Jaguar Land Rover Needs Urgent Action To Repair Mistakes.
“Given JLR’s recent history, will investors trust their ability to fix the business, and navigate the various challenges it now faces?”
Jaguar Land Rover (JLR) investors, still reeling from news of big losses, are urging the Indian-owned and British-based luxury car maker to take swift action to secure its future.
Moody’s Investors Service wants JLR to act quickly to show it has stabilized falling sales in China and improved profitability and free cash flow.
Bernstein Research needs convincing JLR management is ready to act decisively and suggests there might need to be changes at the top.
Meanwhile the Jaguar subsidiary needs drastic reform quickly to cure the fall in demand for its smaller sedans the XE and XF. British motoring magazine Autocar reckons Jaguar is thinking about combining these two models into one that could be offered as an electric vehicle or plug-in hybrid. Others criticize the Land Rover operation for undermining its own success by persisting with an overlapping product range which confuses buyers and cannibalizes profits.
Meanwhile Bloomberg Opinion said JLR may be headed for a cash crisis europe.autonews.com/automakers/jaguar-land-rover-may-be-headed-cash-crash?
On February 8, JLR said that stripping out one-off items, it made a loss of 273 million pounds ($310 million) in the latest quarter ended December 31. It said it was taking a 3.1 billion pound ($3.5 billion) accounting charge related to what it called muted demand in the car industry.
JLR announced last November it would implement a plan, called “Charge and Accelerate”, to slash 2.5 billion pounds ($3.2 billion) in costs over the next 18 months.
Analysts wondered then if this might not be enough to turn JLR around. It faces harsh competition from German manufacturers like BMW, Mercedes and Audi which all have much greater scale to forge efficiencies.
Moody’s Investors Service, in a report published Monday, said JLR needs to act to protect its investment ratings.
“The company will also need to demonstrate progress on stabilizing
volumes, improve profitability and free cash flow after interest, capex and dividends in the near-term to avoid further pressure on the rating. Brexit developments could also potentially pressure the rating,” Moody’s analyst Tobias Wagner said.
“While the company’s restructuring program, investments and potential stabilisation of the China business could yield the guided to improvements in profitability, growth and leverage, there remains significant execution risk at this stage and the turnaround has yet to be successfully executed. However, free cash flow for FY2019 (ending March 31, 2019) and FY2020 will remain negative in our view and the company may choose to fund any funding gaps with additional debt. Accordingly, the outlook on growth, profitability and Moody’s metrics carries significant uncertainty into FY2020,” Wagner said.
Bernstein Research analyst Robin Zhu wondered if JLR management could deliver on the turnaround plan.
“Current JLR management oversaw the company’s tremendous successes pre-2016, but also its more recent product misses, struggles in China, and FX (foreign exchange) hedging losses. Will they make the big decisions necessary to revive JLR?” said Zhu.
“Given JLR’s recent history, will investors trust their ability to fix the business, and navigate the various challenges it now faces? Much more importantly, can their paymasters in Mumbai? The mandate from Tata is clearly for fundamental change within JLR – we cannot help but feel the business might benefit from fresh ideas at the top,” Zhu said.
JLR has lost sales momentum in China, despite manufacturing there.
JLR said in the last year its model line-up had expanded to include the all-electric Jaguar I-Pace, the Range Rover and Range Rover Sport with plug-in hybrid options, and the new, smaller Range Rover Evoque.
The company also plans to resuscitate the old Land Rover Defender.
The Land Rover side of the business has more potential to become viable long-term with its impressive and distinctive range of SUVs which can compete on price with the German equivalents.
But JLR’s small size suggests that it might need to link up with another manufacturer.