Jaguar Land Rover’s bet on new models puts brakes on profits
JAGUAR Land Rover’s revenues surged but earnings declined in its latest quarterly results, highlighting the investment the UK-based company has made in new models and changes in the Chinese market.
In the three months to the end of June, retail sales rose 16pc to 132,743 vehicles compared with the same period a year ago, driving up revenues by 9.2pc to £5.45bn.
However, profit before tax tumbled to £399m from £638m, and margin dropped 4.1 percentage points to 12.3pc.
Sales have been boosted by the introduction of new models such as the “baby Jag” XE saloon and F-Pace SUV as the company aims to reduce its reliance on the Land Rover marque. During the quarter, JLR sold more than 100,000 Land Rovers for the first time – despite a 76pc increase in Jaguar sales.
Ralf Speth, JLR’s chief executive, said: “This quarter’s sales reflect the positive customer response to the introduction of new vehicles, such as the XE in America. We have delivered volume growth in all of our major markets and remain solidly profitable.” The company’s, investment of more than £11bn in research, new models and developing new plants since it was bought by Indian conglomerate Tata from Ford for £1.5bn in 2008 is taking its toll on profitability.
Prof David Bailey, an automotive industry expert at Aston University, said: “Clearly the company is having to invest heavily in new products and technology. The introduction of the XE – a smaller, less profitable car – is having an impact and you can see that in the margin, but that should change as the F-Pace’s sales rise.”
Land Rover is also seeing stronger sales of its less expensive models, Mr Bailey said, putting further pressure on margins.
He added that pressure in China – the world’s largest car market – was also affecting the company’s profitability.“The Chinese market has taken a dip but that is now recovering,” he said.
“However, what has changed out there is the government’s crackdown on pricing of premium models. The demand is strong in China but it will not be the bonanza market it once was as it normalises.”