Jaguar Land Rover is continuously monitoring the evolving coronavirus situation closely and responding appropriately in accordance with relevant government requirements and advice in China and other jurisdictions it operates.
Our first priority has been the health and safety of our employees. Shanghai-based JLR China & Chery Jaguar Land Rover staff have been working from home since the end of the lunar holiday and the offices and JV plant reopened in the week of the 24th February. Production will be ramped up as the number of employees returning to work and demand increases.
Demand
Jaguar Land Rover sales in China grew on average about 25% year on year for the 6 months from July through December 2019 and we continued to see strong growth for the first 3 weeks of January. The coronavirus has significantly impacted China sales with February retails down around 85% vs the prior year. In the first half of the month about 20% of dealers were open which has since improved to now over 80% although most are still operating with reduced staffing and facilities. Jaguar Land Rover expects this to improve over the course of March, however, retail sales are expected to recover more gradually. The spread of the virus to other markets such as South Korea, Japan, and Italy will also impact sales in those markets.
Supply Chain
Jaguar Land Rover’s supply chain is primarily based in Europe and the UK, with a relatively small percentage of direct parts from China. Over 95% of its Tier 1 and Tier 2 suppliers in China are now open but at reduced capacity and Jaguar Land Rover is engaged with its suppliers on the status of their sub-tier suppliers in China. Jaguar Land Rover has visibility of availability of most parts out 2 weeks or more and has managed to avoid potential parts shortages by working closely with its suppliers and with some increased use of air freight. In the event of specific parts shortages, Jaguar Land Rover would ordinarily be able to still build cars and retrofit missing parts when available, however, we cannot rule out the risk that a shortage of a critical component could impact production at some point. The spread of the virus to South Korea, Japan, and Northern Italy is creating similar issues which we are managing in the same way.
Financial Impact
Recognizing the present situation is highly uncertain and could change, the reduction in China sales resulting from the coronavirus presently is estimated to reduce Jaguar Land Rover’s full year EBIT margin by about 1%, however, free cashflow in Q4 is still expected to be modestly positive and JLR had £5.8 billion of total liquidity at December 2019 (£3.9b of cash and a £1.9b undrawn revolving credit facility).