Shift to electric vehicles from 2020 may drag margins: Jaguar Land Rover

Tata Motors-owned Jaguar Land Rover (JLR), which has decided to electrify all its vehicles from 2020, has said the move could drag its margins but the company is working to overcome it through cost-saving steps.

The high cost of batteries of electric vehicles and the "unknown factor" of how much and to what extent customers would be willing to pay for those batteries are major challenges, according to JLR CFO Ken Gregor.

"Purely the impact of a growing proportion of battery electric vehicles in our portfolio over time, based on the present cost of battery technology, is likely to produce a drag on margins from that effect by itself...," he told analysts.

Commenting on how the company saw margins on electric vehicles, he added, "They bring challenges. I think, that's undoubtedly the case because the cost of the batteries, in particular, are expensive relative to fuel tanks and engines." Further, he said the "unknown factor is how much and to what extent customers will be willing to pay for the cost of those batteries and I think quite a lot of that is still in front of us".

In September this year, JLR had announced that from 2020 all of its new vehicles will be electrified. The company plans to have a portfolio of electrified vehicles across its model range, ranging from fully electric and plug-in hybrid to mild hybrid vehicles.

The company's first fully electric performance SUV, Jaguar I-PACE, will go on sale next year.

Gregor said the company would have to see how those "electrified products land in the marketplace and the customer reaction but we are aware of the pressure..." He, however, said the company has been working on all the cost efficiency measures to seek to find ways of offsetting that cost pressure.

Already JLR has launched an internal corporate efficiency programme called LEAP, to face the twin challenges of cost of electrification and the likelihood that margins in China would "normalise" over time, he said.

"We set about finding cost efficiencies across our business – material cost efficiencies and other efficiencies as well as hoping to benefit from the efficiencies and scale as our business gets bigger," Gregor said.

Citing the example of the company deciding to build a factory in Slovakia, he said it enabled JLR to have a very low cost per manufactured unit.