Derek, I thought a good place to start would be to run through JLR's history.

I think that's a good place to start. I think that's really informative as to where we are now and why we are where we are. Looking at Jaguar Land Rover's ownership history, through the 1980s both Jaguar and Land Rover were part of British Leyland. Jaguar was spun off from British Leyland in 1984 and listed on the London Stock Exchange. I have to say I don't think that Jaguar had ever been a particularly willing part of British Leyland, it had always tried to keep itself as separate as possible. Its products were quite different from the volume products that were the main part of British Leyland's business. It had tried to retain a certain amount of autonomy, and that was finally fully achieved in 1984 when it was spun off.

It was effectively independent for 6 years until it was acquired by Ford in 1990. Now, Ford, at the time, were in an acquisitive frame of mind. They saw Jaguar as a big opportunity into the premium market. They really only had their US brand Lincoln, and that wasn't a global brand in the premium area. Ford made substantial investment in Jaguar, both in terms of products and in terms of manufacturing facilities. During Ford ownership, they introduced four major vehicle lines, the X-Type, the S-Type, a completely new XJ series and the XK sports coupe. Two of those vehicles were based on existing Ford architectures, the X-Type and the S-Type; and two were completely unique to Jaguar. They also made major investments in the manufacturing facilities in Castle Bromwich in Birmingham and in Halewood in Liverpool, which had previously been a Ford manufacturing plant. So Jaguar was not short of investment during the Ford ownership period, it was substantial indeed. Now, I have to say, their biggest issue was one of design. This was a case of US owners heavily influenced by US dealers, in terms of design direction. And the design direction they took was basically backwards. They went for retro designs, which had short term attractiveness, particularly in the US market, but were probably quite wrong in the European and global market. Okay, Jaguar are a traditional brand, but there are many traditional brands that continue to move forward. Design really was one of their biggest issues here.

Then, in 1994, looking at Land Rover, they also left British Leyland and became a part of Rover Group that was then sold to BMW. I think Land Rover was a prime reason for that purchase by BMW because they could see the increasing importance of SUVs in the marketplace. It was owned for 6 years, through to 2000, when it was acquired by Ford, and it became a part of what was called the Premier Automotive Group, alongside Lincoln, Volvo and Aston Martin. The Premier Automotive Group was arguably a flawed concept, and not well managed. What it tried to do was bring together premium brands. Understandable. But premium brands that actually had entirely unique DNAs. The intention obviously was to increase scale by sharing components, and in that there was some success, I guess. For instance, the original Jaguar S-Type was actually based on a US Ford Lincoln platform that it shared. Volvo increasingly used Ford platforms for their smaller vehicles. Ford continued that approach with Land Rover as well. They brought a Range Rover to market that was actually really a BMW design. They invested in a new Discovery and a new Range Rover Sport. The Range Rover Sport, I would say was something of a business masterstroke, by taking a platform that was used for Discovery, turning it into a Range Rover and charging substantial premiums for it. They then used a European Ford platform to build the Freelander replacement, again quite successfully. They even more successfully spun off the Range Rover Evoque off that platform, which really was a breakthrough product. It effectively created a new segment, which took most of the premium competitors close to 5 years to actually catch up on. As with all good ideas that create new segments, particularly premium segments, it generated good profits for the business. And really, during this period of ownership by Ford, it was the Range Rover brand that was driving profitability; therefore, their choice was to continue to invest in Range Rover.

By the time we got to the purchase by Tata, they already had the development of the Range Rover's replacement in progress, the Premium Lightweight Architecture based current Range Rover and Range Rover Sport. So I guess the question is, what was the attractiveness to Tata of Jaguar Land Rover? I have to say that I believe this was a decision driven very much by Ratan Tata himself. Ratan is an anglophile, he was educated in the UK, and I believe it was as much an emotional as a rational purchase of Jaguar Land Rover, particularly, for the Jaguar brand itself.

I think it's true to say that by the time of this purchase in 2008, Ford had effectively given up on Jaguar as a brand and really couldn't see how they were going to turn this into a profit generator. They had re-used the S-Type architecture to create the first series XF, and that was relatively successful. But the fact was that to create a new generation of Jaguars, they were going to have to build a new architecture, which honestly is the most expensive part in terms of product development and manufacturing facilities in the car business. You usually have to start with a clean sheet of paper. And I think it had got to the point with Jaguars where that was going to be necessary for their products to be competitive into the future.

