Jaguar's Incredible Turnaround And How It Got Ready To Pounce On Tesla

Jaguar I-Pace is the first legitimate challenger to Tesla.JAGUAR LAND ROVER

Jaguar's new I-Pace, on display for the first time at this week's Geneva Motor Show, is being billed as the world's first legitimate Tesla-fighter: a premium, battery-electric crossover with a range of up to 240 miles that can hit 60 miles per hour in as little as 4.5 seconds.

A svelte 483 pounds lighter than Tesla's Model X, the I-Pace also comes with a skinnier price tag: $69,500 (before government incentives), $10,000 less than the Tesla SUV's starting price and the same as an entry-level Model S 70 sedan. Since Tesla's access to $7,500 federal tax incentives will wind down starting later this year, the Jag and a wave of plug-ins coming from other players will have an added price advantage.

The I-Pace is certainly more stylish than Model X, which now looks ungainly by comparison. But styling has always been a hallmark of the British carmaker, all the way back to the iconic E-Type sports cars in the 1960s. Jags are among the most beautiful cars on the road.


Underneath the skin, however, the cars have often disappointed, either because they were laden with quality problems or because they lacked key features that consumers demanded.

So how did Jaguar go from being a laughable luxury car maker to Tesla's biggest threat?

The turnaround started under Ford Motor, which owned Jaguar from 1990 to 2008 and worked hard to fix most of the quality problems. But even under Ford, the cars still seemed to miss the mark with consumers. The Jaguar X-Type, pegged as an entry-level "baby Jag," for instance, was just a gussied-up version of Ford's Mondeo sedan in Europe. Critics panned it for not being a "true" Jaguar.

And Ford just didn't have the money needed to keep Jaguar competitive with the likes of Mercedes-Benz and BMW, which were adding all-wheel-drive transmissions, advanced diesel engines and new crossover utilities to their lineups. Not surprisingly, Jaguar sales plunged. By early 2008, a struggling Ford decided to sell Jaguar and its British cousin, Land Rover, to India's Tata Motors for a mere $2.3 billion — half what it paid to acquire them years earlier.

Still, for Ratan Tata, who was chairman of the Indian conglomerate Tata Group at the time, the deal couldn't have come at a worse time. Just months later, the global financial crisis hit, clobbering the auto industry, including Tata Motors, which made trucks and inexpensive cars as well.

Convinced the acquisition would work out in the long run, Tata focused on three priorities at Jaguar Land Rover: manage liquidity through the crisis, cut costs via restructuring, and — most important — invest in new products to support future growth.

"He gave us the opportunity to survive," said Chief Executive Ralf Speth (pronounced "Spate"), a former BMW and Ford executive who joined Jaguar Land Rover in 2010. "He has given us a long leash to deliver the future strategy. He has given us a mid- and long-term perspective. I don’t have to pay a lot of dividends (to the parent company). He really just kept the money in the business."

With Tata's blessing, Jaguar Land Rover's strategy was to invest "proportionately more" in new products, pumping around 14% of annual revenues into research and development and capital expenditures, far outpacing the industry's typical capex ratio of around 5%.

There was a lot of work to do. Land Rover's luxury SUVs were well-suited to changing market tastes, so it bounced back fairly quickly. But everything was wrong with the Jaguar lineup during that period. Models like the flagship XJ sedan and XK coupe were seen as too retro-looking, yet a more modern interpretation of Jaguar, the XF, lacked all-wheel-drive or efficient engines at a time when gas prices were soaring. Jaguar's worldwide sales limped along, barely surpassing 50,000 units from 2009 through 2012.

During that time, Ratan Tata himself — Mr. Tata — crisscrossed the United States in a company plane along with Speth and North American CEO Joe Eberhardt to find out what Jaguar Land Rover dealers were feeling. They got an earful.

"For six months out of the year, Jaguar cars in the north and central part of the country became irrelevant because we couldn't compete with BMW and Mercedes," which had all-wheel-drive, said Andy Vine, owner of a Jaguar Land Rover dealership in Louisville, Ky.

Others complained about the lack of diesel engine options to match the leading European makes, and they lamented that Jaguar's newest car, the XF, was only available with a V8 engine — exactly the wrong powertrain for the times.

To their surprise, Mr. Tata heard their pleas and responded quickly, ordering up more efficient engine options for the XF and XJ. "Things that before we were told would take three, four, five years, by the time Mr. Tata was done, we were seeing in 12 to 24 months," recalled Vine.

By 2013, Jaguar's product reinvestment strategy began to pay off, with sales jumping to nearly 77,000 as new products hit showrooms like the F-Type sports car and the XE, an entry-level Jag worthy of the brand.

The big breakthrough came with the debut of the Jaguar F-Pace, its first SUV, which collected numerous awards including World Car of the Year, and finally put Jaguar into the heart of the luxury vehicle market. The smaller E-Pace, starting at $38,600, is launching now and the electric I-Pace, which goes on sale in the fall, is the beginning of a new electrification strategy from Jaguar Land Rover.

To meet booming demand for its expanding lineup, the company is opening new factories: one more in Britain plus facilities in India, China, Slovakia and Brazil.

While still a relatively small player on a global scale, Jaguar sales have more than tripled since 2009, to 178,601 for the fiscal year ending in March 2017. Together, Jaguar Land Rover sold 621,109 vehicles last year.

Along with higher sales volume, Jaguar Land Rover revenues climbed to nearly $34 billion in fiscal 2017.

But profit margins have been sliding, due to stepped up investments in growth — capex will increase to $6 billion this year from $4.8 billion in fiscal 2017 — as well as competitive pressures, including higher sales incentives.

Its overlords at Tata don't seem terribly worried. "Jaguar Land Rover is an integral part of the Tata Motors group and we are committed to it for the long term," according to a statement from Natarajan Chandrasekaran, the current chairman of Tata Sons and Tata Motors. "Since its acquisition by Tata Motors, Jaguar Land Rover has delivered a strong performance and we are confident that the business shall deliver sustainable, profitable growth in the future too.”


Source: Joann Muller, Forbes Staff.
She writes about industrial innovation and the global auto industry.