Jaguar Land Rover output hit by aluminum shortage

Jaguar Land Rover's biggest headwind is an upcoming shortage of aluminum after production at a plant owned by key supplier Novelis was hit by flooding, its finance chief, Richard Molyneux, told investors.

A shortage of the key material will "constrain our production through the balance of this quarter and into the next," Molyneux said.

The floods caused by heavy rain in July stopped production at Novelis' plant in Sierre, Switzerland, and shut down two plants owned by another aluminum supplier, Constellium. Both Novelis and Constellium list JLR as a customer, along with a several other automotive companies.

"We will do our damnedest to make sure that does not stop us hitting our EBIT targets for the year," Molyneux said on Aug. 2 during JLR's earnings call for the quarter ending June 30.

"Our industrial operations team are very good at finding alternative sources, and we are also leveraging the Tata ecosystem to help us," Molyneux said.

Jaguar Land Rover's Range Rover and Range Rover Sport SUVs and other key models use the metal. JLR uses about 180,000 metric tons of aluminium annually, based on the company's 2020 financial figures.

Last month Porsche lowered its sales and profitability outlook due to the shortage of aluminum alloy. Supply problems production of all its models and could lead to shutdowns for one or more vehicle series, Porsche said.

Porsche did not name the supplier affected. Constellium said it did not supply Porsche from its facilities in Switzerland.

BMW, Mercedes-Benz and Audi are also affect by the aluminum alloy shortages but they have been able to find alternative sources.

Premium automakers are among the biggest automotive consumers of aluminum, which costs more than steel but is lighter. Unlike volume brands, they can absorb the added costs because they sell their cars for higher prices.

Bernstein analysts said the disruption at Porsche could lead to a production loss of up to 17,400 vehicles in the second half. That figure is equivalent to over 11 percent of Porsche's first-half deliveries.

JLR declined to put a volume figure on the reduced output.

The company said it is trying to minimize the impact on its recent record-beating run of quarterly profits.

JLR's pretax profit increased 59 percent year-on-year to 693 million pounds ($883,000 million) In the April-May quarter, the automaker said on Aug. 1.

Revenue rose 5.4 percent to a record 7.3 billion pounds, JLR's highest revenue for that quarter on record, and EBIT margin was 8.9 percent, up 0.3 percentage points.