The Land Rover side was producing returns, but again it was going to require substantial investment, particularly with the increasing emissions requirements on the horizon. I think it's true to say that of all the potential bidders for Jaguar Land Rover, Tata Motors probably had the least knowledge and experience of exactly what they should be looking at. I personally don't believe they had a great understanding of the sort of legal pressures that were going to come into the business, particularly for Jaguar Land Rover.

They were clearly looking to expand the range of Tata Motors. Tata Motors was basically built around truck manufacture and small cars in India. Clearly the idea of a premium brand with potentially much higher margins was a very attractive idea. As was using the technical knowledge and technology from Jaguar Land Rover to improve their own products. Again, I think that may have been something that was somewhat overestimated at the time, because the gulf between products was enormous, particularly in terms of the costs required to be competitive in the market. I think, only now, with Tata introducing the Harrier SUV in India, which uses a level of technology from the Discovery Sport and the Evoque, are they beginning to see any returns in terms of the technical knowledge that they gained from Jaguar Land Rover.

First of all, two questions on Tata. Firstly, did they invest in the asset as well as they should have? And given the issues today, what's the governance of JLR been like at Tata?

The governance under Tata has been very different from that under Ford ownership, in a good way and in not such a good way. Ford were very highly engaged in the activities of Jaguar Land Rover on a daily, weekly, monthly basis, with very frequent reviews of programs. Ford is very much a financially driven activity and they like to understand in great depth the financials of all proposals. Therefore, they did a lot of work, themselves, to understand and make sure that they were comfortable with what was being done.

Tata took a much more hands-off approach, frankly, a very trusting approach to Jaguar Land Rover. Bear in mind their own activities with Tata Motors were going through pretty tough times. I guess they may have felt they weren't in the best position to actually offer advice on how to build a business and had no experience in this segment of the market, or, in fact, in many of the geographical regions that Jaguar Land Rover was operating in. So they were very hands-off, and, if you like, respected the knowledge and skills that were in Jaguar Land Rover, possibly to too great an extent.

The one area they were very involved in, and that has been a great success, is in design. Again, Ratan Tata is personally very involved and very interested in vehicle design and appearance, particularly exterior appearance. I think he has actually been a very positive encourager of that. Although they have their critics, Jaguar Land Rover under Tata ownership has been very successful in terms of design, interiors and exteriors. That is clearly one of the key areas that has driven the increase in volume, plus the expansion in the portfolio.

In my view, they have not taken the same level of interest in cost management. And therefore, decisions have been taken in Jaguar Land Rover that they are having to live with, that may be somewhat questionable. Looking at some of the financials, a critical decision was taken in terms of vehicle architectures, in terms of going for full aluminum construction. That's something that no other volume-type manufacturer has done globally. Some do this at the top end of the range. And it was well understood why you would do this for full-size Range Rovers, because weight is one of the key issues in terms of trying to improve fuel economy, emissions et cetera.

It is a much closer balance in terms of the smaller vehicles, particularly on something like the Jaguar XE, where it does impose a really substantial cost premium onto the vehicles. I, personally, do not believe that under Ford ownership going to aluminum construction for smaller Jaguars would ever have been agreed. I think it would have been viewed as a cost that was not recoverable in price premium. I think that has been proved to be absolutely the case. I don't think there has been any evidence that Jaguar have been able to get any price advantage as a result of aluminum construction. It's purely a cost penalty, which in the long-term could prove to be a good decision. The issue is that you have to get through the short-term to get to the long-term. They were faced with having to re-facilitize manufacturing plants to build these vehicles.

This was the sort of expense, especially on Jaguars, that I do not believe Ford would have been willing to pay. They simply had tired of investment being ploughed into Jaguar without any clear returns being achieved. I don't think they were ready or willing to support another cycle of that level of investment. Tata clearly had a different view and were willing to do that. But, I think, as we're seeing now, that part of the business has not paid off. We haven't seen the volumes that were necessary to recover that level of investment and to support at level of spending overall.

