
Jaguar Land Rover announced its biggest quarterly loss on Thursday after it was forced to take a £3.1bn write-down on the value of its investments as Chinese demand slumped.
Britain’s largest car manufacturer, which is owned by India’s Tata Group, made a £3.4bn pre-tax loss in the last three months of 2018 as sales fell. It anticipates a loss for the financial year as a whole for the first time in a decade.
Half of the £3.1bn non-cash charge was taken after JLR accepted that previous investments in property and machinery were worth far less than previously thought. The other half was attributable to goodwill impairments, an accounting correction that recognises that future earnings potential is likely to be diminished.
Car manufacturers across the world are facing many challenges, from the transition to electric vehicles, Brexit uncertainty and regulatory pressure on demand for diesel.
On Thursday, Honda became the latest carmaker to acknowledge an industry-wide decline in the market for diesels.
The Japanese company is to cut about 350 jobs at its Swindon plant. The cuts, which will affect staff on fixed-term contracts and agency workers, mean production will drop from 700 vehicles per day to 570.
For JLR, the diesel weakness comes as it struggles with slowing demand in China, where it has also suffered from competitors’ pressure on its relationships with dealers.
Carmakers have been on the frontline of economic pressures in the world’s second-largest economy as growth slows, with sales falling in China for the first time in almost three decades during 2018.
JLR’s retail sales in China, which account for about one in every seven of its cars sold worldwide, fell by 40% year on year during the quarter, overshadowing growth in the US and British markets. Sales rose by a fifth year on year in the quarter in the US and by 18% in the UK.
The company, which employs 18,500 manufacturing staff in the Midlands and Merseyside, last month said it will cut 4,500 jobs in response to the challenges.
The majority of the cuts are expected in UK management roles, costing the company £200m. On Thursday, Tata said there will be no further job losses at JLR beyond those already announced.
Excluding the one-off accounting charge, JLR lost £273m before tax during the last quarter. This is a significant increase on its £90m loss in the previous quarter and a £192m profit a year earlier. Revenues fell by £100m to £6.2bn as vehicle sales fell to 144,602 for the quarter, almost 10,000 less than the previous year.
Ralf Speth, JLR’s chief executive, said: “Jaguar Land Rover reported strong third-quarter sales in the UK and North America but our overall performance continued to be impacted by challenging market conditions in China.”
Last year, JLR launched a £2.5bn programme of cost-cutting and working capital improvements in an attempt to turn the company around. It delivered £500m of the programme in the third quarter.
In a presentation to investors, JLR said demand is likely to “remain muted due to geopolitical, economic, financial and regulatory factors” in the coming months. The company is pinning its hopes of a short-term turnaround on returning to sales growth in China, alongside its cost-cutting programme.
Although the latest accounting write-down will not affect JLR’s cash holdings, the company said it is carrying out a “reassessment of investment spending to ensure adequate returns”.
However, JLR is also planning a programme to accelerate the business, which is focused on longer-term investment as legacy carmakers across the world transition from fossil fuel-powered vehicles to battery technology.
As part of the plans, JLR last month announced investments worth hundreds of millions of pounds to produce electric drive units at Wolverhampton. It also plans to build a battery plant at Hams Hall in Birmingham, which will be operational by 2020.
Speth said: “This is a difficult time for the industry but we remain focused on ensuring sustainable and profitable growth and making targeted investments that will secure our business in the future.”
JLR is also launching new versions of its Range Rover Evoque and Land Rover Defender models this year as it tries to stay on the front foot with its product portfolio even as it cuts back on spending.
