How Jaguar Land Rover avoided ‘dirty discounting game’ in China

Jaguar Land Rover plunged to a 3.6 billion pound (4.2 billion euro) loss during its last financial year, ending a long streak of consistent growth and strong profits. Most of the loss came from a 3.1 billion pound write-down on investments in February after 2018 sales in China collapsed 22 percent. That prompted a 2.5 billion pound cost savings drive, including the loss of 4,500 jobs, as the Tata Motors-owned company reassessed its priorities. The tough decisions are paying off as JLR reported a 156 million pound pre-tax profit during its second quarter that ended in September. Felix Bräutigam outlined how the automaker aims to keep heading in the right direction, particularly in China, in an interview with Automotive News Europe Correspondent Nick Gibbs.

JLR has struggled in China. What is your strategy there now?
Since 1994 we have had three to four cyclical downturns in the Western world, which is normal, but the Chinese market was growing each and every year. Then, all of a sudden, last year it was down, which was seismic. One of the reasons why we had a difficult 2018 was that we took a conscious decision not to offset the overall slowdown by pushing volume at any cost, so we cut production. We are in it for the long run. If we start a really dirty discounting game in China and buy market share in a relatively young market, what does that do to our brand? It says we are a discount brand and that doesn’t match what Jaguar and Land Rover should stand for.

Is your China business now sustainable?
We see green shoots in China. We didn’t just take out production. We worked intensively with retailers, we simplified our product offer and we worked on the cost side. Now we are growing again. I’m not saying we have completed the turnaround, but we have the patience. It’s such a young market, whatever we do right and wrong now will influence our success in China, which will be the biggest premium market for the next 10 to 20 years. But at the same time the market is still declining so we face headwinds on a more macroeconomic level.

Was it perhaps inevitable that the Chinese gold rush would end?
In the early 2010s you could shift volume and make a lot of money on the way. There is still a lot of gold but it will be more and more expensive to extract. It’s a huge market, 1.4 billion people. However, it’s also becoming probably the world’s most aggressive and most fought-over premium automotive market. It will be a relatively dirty market [because of the pressure to discount]. This is a game we don’t want to play. We are relatively small, so we want to be in enough niches that we can be enticing to enough Chinese customers who say: “This is exactly what I want.” So, when they say, “Can we have a discount,” we say, “We go out of our way for you, so, I’m sorry, but that’s the price.”

Based on that, should Jaguar be making XE and XFs sedans?
It is an entry into our brand, and when you look at other premium brands, their entry level is much lower. In China we produce a stretched version of the XE to better appeal to Chinese tastes. We were a bit unlucky in that it launched right as the market was crashing, but we still believe it’s particularly appealing to Chinese customers, because it’s still a huge market for sedans.

What does the new Land Rover Defender add for you?
We have been a two-legged stool for a couple of years. Land Rovers are supposed to be the most capable in their segment. The Range Rover family adds refinement and luxury. Discovery adds versatility. The missing leg on the stool was Defender, which is about ultimate 4×4 unstoppability. Now we can be much more specific.

The Defender also looks pretty versatile. Are you worried about taking customers from the Discovery?
The Discovery creates a whole stream of customers for whom the Defender is not the right car. The Defender might draw them in, but maybe they will think it’s perhaps not 100 percent for them, so they will have a second look at the Discovery.

Are you frustrated that the Discovery is not doing better?
A little bit. We think it deserves better. It’s a full eight-seater. It’s truly versatile. It doesn’t have to replace the Defender because we have given the Discovery its space back. It would have been very natural to launch the Defender and Discovery in parallel. That way it would have been very clear: This is the most capable family SUV [the Discovery] and this is the most rugged, unstoppable modern 4×4.

Are you worried about the environmental and safety backlash targeting SUVs?
Zero emissions, zero accidents. That’s our goal and we are on a good path. We are relentlessly driven to reduce the number of accidents, but this has nothing to do with the size of the car. It’s all about the car’s intelligence.

What about the emissions? What is your response to those calling for a ban on SUVs?
In any walk of life we need choice. We live in democracies. The effect of different car types is much less influential than the drivetrain. We were the first established premium manufacturer to launch an EV with the Jaguar I-Pace. That’s an SUV/crossover and it has zero emissions. And if plug-in hybrids are really used smartly, the CO2 impact is quite minimal.

Will Jaguar continue to build sports cars in the future?
Yes. We share a strong belief that Jaguar should always have a sports car. What shape or form that will take, we are deep in that discussion.

The new Jaguar XJ will be based on the MLA platform for electrified cars. Will you add combustion engines later?
MLA allows us to be super flexible. There are big changes ahead with autonomous cars, connected cars, EVs and car-sharing. The big challenge is forecasting which of these four will be really relevant to customers in which market at which point in time. That means it’s no longer the game of fast swallowing the slow, the big swallowing the small. The smart and flexible will be the most successful. This is a strength of Jaguar Land Rover. We are relatively small and very flexible. MLA is one answer. It will deliver outstanding full-electric vehicles, however, there will still be markets without the charging infrastructure or customer demand, so, MLA allows us to continue delivering super-efficient plug-in hybrids or mild hybrids on the same platform.