That is clearly one of the biggest weaknesses of the Jaguar Land Rover business at the moment. If we look at the way the margins have gone over time, what we're seeing is a move from a business that was really centered around high margin Range Rovers to one that now has to cover a much lower priced vehicle, working at much lower margins, partly because they are suffering a cost penalty versus competition. Therefore, we've seen a progressive dilution of margins for the business over time and through Tata ownership.

But is this choice of design architecture the only core driver of the issues today for JLR?

My view is that maybe the underlying issues are not the ones that are being talked about in public. Clearly, China is being talked about and is a very substantial issue, because honestly the business's profitability has hinged on China for several years. But the fundamental issues to me are: cost, and that is two things, design cost - we've talked about aluminum architectures and the associated costs of that - and the other thing is impact of exchange rates, because a high proportion of materials and high value parts of the vehicle being sourced out of mainland Europe in Euros. So they have enormous cost issues, which I don't believe they have really been able to address effectively. There has been a real intention to try and increase UK sourcing to try and mitigate the effects of exchange rates. But, most manufacturers and suppliers - even more so in the last 2 years because of Brexit issues - are just not willing to relocate into the UK, when the whole industry is so unstable at the moment. So I think there's a fundamental cost issue.

I think there's also a portfolio issue, with investment having been made in segments that are very, very challenging. I think the XE is the best example of this to be honest. Because you have incredibly well-established German name plates in those segments selling much higher volumes with much better distribution in global markets, at lower cost. There's the issue of steel bodied vehicles versus aluminum, which have a real volume cost reduction opportunity versus JLR's model. And finally, you're selling them when so much of the business has to be financed. Those manufacturers have in-house finance activities, which allows them to be hugely competitive on lease rates.

Basically, we've gone from a situation where you were selling primarily Range Rovers, very often to wealthier high-end private buyers who were actually able to fund these vehicles, to mainstream business. Let's not kid ourselves, the BMW 3-Series and vehicles like that are just volume cars now. Okay, they are premium brands. But, if you look at the sales figures and what they're used for, they are just volume cars. This is all about price, all about cost. They're frequently company-owned, and they're just after the best deal. Trying to enter that segment with a direct facing competitor to the BMW 3-Series with a flawed strategy. It simply hasn't worked. As we can see, the volumes were never high enough and they're getting lower. The car just isn't distinctive enough, it's too high cost, and they haven't got the financing available. Too many buyers will simply say, "It's not worth it."

Land Rovers and Range Rovers have a very distinctive brand appeal. I think Jaguar simply hasn't managed to establish the level of appeal that persuades people to pay a premium for the brand. If you've got premium cost, you need to have premium pricing, if you are going to have a successful business.

Maybe we need to explain the difference in how we should look at the aluminum architecture versus steel architecture in terms of cost, process, design, et cetera.

Yes, it has impacts on all. Fundamentally aluminum as a raw material is a substantial cost penalty versus steel. It varies, obviously, like all material costs. It can change depending on world economics and supply but, fundamentally, it is always more expensive than steel.

I won't quote costs here because it's confidential information. The manufactured cost of an aluminum constructed vehicle has a substantial cost penalty.

Are we talking 10% or more 20% more expensive?

On a vehicle such as XE, it's up to 10%. Obviously, that percentage decreases because it's fairly constant as a cost penalty, so it's kind of a fixed number almost. If you've got a much more expensive car, like a full-sized Range Rover, it might be down to less than 5%. But on something like an XE, it's up to 10, I would say. And 10% is huge. 10% can wipe out your margin on a volume selling vehicle. So the material is more expensive, the production process is more complicated, because it's not welded, it's bonded and riveted. So it's a more complex operation, takes longer, costs more.

There are also vehicle package implications, you have to use bigger sections to get equivalent strength. Aluminum can be very strong as a crash structure, but you need larger sections. So that tends to eat into the interior room of the vehicle. Therefore, when you hear people saying the XE doesn't have as much room as the Mercedes C-Class or a BMW 3-Series, the key reason for that is the aluminum structure. Again, on a large vehicle like a Range Rover, that's not particularly significant, it's a big vehicle. As vehicles get smaller, the impact of that package inefficiency increases.

Are the aluminum structures being used across all models for JLR?

