Tata-led Jaguar Land Rover sees a future in China

With nearly 22 percent of global premium vehicle volumes expected to come from China in 10 years , the Tata Group-owned Jaguar Land Rover’s (JLR’s) much-awaited China play is being keenly watched by the markets and analysts as one which will hold the key to the future of the carmaker Tata acquired in 2008. Currently, China accounts for 13 percent of such volumes.

JLR is a relatively small player in the Chinese market, and that gives it enough headroom to ramp up its act in that country, analysts say. A special report on JLR put out recently by brokerage Motilal Oswal Securities as part of its update on the auto sector says that with a 4 percent market share in China, that market offers the company a lot of potential.

[caption id=“attachment_150635” align=“alignleft” width=“380” caption=“JLR’s China play is being keenly watched by the markets and analysts as one which will hold the key to the future of the carmaker Tata acquired in 2008Reuters”] [/caption]

“JLR will increase its China presence by almost doubling its dealer network to 100 by CY11 (calendar 2011) and set up a manufacturing presence (through a joint venture, as mandated by Chinese law),” points out the report, adding that premium pricing compared with other markets and a better product mix will result in higher realisations and make China one of the most profitable luxury vehicle markets.

Tata has been reported to be keen on a Chinese joint venture manufacturing unit for JLR in a bid to increase its play in that country. Recent media reports have quoted the company’s assessment as one which puts China as the number two market for JLR, second for Land Rover and third largest for Jaguar by FY12 (fiscal year 2011-12). A manufacturing base in China is, therefore, an obvious strategic way forward.

Analysts believe JLR is taking some initiatives to fortify its strength in luxury sports utility vehicles (SUVs) and improve its weak positioning in the luxury car market.

According to Motilal Oswal, the luxury vehicle market will post a compounded annual growth rate (CAGR) of 8.9 percent to 9 million units over 2011-15. “We expect China and BRIKT (Brazil, Russia, India, Korea and Turkey) to be key growth drivers with CAGR of 11.4 percent and 8.6 percent respectively. JLR’s luxury vehicle market share (around 4 percent, or 0.23 million units), comprising 1.3 percent in luxury cars and 9.9 percent in luxury SUVs, is small compared with the top three players. JLR’s weakness in cars offers headroom for growth, driven by planned launches over two or three years. JLR’s entry in the lower luxury segment will give it access to higher volume segments, where it has no presence,” the report adds.

In the global premium SUV segment, Land Rover’s volumes are comparable with those of BMW (excluding X1), Mercedes Benz and Audi. Within the Land Rover brand, the Range Rover portfolio enjoys a relatively higher premium image. “The luxury SUV segment registered 11.6 percent CAGR over CY2000-10 and we expect it to post 9.7 percent CAGR over CY2010-15. JLR’s launch of Evoque in the high volume potential compact luxury SUV segment will be a key growth driver over 2-3 years,” the report points out.