Jaguar Land Rover to overhaul supply chain to avoid factory closures

Jaguar Land Rover is to overhaul its supply chain and negotiate directly with chip manufacturers in an attempt to avoid a repeat of factory shutdowns caused by the semiconductor crisis that have plagued the business this year.

Thierry Bolloré, chief executive, said the carmaker would take closer control of mission-critical parts such as microprocessors and electric batteries as it takes more work such as electric drive units in-house.

Carmakers, which have long outsourced most of their vehicles to suppliers, have been redrawing their supply networks since the chip shortage crisis cost the industry millions of lost vehicle sales. 

“It is a real storm, and I do not believe really that it’s going to improve in a few months, I believe it could last for much longer than that,” Bolloré told the FT.

In his first newspaper interview since joining the carmaker in September, the former Renault boss also said that JLR was close to announcing plans to source batteries for electric vehicles from the UK.

He is charged with turning around the storied British carmaker, which was overtaken by Nissan last year as the country’s largest producer and has deep problems with its technology and overlapping product range.

The way to handle the [shortages] and have control is something that we were late to put in action,

A strategy overhaul announced in March will involve the reinvention of the beleaguered Jaguar brand as an electric-only luxury competitor from 2025, while the company will ditch traditional engines by the middle of the next decade.

The car industry was “late” to spot the risks of shortages of chips and other parts needed to make modern, technology-heavy vehicles, Bolloré told the FT at his office at the company’s new headquarters in Gaydon, Warwickshire.

“The way to handle the [shortages] and have control is something that we were late to put in action,” he said. 

In future, JLR will deal directly with its own chip suppliers.

Part of the problem with the current shortages, which have caused carmakers from VW to GM to Toyota to close plants for weeks on end, was the visibility of the supply chain.

“We will need to work with [chip suppliers], and not only through our tier one and two [suppliers], we need to work directly with them as well,” Bolloré said.

It will bring electric drive units in-house, under plans to make the business more “vertically integrated” for key parts.

The company is also “exploring all possibilities” about whether to make or buy batteries for its suite of electric vehicles, an area that will be as critical in future as engine-making is today.

Sourcing from a UK plant is the “favourite scenario for us,” he said, adding that the company has settled on a chemistry for its battery technology, and is in final discussions with a handful of battery manufacturers about plant locations. A final decision is expected within months, he said.

The FT reported last week that six battery investors are in talks to site gigafactories in the UK, including Samsung and LG, with several holding off decisions until JLR announces its plans.

Current and former executives from the business say morale in the company has leapt since Bollore’s arrival in September, which followed the difficult final years of the decade-long tenure of former boss Ralf Speth.

His new strategy was welcomed internally, with the choices to scale back production seen as “low hanging fruit”, one person said. But hard choices still remain ahead.

Cost-cutting plans under Speth that shed 5,000 jobs went some way to unwinding overspending that had dogged the business for years.

But Bolloré — a longtime deputy of Carlos Ghosn, the former Renault boss who was known as “Le Cost Killer” for his savings drive — said there is the potential for “much more” savings across the company in the future.

His new plans tear up JLR’s previous sales target of 1m cars, and focus on “value rather than volume”, he said. Last year the group made just 425,000 vehicles.

They include halting carmaking at its Castle Bromwich plant in the West Midlands, with the potential for further cuts to other sites depending on the size of the luxury car market in the years ahead, he said.

Asked if other closures may follow in time, Bolloré replied: “Oh yes”.

As part of the more modest ambitions, JLR also has no plans to push ahead with any expansion of its Slovakian plant, which was opened in 2018.

A site next to the current factory is earmarked by the Slovakian government for use by the car giant, and had been expected to be developed.

It also has no current plans to make electric models at the site, which manufactures the Land Rover Defender and Discovery, Bolloré said.

He added that Jaguar, which has trailed rivals BMW and Mercedes for years, will move upmarket with a significantly revamped model line-up.

The Jaguar I-Pace, the only fully electric model made by the company, and which has garnered global awards, will not be part of the final Jaguar family, but will continue for several years including new derivatives, he said.

Under Speth, the group began exploring using hydrogen in its larger models, which are difficult to convert to battery models because of their weight.

Bolloré said the option “could make sense” once efficiency of hydrogen production increases, but that “it would not make sense to use hydrogen today that is very expensive and not very clean”.

However, Bolloré promised a battery electric version of both the Range Rover and the Defender. “Our business is completely linked to the batteries.”