No, there's a split, all the vehicles that are being built in Castle Bromwich and Solihull are aluminum structures. But the ones that are built in Halewood, which are the Discovery Sport and the Evoque, and also the Jaguar E-Pace which is built by Magna [Steyr] in Graz, [Austria], have steel structures. Those vehicles are all based on a steel platform that originates out of Ford. It's been massively updated and changed, and probably at this point bares very little resemblance to what was originally there with Ford, but the actual manufacturing process has remained the same. So, those transverse engine, front-wheel drive-based vehicles are all steel. They may have to remain that way, as to extend the aluminum cost penalty into those segments, that would fundamentally undermine the profitability of those vehicles as well. The problem is, of course, that they are then substantially unique to the other vehicles, and therefore, some of the volume related savings are not achieved on those.

In terms of the cost of goods or the procurement of the components, in terms of both architectures, are they both sourced from Europe in the same percentage, or do they have different exposures to Brexit?

I don't believe there's any fundamental difference between them. For instance, all the engines are sourced in the UK. Some of them are still sourced out of Ford facilities, but not for much longer. All the transmissions are sourced out of Germany. Axles are similarly sourced. Trim is largely UK sourced, but generally from European manufacturers. I obviously don't know in some cases how the purchase has been negotiated, whether it's actually been done in pounds or in euros. But yes, I would say there is actually little difference in exposure between the two, because the major high cost items are basically similarly sourced. The cars have totally different transmissions in them, but they're both sourced from ZF.

So, given the move to Nitra, the Slovakian facility, what's the endgame in the manufacturing footprint for JLR, with the different architectures and the pressures from potential Brexit?

I think the bottom line is that what we have at the moment is a manufacturing footprint that was clearly aimed at a million units a year, and what we see at the moment is it looking less and less likely that that is going to be achieved in the foreseeable future. Therefore, one has to say, there is at least one manufacturing plant too many within the footprint. The most vulnerable of those would have to look like Castle Bromwich in Birmingham, because it's a constrained facility. It's landlocked, it can't be expanded, and it's the smallest of the facilities in Europe. It's restricted in terms of what it can build because of its paint facility and therefore you could see a scenario where some of that production is being transferred to Slovakia.

Castle Bromwich mainly manufactures Jaguar though-

I think that will be an interesting discussion, because actually Solihull is quite capable of producing Jaguars. It produces the F-Pace already, and in fact, initially, it produced the XE. Again, frankly, that was a wasted investment where the vehicle production was started in Solihull and then moved to Castle Bromwich. So there are some options, you could potentially move whatever Jaguars still remain at that point into Solihull and move some of the production that's currently in Solihull into Slovakia. Maybe that's more likely, because if Slovakia is going to be producing Discoveries and is talked of as producing Defenders, it may simply make more sense to move more of the SUV production to Slovakia, and move the residual car production into Solihull.

If you look at the recent volumes, in November, would Solihull be able to take the whole of the Jaguar volumes? Or maybe they can discontinue some Jaguar lines?

That is also a possibility. In the history of Jaguar, what we've seen is, every time they have added a new Sedan into the lineup, after a couple of years, they basically ended up building the same volume had they had just the one. That is effectively what's happened with XE and XF now. I don't think the total volume of XE and XF together is more, or possibly less, than the volume of XF on its own, when it was under Ford ownership. So you have to say, what has XE added to the business in that case? Do you need two products? Bear in mind, it's not just two products, it's actually four products, because there are long-wheelbase versions of both XE and XF being built in China at exceptionally low volumes.

What would you do then with those? You've got XE, XF, F-Pace which is roughly, let's say, maximum 120,000 units, 130,000 units a year.

I think we're going to see a thrifted portfolio. But the question is, of course, where are Jaguar going to go as a brand? Is it going to stay where it is? Or does it change direction completely and take its lead from the success of I-Pace and become basically an electric vehicle brand?

At the moment, looking at the relative success of the two alternatives, you'd have to say, they might well decide to do that. Jaguar Land Rover has to have a range of battery electric vehicles. Like other manufacturers, it's the only way it's ever going to get close to its emission requirements in Europe. One of the obvious things to do is, rather than creating another brand, which some of the other premium makers have been struggling to navigate - what are they going to call it? How are they going to be seen? - is to simply bite the bullet and go electric.

So, you'd close all those three lines? Then you have too much capacity though?

