JLR'S dependency on China?
THINGS aren’t getting any easier for JLR. As relations continue to deteriorate between the UK and China, Beijing and its ambassador in London have resorted to making threats that ‘British’ firms like JLR will be made to ‘suffer’ as a consequence of the UK government’s decision to ditch Huawei. This seems to be a particularly daft threat to make to JLR given that its factory in China is part of a 50:50 joint venture with Chinese carmaker Chery. The plant assembles the Evoque, Discovery Sport and the Jaguar XE to meet local demand, although the majority of JLR’S sales in China are actually of vehicles that are built elsewhere.
And it hardly makes sense for the Chinese government to do anything to undermine JLR when its state-controlled banks have £570 m tied-up in the company following a bail-out loan a couple of months ago. To worsen JLR’S position really would be a case of cutting off its own nose!
It’s tempting to think that JLR might welcome the opportunity to ditch the Chery partnership given that it lost £224 m in the year to March 2020, according to JLR’S annual report. And there’s also the small matter of the £40M in “outstanding claims and potential claims” that the company says relate to “motor accident claims, consumer complaints, employment and dealership arrangements, replacement of parts of vehicles and/or compensation for deficiency in the services by the Group or its retailers”.
The reality is that JLR has no option other than to remain focussed on the Chinese market, just like every other major car manufacturer. It is simply too big to ignore. JLR’S sales there have made a remarkable recovery since the easing of Beijing’s tough lockdown restrictions, and in the three months to June they were more or less at the same level as the year before. In fact, China accounted for a third of JLR’S global sales in the quarter, making it even bigger that the American market. That’s an unhealthily big dependency and it’s doubtful that any other global car company is dependent on China to that extent. JLR’S fortunes are now inextricably linked to what happens in China, and that’s an unenviable situation to be in.
Its cost-cutting programme has now led to the decision to defer the launch of the new electric Jaguar XJ saloon, and the Castle Bromwich factory that was to build it remains closed and its workers furloughed. Production of the XE and XF models has been halted for months due to collapsing sales and huge stocks of unsold vehicles.
Some industry commentators have interpreted this as a decision to scrap the new XJ, something the company denies, but analysts are unanimous in their view that the Jaguar side of the business is unsustainable as it is and requires drastic change. Tata has promised to announce its plans for both Jaguar and Land Rover, but despite the obvious urgency nothing has yet appeared.
We do know who will be replacing Sir Ralf Speth, though. Thierry Bolloré was boss of Renault but was fired in October last year after less than a year in the job, allegedly because the board wanted to distance itself from disgraced former chief Carlos Ghosn. Interestingly, Bolloré’s name was not among those touted as candidates by the Financial Times in early July, although JLR’S engineering chief, Nick Rogers, was on the list.
And perhaps we will also hear whether the UK government will finally decide to grant the cash injection that the company asked for under the ‘Project Birch’ emergency aid scheme. News of this first broke several months ago and we can confidently assume the negotiations have not been easy.
Of the six companies known to have applied for emergency funding, only one has so far been granted it, and that is the Spanish-owned and Cardiff-based steel producer, Celsa, and this was only for the relatively modest amount of £30 m. The UK government’s Business Department said the Celsa agreement was made in “exceptional circumstances”, adding there was “a high bar for putting taxpayers' money at risk in this way” and further stressed that such money came “as an absolute last resort”. It has also been suggested that existing shareholders are required to invest further, and the government’s loan can under certain circumstances be turned into equity, meaning the government will own a percentage of the business.
If it was difficult to conclude a deal with Celsa, imagine how complicated it will be in relation to JLR, where the request is reputed to be for over £1 bn, and for Tata’s steel operation at Port Talbot, which has extended the begging bowl for £500 m.
The government cannot allow JLR to fail, but at the same time it cannot be seen to be handing over taxpayers’ cash for the company to use to pay redundancy costs. But what I don’t understand is why the government appears to be so fixated on its demands that JLR should commit to more aggressive and unachievable targets on its emissions clean-up programme.
Dealing with climate changes is undoubtedly important and the government has set bold targets with its Net Zero pledge. But imposing such onerous terms that JLR is forced to reject the loan would be ludicrous. This is hardly the time to make points of principle when the very survival of JLR is at stake. I think the government needs to re-think its priorities.
“JLR'S fortunes are now inextricably linked to what happens in China, and that's an unenviable situation to be in"
nGary Pusey is co-author of Range Rover The First Fifty, trustee of The Dunsfold Collection and a lifelong Land Rover enthusiast. What this man doesn’t know, isn’t worth knowing!