Jaguar Land Rover’s (JLR), decision to invest hundreds of millions of pounds to enable its Castle Bromwich plant in the U.K. to build electric cars, as reported by the Financial Times, is interesting on a number of levels.
Specifically, for JLR it underlines the drastic steps the firm is being forced to take following a collapse of sales over the last 18 months. Buyers have turned away from JLR’s diesel engine lineup — some 50% of JLR’s models are diesel-powered — amid a backdrop of wider automotive sales slumps across Europe and in China.
Switching to petrol engines is but a stopgap for a manufacturer whose range is skewed heavily to larger, less fuel-efficient models.
European environmental standards will require manufacturers to meet a fleetwide average of 57 miles per U.S. gallon by 2021 – already a demanding target with high mix of diesels and a number of electric options in its range.
But with a switch to petrol and following recent suggestions by the E.U. that the limit should be ramped up to 92 mpg by 2030, JLR could struggle to survive.
So, switching to all-electric for some of its key models — like the replacement for the XJ, the flagship Jaguar saloon— is, while immensely challenging, the only viable option.
The challenge — and the source of JLR’s reluctance to build its existing all-electric I-Pace in the U.K. — has been the lack of a U.K. supply chain.
Many of the drivetrain components, like motors, were produced by third parties but are increasingly being made in-house, according to thedrive.com. The most significant factor, however, is the lack of a significant automotive battery maker in the U.K., the Financial Times reported.
Perhaps the imposition of harder post-Brexit borders with the E.U. will encourage U.K. manufacturers to establish a major battery facility at some stage in the future — or, maybe, Castle Bromwich will be the last major automotive investment in the U.K.
Either way, for now sourcing major components from Europe is a brave move, particularly with so much uncertainty around about trade terms.
From a wider perspective, JLR’s investment suggests manufacturers do not believe politicians will carry through with such threats, despite all the current political posturing over a hard Brexit. It also suggests manufacturers believe there will be some form of a softer compromise that allows low-tariff or tariff-free trade with the E.U. and, more importantly, relatively free movement of goods. That, or some solution requiring only light touch border controls that allow just-in-time supply chains to continue to operate with levels of flexibility similar to the current regime.
All other U.K. car manufacturers are either keeping their cards close to their chests while waiting to see the outcome of the Oct. 29 deadline to leave the E.U., or are actively moving to Europe by announcing investment for new models will go into mainland European plants.
JLR’s move is against the current grain and raises the question of whether it has anything to do with the level of state financial support it has received, desperate as the government is to build momentum against the prevailing tide of lost investment to the E.U.
No automotive company invests in new facilities without going cap in hand to the government to see what help it can get; typically it is 9-10%, but it won’t be long before news leaks out of quite how much JLR has secured for Castle Bromwich.
E.U. state aid rules set limits — but in a post-Brexit world, potentially anything could be agreed.