JLR ups spending by £3bn to hedge against slowing EV uptake

JLR has increased its five-year investment plan from £15 billion to £18bn after the slower-than-predicted EV take-up forced it to boost spending on platforms that allow combustion engines as well as electric powertrains.

The British firm announced the original £15bn plan last April, detailing spending on new EV platforms, including the mid-sized EMA, which will underpin cars built at its Halewood plant from 2025.

However, the sluggish demand for electric cars has forced it top up the spending budget to extend the life of ICE cars.

The hike to £18bn is “partly because we are having to invest more in keeping the parallel running of BEV vehicles and ICE vehicles going for longer than we anticipated as the industry trend towards BEV globally starts to slow down from previous expectations,” JLR CFO Richard Molyneux told analysts at the company’s investor day in June.

“Until one powertrain technology properly wins globally we are going to continue to have to invest in multiple powertrains at the same time, so that probably will drive investment up,” added Molyneux.

JLR CEO Adrian Mardell said in May that ICE cars and EVs will run side by side at Halewood “for a limited period of time”. The plant currently builds the Range Rover Evoque and Land Rover Discovery Sport.

Two of JLR’s key profit drivers, the Range Rover and Range Rover Sport, are built on the MLA Flex platform, which allows petrol, diesel, plug-in hybrid and electric drivetrains. The replacement for the Land Rover Defender could also be built on MLA.

The bigger investment comes as “we evolve our Discovery brand and evolve our Jaguar brand still further,” Molyneux said.

Back in 2021, JLR axed the lower riding MLA ‘mid’ multi-fuel platform, which was to underpin a new Jaguar XJ, a lower-riding Range Rover and a Jaguar ‘J-Pace’ SUV.

Jaguar has since been reinvented as an electric-only brand, with the first of its three new luxury EVs arriving next year, costing from £100,000.

The four-door GT that will begin the rebirth has been slightly delayed; during its 2023 investment announcement, JLR said it would be on sale in some markets by the end of the year. Instead a concept will be shown by the end of 2024, with sales starting in 2025.

“We have one advantage over many in our industry in that we have not yet played our cards in the BEV game,” Molyneux said. “Many competitors have placed their bets, done their investment, launched their cars and quite a few have regretted it. It's one of the advantages of being a follower rather than being first in the market.”

JLR promised in 2021 that it would launch six Land Rover EVs by 2026 but this February said it had revised that to four. It will also launch two of the three Jaguar EVs by that date.

The Range Rover Electric is expected to be the first to go on sale next year, but JLR has said it’s prepared to delay the launch to get it perfect.

“If that takes a few more months to get to that point, then the team will be allowed it,” Mardell said in February.

JLR claims to have some 38,000 pre-orders for the Range Rover Electric.

One or more of the Land Rover EVs due for launch by 2026 could be from the newly announced Freelander brand, which JLR has developed for China alongside joint-venture partner Chery.

Freelander will be a “product family” and offer both electric and range-extender options, JLR said in its investment presentation.

The extra investment extends spending this financial year from a planned £3bn up to £3.5bn, with £4bn the expected annual figure going forward.

Of that, EVs are still getting the lions’ share, at 65% versus 35% for ‘flex’ platforms between now and 2028, Molyneux said.

Part of the £3bn top up over the five-year period is due to inflation, Molyneux said, but JLR is working to mitigate that, partly by returning to a more normal relationship with suppliers after the Covid upheaval.

“We are trying to move from a scenario where we are fighting suppliers' claims for increases in costs to go back to the more normal world of the automotive industry, where we work together with our partners and suppliers and mutually bring costs down,” said Molyneux.

JLR will also open what it calls a “value optimisation office” to essentially scrutinise costs and work out how extract more profit.

The company can draw on painful recent history to remind it what happens when spending climbs too high. That £3.5bn spend this year exactly matches the annual investment amount in both the 2014 and 2015 financial years.

Pushing it up to £4bn annually adds the inflationary amount that means it's spending the big bucks it was just before it last hit the financial buffers with a run of losses starting 2019.

JLR however is a different organisation that it was 10 years ago. Instead of making big capital expenditures on boosting production capacity, as it did in China, Brazil and Slovakia, it’s actually removing capacity.

Production at its Castle Bromwich plant has ceased in May with the end of the Jaguar XE, XF and F-Type, and in December it will end its contract with Austria’s Magna Steyr to build the Jaguar I-Pace and E-Pace.

The F-Pace is the only Jaguar that will survive into next year as the brand exits the “mass premium” market.

The average selling price of JLR cars has grown from just over £40,000 to £72,000 between 2019 and the last financial year as it focuses the big-ticket models such as the Range Rover and Range Rover Sport.

“We are not interested in volume, we are interested in value,” Molyneux said.

He illustrated his point by comparing the 2024 financial year’s record turnover of £29bn with the previous best of £25.8bn from back in 2018. That was a 12% jump on 26% lower sales, at 401,000 versus 545,000 in 2018.

“That's the power of what we've been able to do with transaction prices,” Molyneux said.

JLR wants to push those further higher, for example by selling more high-end halo models – a key element of its plan to hit 10% operating profit margin this year, up from 8.5% in the financial year ending in March.

The longer-term goal is 15%, bringing it closer to the luxury margin levels being achieved by the likes of Bentley, Lamborghini and Porsche.

The £3bn spending increase might not help that if JLR can’t juice prices further, but that’s the cost to hedge your bets in amid the current capricious attitude globally to EV adoption.

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