Tata Motors Ltd. (TTMT)’s Jaguar Land Rover will open its first plant in China today, paving the way for the automaker to cut prices on its $94,000 Evoque sport-utility vehicle and boost sales in the world’s largest auto market.
JLR will open the 130,000-unit-a-year factory in eastern Changshu city, about 110 kilometers (70 miles) northwest of Shanghai. The automaker will probably choose the best-selling Range Rover Evoque as its first local production model, increasing its sales significantly, according to IHS Automotive.
The Tata Motors luxury unit is the latest foreign automaker to set up factories in China to avoid duties that make imported vehicles less competitive. JLR has said it expects local production to cut prices by 15 percent, which may help it extend a lead over Fiat Chrysler Automobiles NV (FCA)’s SUV-centric Jeep brand and narrow a gap with Volkswagen AG’s Audi.
“Land Rover has a unique positioning in the market as premium car sales are booming, as are SUV sales,” said Yale Zhang, managing director of researcher Autoforesight Shanghai Co. “A lot of customers in China want to upgrade to premium cars. At the same time, there are enough premium sedans in China, so it won’t be easy for Jaguar.”
JLR will be competing in a market where demand for premium SUVs is forecast to double to 1.2 million units by 2020, with 18 brands competing for market share, according to IHS. In 2010, automakers sold 183,781 premium SUVs in China.
SUV Market
The SUV market in China is dominated by Great Wall Motor Co. (2333)’s homegrown Haval line, Volkswagen’s Tiguan, and Japanese models like Honda Motor Co. (7267)’s CR-V and Toyota Motor Corp. (7203)’s RAV4.
JLR’s sales in China climbed 39 percent to 66,505 vehicles in the first nine months of the year, according to company data. China’s total vehicle sales grew at the slowest pace in 19 months in September, dragged down by slumping demand for commercial vehicles.
Before the Changshu plant, all of the company’s vehicles sold in China were produced in the U.K. and imported, including the Land Rover Freelander, Range Rover, Range Rover Sport and Evoque, as well as the Jaguar XF, XJ and F-Type Jaguar. IHS predicts JLR will build the Freelander at the Changshu plant after the Evoque.
Antitrust Probe
The JLR factory opening comes after Chinese antitrust authorities pressured at least seven carmakers to cut prices in the wake of an investigation by China’s National Development and Reform Commission into how much foreign carmakers charge for vehicles and spare parts.
The government began looking into possible antitrust violations in the auto industry at the end of 2011 as state media accused manufacturers of inflating prices and overcharging consumers.
In July, JLR said it would cut prices on three imported models in China by an average of 200,000 yuan ($33,000) amid an industry investigation by the antitrust regulator.
Local production will help JLR reduce prices by about 15 percent, Bob Grace, the company’s China president, said in April.
The imported Evoque currently starts from 578,000 yuan, about the same as the Grand Jeep Cherokee and more expensive than a larger, locally produced Audi Q5 that retails from 358,500 yuan, according to the brands’ websites.
Jeep plans to start production in China in the fourth quarter of next year.
Source: businessweek.com
