New Compact Models Boost Jaguar Land Rover’s First Half Volumes

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Tata Motors‘ (NYSE:TTM) luxury vehicle division, Jaguar Land Rover, is back in full swing in 2016. The British marquee brand posted record-breaking half-year sales results, selling 291,556 vehicles between January and June, up 22% year-over-year. The primary growth driver was the 64% increase in Jaguar sales through the first half of the year. High demand for compact luxury vehicles has been the main reason for Jaguar’s rapid sales rise in the last year or so.

Tata Motors Q&A 13

The compact saloon XE was launched in March last year, and quickly became Jaguar’s highest-selling model, as was expected. The XE is Jaguar’s response to the likes of the Mercedes C-Class, Audi A3 and A4, and BMW 3-series — all of which are among the highest-selling models for their respective automakers. Now, the compact luxury SUV F-Pace has become the highest-selling model for Jaguar in June, three months after its launch. In fact, the XE and F-Pace combined formed two-thirds of Jaguar’s net volumes last month. Compact saloons are volume models for luxury automakers, as demand remains continually high, especially as customers flush with cash look to trade-in their non-premium sedans for entry-level premium vehicles, and because these cars are relatively cheaper.

Tata Motors Q&A 13-2

In the U.S., JLR sales outpaced that of the German big 3 through the first half of the year, buoyed by the high demand for luxury SUVs, even as growth in the overall passenger vehicle market remains subdued. The U.S. passenger vehicle market crossed 17.5 million vehicles last year, growing by 5.8% year-over-year, but there are signs of slowing growth rates this year, as the industry nears its peak. The recession left substantial room for refilling of the fleet in the country in the last few years, but the growth rate is now expected to shrink. Nonetheless, demand for the spacious SUVs/Crossovers remains strong, with luxury SUV sales up 4.5% year-over-year in the U.S. through June. Land Rover took advantage of this trend, and so did the newly launched Jaguar F-Pace, which formed over 40% of Jaguar’s net sales in the country in its first full sales month in June.

Tata Motors Q&A 12-1

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The slowdown in China had hampered JLR’s overall sales last year, especially as the country was once the brand’s main growth driver. The spurt in volume sales towards the end of 2015, especially in Europe and North America, offset the decline in China, helping JLR end 2015 with a 5.3% year-over-year increase in net volume sales. However, JLR’s China sales are up again. The ramp of Land Rover Discovery Sport, the second locally-produced JLR model, and the launch of the Jaguar XFL (long wheelbase), will give more momentum to the British marquee brand’s sales in the country, going forward. SUVs accounted for 35% of China’s passenger-vehicle sales in the first six months, compared with 27% in the same period a year ago. [1] Growth for SUVs has been boosted by the introduction of cheaper models by local manufacturers. Nonetheless, Land Rover has also taken advantage of the growing demand for SUVs.

In the wake of the U.K.’s vote to exit the European Union, and its potential impact on Jaguar Land Rover, it becomes even more crucial that the core performance of the brand remains strong. According to Trefis estimates, JLR will cross a million unit sales by 2023, growing at a CAGR of 9% between fiscal 2017 (ending March 2017) and 2023. However, due to a higher percentage composition of compact vehicles, average revenue per vehicle is expected to fall.

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Notes:
  1. China auto sales growth accelerates on rising SUV demand, bloomberg.com []