The two British brands sold almost a quarter of its total output of more than 520,000 units in Europe last year, which made JLR one of the biggest automobile exporters from the UK, and Europe the single biggest market for the two brands.
With the exit of UK, EU might impose new tariffs on vehicles made outside its boundaries, which would make JLR cars less competitive than rivals Mercedes-Benz, BMW and Audi.
The possibility of a decline in pre-tax profits by 2020 arises if Britain returned to the World Trade Organization rules for trade with Europe, which meant 10 per cent tariff on exports and about four per cent tariff on components. Last year, the two brands posted a pre-tax profit of £1.6 billion on revenues of £22.2 billion.
Jaguar Land Rover, however, said it would be business as usual. “We respect the views of the British people and in line with all other businesses, Jaguar Land Rover will manage the long-term impact and implications of this decision: Nothing will change for us, or the automotive industry, overnight. Europe is a key strategic market for our business, comprising 20 per cent of global sales, and we remain absolutely committed to our customers in the EU,” it said in a statement.
However, not everyone agrees that vehicle makers could become the biggest losers in this referendum.
Mahantesh Sabarad, deputy head of research, SBI Cap Securities, said, “JLR will be a big beneficiary in term of cost. China imports from the UK in pounds and the depreciation in the value of the renminbi against the pound will be favourable, making JLR products cheaper. Logic tells me that JLR will be a huge beneficiary of all incentives that will be provided by the UK government as they will not allow the automobile industry, which is the largest employer, to suffer.”
Experts said it would take at least three years for new tax barriers to kick in, by which time the UK would be in a position to formulate incentivising strategies for the automobile industry.
The JLR statement said: “There will be a significant negotiating period, and we look forward to understanding more about that, as details emerge. We look forward to working with the British government and the automotive sector to ensure that the UK’s automotive industry remains as competitive as ever, and that negotiations between the UK government and the EU will continue to recognise the importance of car manufacturing to the UK and European economies.”
JLR is building in Slovakia an assembly plant that can make 300,000 units a year.
The unit, right in the middle of the EU, would reduce tariff barriers to some extent. This new £1-billion plant was expected to come on stream in 2018, coinciding with the tax impositions.
To further reduce dependence on the UK, JLR, which already has three operational assembly plants (China, Brazil and India) outside its home market, is also in the process of starting assembly operations in Austria through the contract manufacturing route.