Jaguar Land Rover’s profit dropped sharply in the first quarter as sales in China slowed, but this could be reversed if the ambitious new model program is successful.
JLR, the British-based luxury car company owned by Tata Motors of India, reported net profits down 33 per cent in the first quarter to $465 million compared with the same period of 2014.
The profit margin fell to 6.9 per cent from more than nine per cent.
“We see a certain slowdown in the China market and we read that many competitors are going to reduce prices. I can assure you that we will not be the very first ones to reduce prices because we’re convinced we bring color to the Chinese market,” said Ralph Speth, JLR CEO.
Max Warburton, analyst with Bernstein Research, said JLR is the most China dependent car manufacturer and might be able to keep prices up because of its strong new product lineup.
“JLR’s progress will depend on the interplay between slowing Chinese demand and the benefits of a uniquely intense and rapid new model launch schedule. We believe JLR is more dependent on China than any other (manufacturer) thanks to extraordinarily high pricing (there),” Warburton said.
“Thankfully, while China volumes are falling, China mix remains excellent – Range Rover/Range Rover Sport sales were at a record in the recent quarter. However pricing on these vehicles is now falling and we may have seen their profitability peak,” he said.
This could be offset by JLRs “phenomenal” product launch schedule including the new XE small sedan, XF medium sedan, F-PACE SUV and the lightweight Range Rover Evoque, the L560. The new Land Rover Discovery Sport is starting to reach dealerships.
“This should drive meaningful volume growth in 2016 and beyond – we are confident volumes will climb far faster than any German rival. But will it drive earnings substantially higher? If Range Rover and Range Rover Sport volumes hold up in China, if new models shoot the lights out or if U.K. sterling softens, the outlook could develop favorably,” Warburton said.