Cost savings project: Jaguar Land Rover cuts break-even volume by a third


Tata Motors’ British subsidiary Jaguar Land Rover has slashed by a third its break-even volume threshold – the minimum it must sell to cover production costs –to 400,000 units as part of its targeted cost savings projects Charge and its sequel Charge+.

The company’s break-even volume was 600,000 units in FY19, when Charge took off to cut costs and improve cash flow, JLR’s chief financial officer Adrian Mardell told analysts.

“We’ve effectively reset the investment and the structural cost base (by) eight years now,” Mardell said on an analyst call on Tuesday, explaining that the luxury car maker had a comparable break-even volume of 425,000 units back in FY14.

“And that’s before the power of the Reimagine and the Refocus programs kick in fully,” he said.

The project Refocus is the successor of the company’s Charge and Charge+ initiatives, which cumulatively helped JLR save £6 billion since FY19. Refocus envisages £1 billion of cost savings in FY22, coupled with several consumer-focused and competitive initiatives.

“We believe the lower capex and the government’s stimulus would support JLR, and the focus on cost control would improve (

’) standalone margin. Moreover, tight control on capex and R&D would lower its automotive debt to a greater extent over the next 2-3 years,” said Mitul Shah, head of research at Reliance Securities.

The company expects sales in FY22 to climb more than a fifth, Mardell said during the same call. The Coventry-based company sold 4,39,600 vehicles in FY21, which was a decline of 13.6% over the preceding year.

A lower break-even volume ensures that the company manages to remain profitable even during periods of unpredictability and low sales, like the ongoing crisis caused by the Covid-19 pandemic.

“We expect the demand situation, particularly on the global side, to keep improving. We are already seeing strong performance in the US and China and as more and more people are getting vaccinated, the UK and Europe are starting to improve,” said PB Balaji, group chief financial officer at Tata Motors.

JLR accounts for over three-fourths of Tata Motors’ consolidated revenues and thus its performance has a large bearing on the Mumbai-based automaker’s financials. The luxury car unit reported pre-tax profits of £534 million in Q4 and £662 million for the full year before exceptional charges.

However, it took a write-down of almost £1.5 billion during Q4 due to project Reimagine, under which it plans to make Jaguar a completely electric vehicle brand by 2025 and electrify most of Land Rover’s models by 2026. Subsequently, several ongoing projects were discontinued, resulting in a £952 million non-cash write-down. The company also wrote down £534 million of restructuring charges, which are expected to be paid in FY22.



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