Jaguar Land Rover to shift production to high-margin models as chip shortage continues

Jaguar Land Rover said it would prioritize production of more-profitable vehicles and change some specifications in response to continuing shortages of automotive semiconductors, the company said in a recent call with investors.

JLR said it expected to make 50 percent fewer deliveries to dealers in July through September than initially forecast, Chief Financial Officer Adrian Mardell said on the call last week.

“We will be doing everything possible to mitigate the impact, including prioritizing the production of higher margin vehicles as well as making production specification changes where possible,” Mardell said.

The company had expected to sell 115,000 cars to dealers (known as wholesales) worldwide in the last quarter through June, but lost 30,000 units because of the chip crisis, he said. He said the impact would be greater in the third quarter, with the forecast for dealer wholesales revised downward to about 60,000 or 65,000 vehicles from 125,000.

The chip shortage, driven by factors such as a surge in consumer electronics, unexpectedly fast rebound from last year’s coronavirus shutdowns, and fires and weather events at chip foundries, has left automakers scrambling for solutions. 

Many have cut production and others have also shifted available supply to higher-margin models, as JLR is doing. 

Mardell said JLR would focus on building “the most valuable units” until chip supply increases. The automaker, which is owned by India’s Tata, is also testing chips from alternate suppliers, as well as changing specifications on some models. It is also building cars in advance to await retrospective chip fitment.

JLR told investors that it currently has its biggest-ever customer order bank, at just under 110,000 units. Of those, 29,059 are for the Land Rover Defender SUV, it said. Defender production has been halted in Slovakia due to the shortages, JLR said at the end of June.

Mardell said the chip shortage would ease somewhat in the second half of the year, as production resumes at a fire-damaged Renesas factory in Japan and at chipmakers affected by an unusual Texas snowstorm in February.

He said that the effects of the shortage on JLR would linger well into 2022. “I don’t think we’re going to support normal demand for a 12 month period,” Mardell said.

A report from IHS Markit this week said that third-quarter global production is expected to be down by 684,000 units as a result of chip shortages, an increase of 173,000 units over previous estimates. IHS said second-quarter losses were 2.59 million units. 
 
“While we do not expect to see levels of disruption like in Q2, it could approach what was seen in Q1,” the market research company said, adding that the fourth quarter “may be more exposed to disruption and that early 2022 may be the point at which we look for the stabilization of supply, with recovery efforts now starting only from Q2 2022.”

Mardell said the semiconductor shortage would not have an impact on the launch of a critical new Land Rover model, the Range Rover large SUV, which is set for early 2022. 

Nonetheless, future supply of the high-margin model could be affected by semiconductor issues, he said. Chip supply next year “will determine the level of production we have on the new Range Rover,” Mardell said.