Yes, but again, arguably you don't need Castle Bromwich. Bear in mind Solihull is two effectively separate assembly halls, so there is the potential to actually convert one of those to electric vehicle production. In fact, I think, in terms of the announcements we've had, that's being hinted at already by Jaguar Land Rover. Effectively saying to the unions, "Yes, I know you're losing this production of Discovery to Slovakia, but that allows us to build electric vehicles." And that may in fact be the intent, for Solihull, which is effectively two plants on one site, to have one side of it devoted to electric vehicle production.

Just going back to the point on this choice to build aluminum architectures for the Jaguars, yet failing to achieve a price premium in the market. Why did they fail to achieve this price?

Well, because unfortunately aluminum construction has no perceived value by the customer. Plus, with the way they've gone about it, the fact that it's not even obvious that that's what it is. The best example of this was actually under Ford ownership, the first fully aluminum Jaguar was the XJ (X350), which was really the first full aluminum structure constructed in that way, certainly the first in Ford, and one of the only ones in the world. And yet, it was launched with a body style - this goes back to my issues about design under Ford ownership - that looked pretty well exactly the same as the previous one. So you had a state-of-the-art vehicle, all aluminum structure, powertrains, everything absolutely state-of-the-art and it looked just like the previous one. So why would the customer perceive any value in that? "It looks just the same as the other one, why would I pay any more for it?"

I would suggest that the majority of people who are not directly involved don't know it's an aluminum structure. If you asked, "Is a Jaguar XE built in the same material as a BMW 3-Series?" They'd say "Yeah, of course it is, why would it be any different?"

The trouble is also, it's fine going for very lightweight body structures and they are pretty efficient, the actual body weight of Jaguars and Land Rovers are very low, but a lot of the other materials, the suspension systems, the engine, and everything else are actually pretty heavy. So the net result is the vehicle is not really sufficiently lighter, substantially lighter, if at all, than its competitors because they put their weight reduction in other areas of the vehicle. Partly, I have to say, because BMW and Mercedes had massive investment in steel body construction, with multiple plants, and therefore the cost of them changing that would be enormous. So they have resisted doing it, they've gone for hybrid structures where certain parts of the vehicle are steel, certain parts are aluminum, or other lightweight materials. Simply, the investment wasn't affordable for competitors. The trouble is that Jaguar Land Rover haven't really got the full benefit. The only vehicle to get the benefit are full size Range Rovers and the F-Pace, which again is aluminum. And if you look at the F-Pace SUV, for the size and price, it is quite a bit lighter than its competitors.

Why do those two models get the benefits?

The weight of the other parts of them is competitive with competitors, if you see what I'm saying. So you actually see a net gain from the lighter structure. On the smaller vehicles, the design approach wasn't taken to get the lightest weight in the other areas of the vehicle, and therefore a 3-Series is no heavier than an XE.

And why does it matter if it's heavier? Are we talking about a price premium here for the cars?

Exactly. The customer doesn't actually care about the weight. I believe, in fact, they might think that heavier is better. In the end, it's down to fuel economy, cost of fuel, cost of taxation. The trouble is, if you look at Jaguar Land Rovers in general, the smaller ones are actually no better, in many cases they are worse, than their facing premium competitors. The customers sees no physical benefit. In fact, when they come to have it repaired, they might find it's a disadvantage because generally, certainly historically, aluminum repairs have been more expensive and there are fewer people who can do it, in terms of body shops, because it's a different specialty. The net result is that Jaguar Land Rover simply hasn't benefited from that decision.

Then when you look at a gross margin per unit of the Jaguars then, if you can't get a pricing premium with a 10% minimum higher cost base for aluminum versus steel, then you're going to be far below the 20%-25% gross margin per unit.

Yes, you have that, plus the fact that you are buying major units like transmissions from the same supplier as your competitors, but they're buying them in substantially higher volumes, and I guarantee will be getting better prices. And that runs right through the vehicle. So you've got a volume related cost penalty, an aluminum structure penalty and then, at the end of the line, when it comes to the actual transaction, then you've got a disadvantage in terms of the financing as well.

