The dangers threatening to unravel JLR’s magical turnaround

Along with the Range Rover and Range Rover Sport, the Defender helped JLR turn a £3.6bn loss in 2019 to a £1.8bn profit after tax last year. 

But sustaining those profits, let alone keeping to JLR’s longer term goal of 15% margins from 8.5% last year, will require flawless execution.

“While the turnaround has been quite credible, it has been hinged on two or three products that had a very strong legacy and probably the right to win in the segments in which they operate,” Kumar Rakesh, associated director at the bank BNP Paribas, told Autocar. “That’s not the same for rest of the products in the portfolio. When you blend EV in the mix, it becomes even more challenging.”

Rakesh referenced Jaguar, which is embarking on an all-EV strategy from next year. This has been previewed by the striking Type 00, a concept that will morph into a large saloon primarily designed for a US market that’s uncertain at best on electric cars. “There’s a risk to that strategy if the hybrid market actually picks up much more strongly and it lasts longer for the next five, six or seven years,” he said.

The family-focused Discovery brand is another question mark, given it has so far been roundly eclipsed by the Defender.

JLR has been incredibly successful in persuading customers to pay more for its three leading models. The company’s average selling price has jumped from below £45,000 in 2019 to £71,546 in the last financial year. However, despite selling models such as the limited-edition £500,000 Range Rover SV Masara, that average selling price hasn’t moved since.

The company is having to spend more to market its cars. After raising prices during the time of constrained supply of the chip crisis, JLR is pouring more into advertising and discounting to shift the metal. Campaigns include sponsoring the Oasis concert tour, while variable marketing expenses (aka discounts) rose by £143 million in the first three months of the year.

Sales meanwhile fell 15% in the three months to the end of June to 94,420 units, largely due to the pause in shipments to the US while the tariff situation was untangled, as well as the winding down of Jaguar sales.

Much of what JLR is facing is common to the whole industry.

“This financial year has certainly thrown us a few challenges,” chief financial officer Richard Molyneux told analysts on the investor day.

Molyneux highlighted US tariffs, which although largely resolved for UK-built cars still represents an increase from the previous rate of 2.5%. Meanwhile, Slovakian-built Defenders and Discoverys will still face the 27.5% tariffs to enter the US imposed from April, with no sign of an EU trade deal on the horizon. 

The secondary effect from the US upending global economic norms is a weaker dollar, which also pushes up the price of JLR cars in its largest market. Companies like JLR ‘hedge’ against currency swings but can’t do it forever. “Outside of that short term, it will certainly hurt us,” said Molyneux.

At the same time, key rivals BMW and Mercedes – and to a lesser extent Volvo and Jeep – are gaining a bigger advantage by building their big SUVs in the US.

Another headwind that Molyneux highlighted was “technical protectionism”, for example Chinese ADAS systems not being allowed in the US and vice versa. 

China itself is a worry for JLR, as demand for all Western premium brands continues to slump. The country was JLR’s biggest market in the 2023 financial year but has fallen to fifth in the first half of this year at 20,904 wholesales (sales to dealers) against 62,011 in its largest market of the US.

The company is banking on sales from the revived Freelander brand, built on platforms from Chinese partner firm Chery and due in the second half of 2026, to fill falling demand for smaller cars like the Range Rover Evoque and Discovery Sport in the country.

Then there’s the thorny issue of electric power. “There is a growing disconnect, as the predicted S-curve of BEV demand hasn't really taken off in many markets,” Molyneux said. 

The current JLR management has tried to distance itself from the capital-intensive mistakes of the previous decade by being a lot more prudent on spending. However, when it became obvious that ICE cars were going to live a lot longer than predicted, JLR was forced to increase spending from a planned £15bn to £18bn, mainly to keep building ICE cars alongside new electric EMA-platform-based mid-size SUVs due next year from the Halewood plant.