As Tata-owned Jaguar Land Rover's factory in Brazil officially opens, Ian Henry takes a closer look at the company's latest manufacturing set-up and its evolving international manufacturing strategy.
Jaguar Land Rover's factory in Itatiaia city in the state of Rio de Janeiro has officially opened, although the plant has actually been building Range Rover Evoques and Discovery Sports since February. The factory's line speed has been gradually increased in recent months as the workforce has acclimatised itself to the production system and quality requirements for these vehicles. A total of GBP240m (R$750m) investment has been committed to the programme, with around two-thirds of this spent already, split equally between three main areas: the construction of the factory; production equipment and tooling; and training of the workforce and factory IT systems.
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Speaking ahead of the factory opening to a UK media briefing attended by just-auto, Wolfgang Stadler, JLR's manufacturing chief, explained how this factory is an important element in the company's progressive internationalisation of production and manufacture. With around 650,000 units of annual capacity in the UK, some 140,000 in China and 150,000 due in Slovakia from 2018-19 (and even more in the longer-term likely), Brazil's initial 24,000 units is clearly rather modest by comparison. However, together with the small volumes also assembled in India, JLR is getting close to 1m units a year of annual production.
With Slovakia expected to have the potential to get to 300,000 units a year in the long term, and further international plants likely (although Stadler wouldn't comment on where the next plant might be located), JLR intends to be a truly international player, rather than the niche UK-based operator which it had been until the recent growth strategy began.
The Brazil plant's initial 24,000 units of annual capacity won't actually be fully utilised until next year, with production ramping up slowly. This year has been a learning experience for the new workforce, with several of the Brazilian assembly workers having been trained in Evoque and Discovery Sport assembly at the Halewood in the UK. For those Brazilian workers who were not brought to the UK to learn the assembly process, JLR sent over a number of vehicles to Brazil which were disassembled and re-assembled as part of the training process. Reflecting a policy adopted by most vehicle companies worldwide, JLR has also installed the same assembly equipment and processes in Brazil as operate in Halewood, with the vehicles made in the Brazilian plant having the same safety and related technologies. According to Julian Hetherington, JLR's project director for Brazil, the Brazilian-made models will meet EuroNCAP standards just like the UK-built models.
Production numbers in Brazil in 2016 will be some way short of 10,000, but subject to market demand, JLR expects the full 24,000 capacity to be used in 2017; this capacity is based on a two-shift system, 5 days a week, but it is understood that the potential exists to both increase the line speed (i.e. reduce the takt time on the assembly line) and add extra shifts if required. Vehicles will be assembled using painted bodies and engines imported by sea from the UK, a journey which takes 7-8 weeks.
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By GlobalDataTo speed up the transport process once the bodies and engines have been landed in Brazil, rail transport is used to the factory. Local content is 40%, with most of this supplied by Brazilian operations of international suppliers, including: Faurecia (exhausts), bumpers (Plastic Omnium), interior parts (IAC) and various suspension and chassis assemblies from Benteler. Benteler actually has an operation within the JLR factory whereas the other companies supply from their own facilities nearby.
The factory employs around 300 (with just five senior management coming from the UK), with a further 700 employed in the local supply chain; further jobs have been created in 35 dealerships (almost all of which sell both Jaguar and Land Rover models, although Jaguar sales are very small at this stage) and logistics operations; there is also a 30-strong local purchasing team based in Rio de Janeiro. Wolfgang Stadler also emphasised how production in Brazil provides additional security to UK jobs through the production of fully painted bodies and assembled engines.
Itatiaia was chosen as the factory location for a number of reasons, notably the region's strong automotive heritage; Nissan and PSA have long-established plants within around 20kms of the JLR plant, and several suppliers have established operations in the area. There is a good automotive tradition in the region, not just amongst suppliers; local construction companies have had experience of building car plants and understood what JLR wanted and the same applied to training agencies which had helped train workers at the Nissan and PSA facilities.
Brazil itself is seen as offering a major opportunity for JLR; it claims to be the leader in the premium SUV market in Brazil already. However, with Mercedes, Audi and BMW also expanding in the country, including the assembly of compact SUVs, such as the GLA and Q3, JLR will face increased competition in the years ahead. According to Julian Hetherington, the premium segment currently accounts for just 1.5% of the Brazilian market; and while the Brazilian economy in general and automotive market in particular are in difficulty, given that the premium market accounts for up to 10% of most developed markets (and more in some cases), Brazil is seen as offering significant potential for JLR's SUVs.
In cars, Brazil is a small car market, and JLR thinks it is unlikely that the Jaguar XE, for example, will be sold in Brazil for now, but the Jaguar F-PACE (Jaguar's first SUV) could well be sold there, with imports from the UK.
To begin with the Brazilian factory will be used to supply the local market only; exports, including to Argentina (part of Mercosur), are not on the agenda at this stage; despite being a nominal free trade area, Mercosur doesn't necessarily mean free trade operates between countries in the region in the same way as it does in Europe's single market. In the longer-term, exports beyond Brazil should not be ruled out (Mercedes already uses its Brazilian plant to ship some C-class models into the US due to a favourable trade agreement between the US and Brazil); however, it's likely that production capacity in Brazil would likely need to be at least double the current level to make exports to the US (or indeed elsewhere) worthwhile.
From small things, bigger things will one day come and JLR's Brazilian plant is one more step along the way to JLR becoming a truly international player.
See also:
Jaguar Land Rover opens factory in Brazil
ANALYSIS: Slovakia plant could lift JLR over 1m a year
