Chip shortage, China lockdowns led to Q1 loss for Jaguar Land Rover

Jaguar Land Rover reported strong demand and a record order book in its first quarter on Wednesday, but said sales were still constrained by the global chip shortage.

The subsidiary of Indian conglomerate Tata Motors said that was compounded by a slower-than-expected production ramp-up of the new Range Rover and Range Rover Sport vehicles, and the impact of Covid lockdowns in China, leading to a loss for the quarter.

Retail sales in the three months ended 30 June totalled 78,825 vehicles, which was “broadly flat” at 183 units lower than the prior quarter, and down 37% year-on-year.

Wholesale volumes totalled 71,815 units in the period, excluding the China joint venture, which was down 6% on the last quarter.

The company’s total order book now stood at almost 200,000 units, up around 32,000 from 31 March, with its three most profitable models - the new Range Rover, the new Range Rover Sport and the Defender - accounting for over 60% of those orders.

Revenue totalled £4.4bn in the quarter, down 7.6% from the fourth quarter of the 2022 financial year, reflecting the lower wholesales.

The firm’s loss before tax came in at £524m, with its EBIT margin being -4.4% before a £155m favourable exceptional pension item.

JLR said the loss primarily reflected the lower wholesale volumes, with a weaker Range Rover and Range Rover Sport mix due to ramp-up, as well as an unfavourable inflation charge of £161m and a negative currency and commodity revaluation of £236 million year-on-year.

Free cash flow turned negative in the quarter to -£769m, which the board put down mainly to £616m of unfavourable working capital movements.

The board said the company’s ‘Refocus’ transformation programme delivered £250m of value in the quarter, and was on track to deliver its target of £1bn-plus improvements in the year to help mitigate the impact of inflation.

Jaguar Land Rover said it ended the quarter with total cash and short-term investments of £3.7bn, with the undrawn revolving credit facility reduced as scheduled to £1.5bn in July from a previous £2bn, resulting in total liquidity of £5.2bn.

The board said the company’s financial performance was expected to improve “significantly” over the year, with chip supply set to better through “enhanced supplier engagement”, including long-term partnership agreements, as well as ramping up production of the new Range Rover and Range Rover Sport vehicles.

It was still targeting a 5% EBIT margin and £1bn positive free cash flow over the full financial year ending 31 March next year.

The company’s medium and longer-term financial targets under the ‘Reimagine’ strategy, underpinned by the ‘Refocus’ programme, remained unchanged, including improving EBIT margins to 10% or more by the 2026 period, and improving free cash flow to achieve zero net debt in the 2024 financial year.

“Our strategy to deliver the future of modern luxury to our clients continues at speed, as we accelerate our plans for an electric-first, brand-led business,” said chief executive officer Thierry Bolloré.

“Although headwinds from the global semiconductor supply and Covid lockdowns in China have impacted our business performance this quarter, I am pleased to confirm that we have a completely reinforced organisation setup to respond to the semiconductor crisis.

“This is now starting to recover production growth to achieve greater volumes and will allow us to take advantage of our record order book in the second quarter.”

Reporting by Josh White at Sharecast.com.