Jaguar and British sibling Land Rover have inked an alliance with Chery Automobile to produce cars in China.
British maker Jaguar Land Rover is the latest to ink a deal with a Chinese partner – but with signs the Chinese market may be slowing, the question is whether the move is too little too late.
The new partnership with China’s ambitious Chery Automobile Company will lead to the production of both Jaguar and Land Rover vehicles, as well as powertrains, at a facility in the booming Asian market – which has outsold the U.S. for the last several years.
But the specifics have yet to be announced and will be subject to approval by Chinese regulators – a process that can drag on for some time. Fuji Heavy Industries has been waiting since last year for the go-ahead on a deal that would lead to production of its Subaru line in China. Nonetheless, officials at India’s Tata Motors, which owns JLR, expressed optimism.
“Demand for Jaguar and Land Rover vehicles continues to increase significantly in China and we believe that JLR and Chery can jointly realize the potential of these iconic brands,” Jaguar Land Rover CEO Ralf Speth, said in a statement.
Reuters reported earlier this month that the deal is worth $2.78 billion and would lead to production of JLR vehicles at a new plant in the eastern part of China. It is unclear if that would mean in one of the existing automotive centers where the partners could tap into a ready supply line, or in another part of China where wages remain low. Automotive wages in production centers such as Shanghai have been surging in recent years.
The partners also plan to set up a new joint R&D center. And it appears Chery will now play a role in the distribution and sale of JLR vehicles in China.
Demand for luxury vehicles has been strong in the booming Chinese market, but there are worrying signs that the situation might be changing. The China Association of Automobile Manufacturers now predicts overall sales will only grow by about 5% this year – missing the government’s goal of 7%. Though that’s still better than in many mature markets, Chinese car sales have been growing at strong double-digit rates for most of the past decade.
More worrisome, there are signs the luxury market, in particular, is sliding.
A report by Bloomberg found that Mercedes-Benz has been offering discounts of as much as 25% on some of its products. That could be a major setback for highline manufacturers who have counted on China for strong margins – as much as 30% for Audi.
A slowdown in the Chinese market could raise questions about new production plans — and make it tougher for new players to gain traction.