Is the perfect financial and economic storm about to strike?
Following our previous report covering Jaguar Land Rover’s huge financial loss of around $4 billion at the end of last year, the Tata-owned, UK-based carmaker does not have time to lick its wounds. Factors such as Brexit, slow China sales, and electric vehicle technology investments not only ate away profits, but also stand to continue doing so in the years ahead unless something is done, and done quickly.
According to Bloomberg, JLR has determined it needs to raise an emergency $1 billion within only 14 months. Typically, that can be quite doable, but these aren’t typical circumstances. The report claims market conditions, due to those aforementioned reasons, are making it difficult for JLR to borrow from the bond market and therefore it requires alternative sources of funding.
For example, it could lease assets such as production facilities, or other sources of international credit. Receiving a favorable loan under the current circumstances, however, might prove difficult. Last week’s revelation that Jaguar and Land Rover vehicles sales dropped by 35 percent in China, the world’s largest car market, not only affected JLR itself but also slashed nearly 30 percent off Tata stock. In other words, even its parent company is facing some financial strife. JLR already announced it’s cutting 4,500 jobs, about 10 percent of its workforce, as one response to decreased sales. As it continues to bleed money, additional layoffs are possible. It also recently canceled production of the limited run Range Rover SV Coupe.
Given the automaker’s history and solid product lineup, why could it be so difficult to raise that $1 billion? "Market conditions presently are less favorable in general and our bonds are trading below par, reflecting our recent financial performance,” said company treasurer Ben Birgbauer. And because of that weak financial performance combined with next month’s Brexit and still slumping China sales, there’s simply fewer sources of credit.
Those risks make receiving favorable loans difficult. Bloomberg further notes that riskier European debt has yet to bounce back among investors following market volatility late last year. Is the perfect storm about to strike JLR? The next year will ultimately decide this.