In my personal experience, many of my friends would be interested in Jaguar products but the single fact is, when they get to the dealer, and talk about the cost, it's just not competitive. The dealers can't or are unwilling to ask for the sort of prices that the German premium manufacturers can offer. So it becomes a bit of a no-brainer for people. Unless they are truly committed to that particular product, they're not going to make the decision. With Land Rovers and Range Rovers people sometimes see that there is a difference, they perceive capability of the vehicle and the design. Unfortunately, with Jaguar, to me, they're simply not distinctive enough to persuade the customer to pay a premium.

So the dealers can't provide finance or can't provide a competitive price on those kinds of units at the dealership versus their competitors with in-house financing who can provide good terms?

I think it's because, very often, what's hidden behind all these deals, is the level of manufacturer support to the sale, in terms of supporting the financing and everything else. Jaguar Land Rover can try but to me they're always going to be one step behind because they simply don't have the funding to be able to do that. Plus the fact that in the UK, as the European market has not been great, the German manufacturers have been very keen to sell cars there. It's relatively high margin. So they can afford to take out some of that margin to get the sale. They've been really strong. I think this was a predictable result. BMW, Mercedes and Audi were not going to give up that segment easily to an outsider, which is what Jaguar Land Rover were, having re-entered that segment after being absent. I think it's been just as tough as was predictable.

So we have a few core structural drivers here in design architecture, subscale versus German competitors, and lack of a financial captive company. How do these factors impact China for JLR?

There are multiple issues. Land Rover went into China with a strong brand reputation for Land Rover and Range Rover, much weaker with Jaguar. It was felt that was necessary for continuing volume growth to produce locally, and you can debate whether that was the right thing to be doing. Because of the Chinese regulations, they would have to join up with a local partner, and the partner that was chosen was Chery. As far as I'm concerned, Chery did not have a good reputation in the Chinese market, particularly for quality. The negotiations were difficult, in the end they had to involve joint marketing agreements. Basically, they went from a niche luxury imported brand, focusing on Land Rover and Range Rover, to an attempt to compete head on, same story if you like, with the premium brands, with Audi who are really well established in China. BMW and Mercedes also have local production. It would appear that that association, was almost a devaluing for the brand by local production. People were warned about this, that these vehicles are viewed very differently to imported vehicles. Plus, and I think this is actually more important in China than anywhere else, there were quality issues with the product. The Chinese are not forgiving in terms of quality, but particularly recognizing the sort of price that are being asked for these vehicles. As we've seen from other surveys in other markets, Jaguar and Land Rover are close to the bottom in terms of quality versus competitors.

Just in terms of these quality issues, is that for both the imported Range Rovers and locally produced?

I'm not sure. But I am quite sure that significant quality issues that have been seen on the high-end models are also apparent in China. Therefore, I do not believe whatever quality issues they have are limited to local production. I think they're across the board. I suspect that's probably the key issue, because, you might argue, although they'd be carrying a lot of fixed costs with locally produced vehicles, would that really affect the imported vehicles? I think the problem has been with the imported vehicles.

Do you know what the cause of these quality issues is? Is it just cost based?

I don't think it's cutting costs, because they're not low cost. I think it's historical. If you look right back to British Leyland, the brands have never had a good quality reputation. I think Ford did a pretty good job in terms of improving manufacturing quality, at least with Jaguar. I don't think they ever achieved that with Land Rover. I think Solihull product quality is not good. The best plant, in fact, is usually Halewood and that's of course where originally exported vehicles to China came from, but they don't have any Halewood products anymore.

It's not just process, it's design as well. There's been enormous pressure on the whole product development process. The rate of growth of products and the portfolio, in terms of new products, for a manufacturer the size of Jaguar Land Rover, has been enormous. Effectively, a new vehicle launches every 6 months. You have a huge expansion of the workforce, a lot of new people. I think an underlying issue with the whole Jaguar Land Rover situation is one of overextension in terms of growth, and not fixing some of the basics in terms of design and manufacturing quality before you go into even more complexity. It's a very complex line-up that's being built at the moment. My perception is the process has become overwhelmed with too many launches and this has been the effect. This goes back to the whole strategic approach, which has been to turn Jaguar Land Rover from a niche luxury business into a volume premium business. It seemed to be working for a period, but I think now we're seeing the reality of the difficulties of doing that in such a short space of time.

