Jaguar Land Rover (JLR) said this month that it will build the new generation of the Evoque model in the UK, which could be a risky move amid Brexit uncertainty.
Investing £1bn in the manufacturing of the new Evoque model in the UK, and £4bn on contracts with British suppliers, JLR new investment plan in UK sounds promising.
Manufacturing will take place at the company’s Halewood plant on Merseyside, where £100m will be spent on updating manufacturing capabilities, securing 4,200 jobs.
For UK operations the news is a welcome boost. Shifting production to Halewood could benefit the company greatly, securing thousands of jobs and helping UK manufacturing output.
However, the investment plan comes at a price. Brexit could have a major impact on JLR exports, which has been acknowledged by the company’s CEO and the company has openly warned against a no-deal Brexit, which company bosses said could cost the company £1.2b a year.
In the summer JLR also moved some if its operations to Slovakia making it the company’s largest factory outside the UK, with the factory having capacity to expand and take on more of the UK production in future.
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Nevertheless, JLR’s strategy to build electric and hybrid models seems to very much be set on the UK despite the Brexit uncertainty and its fallout in the coming years.
The UK JLR investment plan is a bit risky as exports may become more expensive relative to moving production to the continent. In what is a price sensitive market, sales could be hit.
Volatility of the pound could cause financial difficulties
JLR supply chains and exports may face significant risks due to the pound’s high volatility. Brexit uncertainty has driven the British pound to new record low against the euro, even after negotiations with EU officials concluded in November.
A further reduction in the value of the pound could force the company to increase their sales price, locking out prospective buyers.
The company may also be forced to reduce the number of vehicles directed to the European market, shifting efforts to US and other non-European markets. In addition, imports and supply chain could be affected as well, due to some major supplier locations being in Europe.
However, the company could reduce risk by using option contracts. With the help of option contracts the company could protect itself from future price fluctuations, granting JLR more influence over prices.
The new Evoque is crucial for future sales
The company is relying upon improved sales going forward. Sales of the Evoque have decreased 14% since 2017 according to company figures, stressing the importance of the new model to be a success.
Data from the UK SMMT (Society of Motor Manufacturers) revealed a rise of 9.2% on alternative fuel vehicles registrations, ensuring the launch of a hybrid Evoque to be vital to the immediate fortunes of the car maker.
If current sales trends of alternative energy vehicles and SUVs continue long-term, JLR will be relying on the Evoque to gain a sizeable chunk of the growth.