Jaguar Land Rover records $413 million quarterly loss on chip shortage

Jaguar Land Rover swung to a loss of 302 million pounds ($413 million) in the quarter ending Sept. 30 as chip supply constraints prevented the automaker from fulfilling customer orders.

JLR recorded a profit of 65 million pounds in the same period last year. 

CFO Adrian Mardell told investors Monday that the company had unfulfilled demand of 160,000 vehicles. "That’s probably the highest number in history of the company," he said.

JLR has 128,000 vehicles on its order books, Mardell said. At the same time, dealer inventories are down to 20,000 and those held by the company are at 27,000.

"It’s the lowest level of dealer inventories we’ve had, going back a long time in the history books," he added.

JLR’s losses are in contrast to other premium brands such as Mercedes-Benz and Audi, which have profited from supply constraints by raising prices, reducing marketing costs and focusing on higher-margin models.

Mardell said JLR’s profit in the same quarter last year was an outlier due to China’s swift return to normality after the pandemic. 

"Q2 last year was a really rich mix," he said, referring to the June 30-Sept. 30 period, which is counted as the second quarter for JLR’s India-based parent company Tata Motors.

Mardell told investors on the revenue call that JLR’s gross revenue per vehicle was 61,000 pounds for the quarter, lower than the same period last year, without giving the higher figure. "Above 61,000 is a really rich mix," he said.

The automaker posted a loss of 110 million pounds in the March to June quarter.

JLR said it has targeted higher-margin vehicles such as the Range Rover and Range Rover Sport as it prioritized cars for production but lacked the chips to build enough. "Supply issues have impacted our most valuable units," Mardell said.

The chip shortage has also forced the company to pool with Tesla to avoid emissions fines in both the European Union and the UK. The pool for the 2021 calendar year will cost the company up to 37 million pounds, JLR indicated in an earnings presentation, and can be extended to 2022 if needed.

JLR is also expecting to buy credits totalling 59 million pounds in the U.S. and China, countries where plug-in hybrids are less popular and therefore less useful for offsetting high internal combustion engine emissions.

"We do have a compliant portfolio; we’re just unable to build them because of supply constraints," Mardell said.

JLR had said it would face production losses of 60,000 to 65,000 vehicles in the quarter because of the chip shortage.

Mardell said that prediction came to fruition but declined to give a number for the next quarter. "The worst is behind us. Production for Q3 will be better than Q2," a spokesman for Tata Group said on the call.

Other automakers, including Renault Group and Stellantis, have also indicated that the chip shortage would ease somewhat in the coming months.

Under former Renault Group CEO Thierry Bollore, JLR has begun a transformation plan to focus more on high-margin, lower-volume models after admitting earlier this year that a goal to sell over one million vehicles a year had not worked.

JLR has lowered the number of cars it needs to build to be profitable to an annual run rate of 340,000 over the next two quarters, down from 660,000 for the 2019 financial year (which runs from April to March).

The company forecasts that it will make a profit in the second half of this financial year as the chip crisis eases and it starts shipping the new Range Rover.

It predicts it will reach margins of 7 percent by the financial year ending March 2024.