So just moving on to looking at the end game, what's the cost and time penalty to shifting to steel architecture if it's more competitive?

That would be extremely difficult and expensive. You'd basically have to start again. I think it's something they're going to have to live with. Incidentally, with electric vehicles, this is probably the right approach, because you need that sort of structural weight offset for the weight of batteries. The strategic decision was a long term one. These architectures, as designed, would last for two cycles of product which effectively is 14 years. Therefore, you could argue that we're still in the first cycle. There was a penalty to be taken that would be regained later, in terms of the benefits when weight became really critical from having strict regulations. You could argue that is still the case. The trouble is that we haven't got to the end of the first cycle before the financial difficulties have really started to hit. I don't see any reversion to steel for those vehicles, and it certainly wouldn't make any sense for the big vehicles.

The EV architecture can be built on aluminum?

The I-Pace, for instance, is an aluminum structure. The problem they have is, it's an aluminum structure, therefore it can use the same processes, but the design has to be different. One of the challenges that JLR now have is the fact that these architectures, that were clearly intended to last two cycles of vehicles, are now having to be re-engineered for the second part of the cycle, in order to better accommodate the level of electrification.

The large Range Rovers accommodate it, to some extent now, that's why we have already got a plug-in hybrid Range Rover Sport, because that architecture was designed for electrification. But, as you come to the smaller vehicles, they really weren't, and therefore, that is going to have to be changed. I guess I'm saying that in the manufacturing process, body construction can now be retained and could well be advantageous in the next cycle, but you're going to have to do a lot of engineering.

So what are the next steps going forward for JLR?

I think in some ways the disruption of the market, because of electrification, could actually be the one thing that is to JLR's advantage. They've clearly got a head start with I-Pace, which seems to have had a really good reception. They've clearly now got the knowledge to expand on that. The problem is that was only designed for relatively low volume production, which is understandable because it was a gamble. It was also effectively outsourced for assembly by Magna. The challenge now will be to quickly bring in-house that technology in the hope that that will give them a lead, because of their manufacturing processes, having already translated into aluminum, when other manufacturers are going to be perhaps more challenged to do that because of the level of investment. That will be the competitive advantage.

The problem is it still requires a substantial amount of spending to do that. Earlier this week, we saw the cancellation of one project, and one thing we haven't talked about is Tata ownership. There have been a lot of vanity projects under Tata ownership that frankly were very debatable in terms of returns. The first one they actually approved was the F-Type, based on an expensive architecture that was never going to be a significant profit generator, because of its costs. But it was thought important for the brand. I can understand that argument, but they have made other debatable decisions.

The latest one was the C-X75 hybrid hypercar, they spent quite a lot of money on that and then abandoned that project. Now, they announced the two-door Range Rover SV coupe a year ago in Geneva, and, this week, they declared that they weren't going to pursue it, even though they had a number of orders for it. I think what we're seeing is the realization that this sort of spending has got to stop. The time for vanity projects is past. It's now time to slow the business and invest into the next generation of largely electrified products.

What's the extent of the capex spent on the I-Pace and how much have they still got to go to move this in-house and build this at scale?

Honestly, I don't know. The I-Pace program was not part of my involvement and I can't estimate what the investment was. Magna would have done this on low-cost, low-volume tooling - I say low-volume, it's 30 - 40,000 units a year. So I don't think they'll be able to use that tool, they'll have to start a new set of tooling. Arguably, it will be no different to the tooling for a new architecture and a new top hat for each of these. So, to re-facilitize one of the plants to be able to do that in-house, plus the design of the top hat for the vehicle, I would imagine we're talking close to a billion Pounds to do that. But, you know, at the moment, they're spending what I think is 4 billion a year. It's not atypical, the problem is to spend this on an architecture change at a time in the cycle where you would expect it to run for another 7 years. Therefore, to do that spending, something else would have to stop. I think at the moment, they'll be looking very hard at some of the Jaguar products, as to whether it would be worthwhile continuing them for a second cycle.

I would doubt that Jaguar is attractive. The simple fact is that Ford wanted to sell Jaguar, because they had tired of it, and the sweetener for selling Jaguar was Land Rover. I still think Land Rover and Range Rover has a lot of value, as a brand. Although, obviously, people will increasingly say with toughening emissions, is that sustainable? Or will the market move away from that? It would be difficult to believe that anybody would want to buy Jaguar as a standalone brand and not want Land Rover at the same time.

