Weak demand for luxury cars as a result of slowdown in the Chinese economy, the Freelander’s phase-out and poor offtake of the locally manufactured Evoque has pulled down volumes and market share of Jaguar and Land Rover (JLR) in China.
The country contributes 25-30% of JLR’s global volumes and accounts for 30% of its profits as well. Hence, any slowdown in China will have an adverse impact on JLR and consequently its parent firm Tata Motors.
The phasing out of the Freelander to make way for the new Discovery Sport (scheduled for launch later this year) has impacted JLR’s sales in China from January to May.
According to analysts, Evoque’s volumes in China have dropped to 1,000 units per month compared to 3000-4000 units in 2014. Locally manufactured with Cherry Automobiles in China, the Evoque did not manage to create the same impact and prices have also not come down significantly.
The luxury sub-compact segment has grown only 4% in China, and most of the growth in volumes came on the back of good performance of the Porsche Maccan. The luxury car segment in China has grown 3-4% since January 2015 compared to 20% in 2014 and 30% in 2013.
“JLR’s management has indicated that the Chinese JV produced 4,000 units in Feb-March 2015 period, but retail sales of the Evoque were only 1,285 units. We believe Evoque’s potential is underutilized currently and it can grow three to four times from the current levels once JLR irons out production issues. We believe this could take another 4-6 months,” said Kotak Institutional Equities report.
China is the most important country for JLR after the UK. Earlier this year, the Chinese government forced luxury car manufacturers to slash prices of spare parts, which were inordinately expensive according to the Chinese authorities. This has negatively impacted profitability of JLR and other luxury carmakers.
Besides, the slowdown in Brazil, Russia, Japan and other markets has hit export growth for China, and the automobile industry has been hit hard.
Puneet Gupta, Associate Director, IHS Automotive, said China’s overall economy has decelerated as exports to Europe, ASEAN and Japan have slowed down.
“This slowdown coupled with deep crisis in housing market may adversely impact the demand for luxury cars in China which is expected to slow from 20% last year to 10% expected this year. However, the launch of the Jaguar XE and Discovery Sport will help JLR increase market share and volumes in the market,” said Gupta.
