Hard brexit to pinch earnings, warns JLR

Mumbai: Jaguar Land Rover warned that a “hard Brexit” would jeopardise the earnings of Britain’s biggest car company and threaten its investment plans in the UK, sending shares of parent Tata Motors crashing to a five-year, intraday low on Thursday. CEO Ralph Speth was referring to the possibility that Britain wouldn’t be able to conclude a favourable trade deal as it exits the European Union single market by March next year.

“A bad Brexit deal would cost Jaguar Land Rover more than £1.2 billion ($1.59 billion) in profit each year,” Speth said in a release, adding his voice to similar warnings by company bosses. “As a result, we would have to drastically adjust our spending profile; we have spent around £50 billion ($66.3 billion) in the UK in the past five years — with plans for a further £80 billion ($106 billion) more in the next five. This would be in jeopardy should we be faced with the wrong outcome.”

Speth’s statement comes a day before a cabinet meet to be held by UK Prime Minister Theresa May on Friday where matters related to her proposal for the future relationship with the EU will be discussed. Tata Motors fell as much as 5.4 per cent to Rs 252.55 on Thursday before closing at Rs 261.50, down 2.06 per cent.


JLR is critical to Tata Motors, having contributed about 77 per cent of the parent’s total revenue in the year ended March. A hard Brexit will impact carmakers in Britain that import components and supply finished products to other European nations in a free market that could change with the imposition of tariffs and a change in customs duty rules as was discussed on Wednesday.

At risk would also be the jobs of 40,000 UK employees and the future of JLR’s vendors.

“For more than 250 years, since the era of Adam Smith, Britain has championed free markets and made the case for free trade. If the UK automotive industry is to remain globally competitive and protect 300,000 jobs in Jaguar Land Rover and our supply chain, we must retain tariff and customs-free access to trade and talent with no change to current EU regulations,” said Speth.

JLR needs free and full access to the single market beyond the transition to remain competitive, Tata Motors CFO PB Balaji said in another statement. Tata Motors believes this would also be in the best long-term interests of the UK, he said.

“As this worst-case Brexit scenario is just one of the many possibilities, our plans which were shared at the JLR analyst meet in the UK did not factor them and we continue to stand by what was shared,” he said. “In the meanwhile, JLR will continue to work with the government to secure the right free trade deal for the country, economy, and industry.”

JLR has joined other carmakers such as BMW AG that have threatened to pull the plug on investments in the event of an unfavourable Brexit policy, Bloomberg said.

Analysts said the statement is likely aimed at persuading UK PM Theresa May to pursue a ‘soft’ Brexit that will preserve many of the free-trade aspects of common market. They added that JLR has hedged against the Brexit risk by building a 150,000-vehicle capacity factory in Slovakia that will be completed by year end. However, a hard Brexit could mean JLR will need to shift the production of more models to the new plant than previously envisaged.