars.