Extract from today's Financial Times

British drivers often imagine Jaguar Land Rover as an indigenous rival to BMW Audi or Mercedes. Investors know it is not — and unlikely to ever become one. True, the cars themselves are a vast improvement on those of yesteryear. The hefty depreciation of these old lemons bore witness to their patchy quality compared to German luxury marques. But the company’s first-quarter results, released overnight on Wednesday, show the challenges it still faces.

Shares in parent company Tata Motors fell 6 per cent after the numbers were published although that also reflected issues in the Indian parent’s largely lossmaking domestic business.

JLR was barely profitable in the first three months of its financial year. Pre-tax profit was up largely because of a £400m credit relating to changes in its defined benefit pension scheme. At the operating level, the benefit of a weaker pound was not enough to offset higher raw material costs and bigger discounts on its cars. Expenses grew twice as fast as sales. Adjusted operating margin fell to 5.3 per cent, below the level of German rivals.

Weaker profitability is partly a function of heavy investment; JLR is expanding production and launching models like the Range Rover Velar, which fills an important gap in the range. In theory, sales volumes should pick up later this year. The same arguments apply to Volvo, another Asian-owned carmaker with comparable unit sales to JLR and a similar bias to premium SUVs. 3 x FL1 2 manual + 1 auto
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I find it interesting to see the British (short term return, c/o The FT) view on a company that's, probably for the first time in its history, investing very heavily in new models, engines and manufacturing facilities here in England and suffering in the current quarter's figures as a result. JLR still has a lot of catching up of it's German rivals to do before it even has the option to rest on its laurels and produce unremarkable cars and see a >5.8% return!