JLR's profit recovery plan disappoints investors despite US growth push
Jaguar Land Rover's Strategic Shift and Financial Outlook
By Aditi Shah
NEW DELHI, June 17 (Reuters) - Jaguar Land Rover will prioritise growth in the U.S. as it seeks to counter weakness in its traditional stronghold of China, but will deliver only a 4% profit margin, it said on Wednesday, sending shares of its Indian parent Tata Motors tumbling.
Investor Reaction to JLR's Recovery Plan
The British carmaker's plan to rebuild profitability and cut costs fell short of investors' expectations, triggering a selloff with shares of Tata Motors falling by as much as 10%. JLR contributes about 80% of Tata's revenues.
Challenges Facing JLR
In line with weakness across the auto sector, the Range Rover manufacturer has navigated a difficult year. Challenges have included U.S. trade tariffs, a cyberattack that halted production, and cost and supply chain disruptions due to the Iran war.
Declining Profit Margins
JLR's profit margin fell to 0.7% last fiscal year from near double-digits in earlier years. While a 4% forecast for the current year is an improvement, it is far from the 10% margin the company had targeted.
US Market Focus and Strategic Partnerships
A 'HYPER-FOCUS' ON THE US
JLR, however, said it hopes a "hyper focus" on the U.S., where a wealthy elite is boosting demand for luxury, will allow it to sell high-margin products and boost profits.
"Our aspiration, in the coming years, is to grow our U.S. business to the size of the entire JLR business as it exists today," CEO PB Balaji said in a press note.
Partnership with Stellantis
Through its partnership with Stellantis, JLR will expand in the North American market where it has no manufacturing presence, marking a shift from China.
Challenges in the Chinese Market
The world's largest car market, China was a major source of growth for JLR, but a combination of economic weakness there and a cutthroat local industry has made it much harder for international companies to compete.
Diversification and Cost-Cutting Initiatives
Powertrain Strategy and Electrification
The recovery plan also includes a diversification of its strategy for powertrains needed for EVs. The carmaker plans to invest in hybrid technology for its Range Rover, Defender and Discovery brands, which largely run on conventional fuel, as it seeks to counter a slowdown in electrification globally.
Cost Reduction and Investment Plans
JLR reiterated plans to cut $2.3 billion in costs over two years and reduce volumes required for breakeven to 300,000 units from 425,000 units earlier. It maintained an £18 billion ($24.12 billion) investment plan from fiscal 2024.
($1 = 0.7462 pounds)
(Reporting by Aditi Shah, Urvi Dugar and Bharath Rajeswaran in Bengaluru; Editing by Harikrishnan Nair, Eileen Soreng and Barbara Lewis)