I'm just curious as to the decisions to expand to Slovakia given you have 3 facilities in the UK that are completely under capacity at the moment? Were they just expecting more units, and therefore expanded too quickly?

There's no doubt that we had a management team whose fundamental aim was to get to a million units. Bear in mind, Slovakia wasn't the first one, the first move was the joint venture plan in China, and the second move was the plant in Brazil, which I believe is massively underutilized. I wonder if it's even economic to go on, rather than just shutting it down, because of the economic situation in Brazil. A lot of this is simply bad timing. Only relatively recently, not much more than a year ago, Solihull was absolutely running overtime and couldn't meet demand. Plus, there was the fact that they wanted to introduce Defender. On the volumes being produced at the time, there was no way of building a further vehicle line in Solihull. Lots of alternatives were looked at, and the chosen one was Slovakia, which obviously then became increasingly relevant because of Brexit. But that was already in progress before Brexit was confirmed. This was a matter of "We need somewhere else." The original plan hadn't worked, therefore they needed somewhere to build Defender, and this was chosen as a potentially low-cost source. It also had some of the right kind of supply, because obviously we've got Volkswagen Group et cetera building vehicles in that part of the world as well.

It was a perceived capacity requirement, and certainly, it was primarily related to Solihull. Unfortunately, before the plant was even finished, the demand had dropped off for the vehicles in Solihull and the question was "Why do we need this?" I think it probably is needed but the point is that one of the other plants isn't. That's the bottom line.

What would you do then? Would you try and sell Jaguar, or move more towards EV?

I think, as I suggested, I would retain Jaguar and turn it into an electric only brand. I'd just reduce the portfolio. Effectively turn it into a direct competitor for Tesla, if you like. I think history has shown that it's a struggle to get Jaguar volumes above about 120,000 units a year whatever you do. So just accept that and build a business around that. Make sure that that is profitable.

So you've got to close some facilities somewhere.

Yes. I haven't worked out the exact numbers but if you close down Castle Bromwich, move Jaguar production into the second Solihull assembly plant, and move what was displaced into Slovakia, you would have much better plant utilization. You'd close Brazil because that's probably never going to make any sense. And you'd think very hard about China, because maybe the joint venture isn't going to work in China.

Just on the Jaguars then, do you think the I-Pace can have some pricing power?

I'm not sure you could price it any more than they are at the moment, with so many competitors entering the segment in the next 1, 2, 3 years. I think it's set. It's an accepted price position. The challenge now is going to be turning that into a profit generator.

I doubt it. Not when it's externally built. But I think the potential is there, if you can bring it back in-house, which obviously requires some spending. As battery prices reduce and the systems prices reduce, it has the potential. You should be able to make a profit doing that. Of course, the next vehicle, which we all assume will be an XJ replacement, will be higher priced than that.

It's difficult, because it means that for the third time, you've got to make a decision to invest substantial amounts of money in Jaguar. Is there the inclination to do that? As I say, Ford weren't willing to do it twice, the question is, are Tata willing to do it twice?

That's the question. Derek, I'll let you go now, thanks for your time. It was a pleasure as always.

I'm sure we will. I think the most interesting point, like you mention, is those root causes that lead to the issues of today. I think that's key to the story here.

And they're not the ones that are talked about. Bottom line is JLR's success over the last few years has been based on premium pricing, primarily generated out of China. What that has hidden is the cost issues, because if you get premium pricing you can push aside the fact that you haven't got competitive costs. But the market gets tough, or your premium price market really falls off, as it has, and that's when it really starts to show how financially sound your business is.

The Decline of Jaguar Land Rover

History of Jaguar and Land Rover brands from 1980s to today

How Tata's decision on vehicle architecture handicapped JLR

Componentry procurement and potential rationalization in JLR's manufacturing footprint

The Decline of Jaguar Land Rover

Former Director, Product Strategy, Jaguar Land Rover

inpractise.com/articles/the-decline-of-jaguar-land-rover

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Executive Bio

Derek Weale

Former Director, Product Strategy, Jaguar Land Rover

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The Decline of Jaguar Land Rover(November 5, 2019)

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