Jaguar gets nod to set up first JV in China

Jaguar Land Rover PLC has received the Chinese government's approval to set up its first joint venture in China, which it will form with the domestic company Chery Automobile Co.

The venture, which the National Development and Reform Commission announced on its website on Wednesday, is being formed among Chery Automobile, Jaguar Land Rover PLC and Jaguar Land Rover China for the production of passenger vehicles.

The project is to lead to the production of Land Rover sport utility vehicles, Jaguar sedans and Chery-branded cars, as well as Jaguar's 3.0 liter V6 turbo engines and Chery's 2.0 and 1.6 liter turbo gasoline direct injection, or TGDI, engines in Changshu, Jiangsu province, the statement said.

It will be capable of producing 130,000 passenger vehicles and 130,000 engines a year.

Project insiders said the partners' total investment in the joint venture will be as high as 12 billion yuan ($1.92 billion) and it will start production in July 2014.

Initially, the project will produce 34,000 Land Rover Range Rover Evoques - one of the most popular SUVs in China - a year, as well as 43,000 Land Rover Freelander 2s, 30,000 Jaguar cars and 23,000 Chery cars.

It will eventually be expanded to the point that it can produce 250,000 vehicles a year.

A spokesman for Jaguar Land Rover China, the brand's import and sales branch in China, said the partners in the venture will hold a press conference within days to release further details about the project.

Analysts said it will probably be the last joint venture the Chinese government approves for a while in the automotive industry. Officials from the Ministry of Industry and Information Technology said earlier that the administration's industry-restructuring plans don't call for approving new vehicle production projects.

Automakers can only set up new production plants through mergers and acquisitions, the officials said.

In explaining why the Chery Jaguar Land Rover project received the approval, analysts noted that demand for SUVs is booming in China.

Jaguar Land Rover China said earlier this month that it had delivered 53,616 vehicles in the first nine months of the year, an increase of 80 percent year-on-year, and more than its total for the entire year of 2011.

The number of Land Rover's deliveries increased by 85 percent in the first three quarters, up from the 47,975 units delivered at the beginning of the year.

And Jaguar saw its deliveries increase by 48 percent year-on-year in the same three quarters.

Trying to bring itself closer to Chinese customers, Jaguar, a unit of India's Tata Motors Ltd, has appointed 141 authorized dealers in the Chinese mainland, 96 of which are already operating in the world's largest market for automobiles.

China is the luxury vehicle producer's third-largest market by sales.

Some analysts noted that Chery and Jaguar Land Rover vehicles are marketed toward different kinds of customers, saying that will prove a detriment to Chery.

"The project will clearly be a greater benefit to Jaguar Land Rover as the luxury vehicle market in China will continue to have momentum in the next few years," said Jia Xinguang, an independent auto analyst in Beijing.

In the first three quarters of the year, Chery sold 412,500 vehicles, 11.5 percent fewer than last year.

Statistics show that Chery is now more than 30 billion yuan in debt. The Wuhu, Anhui province-based company has maintained a debt-to-asset ratio of more than 70 percent in recent years.

It reported a 614 million yuan loss in 2010 and has relied on government subsidies for years.

The company, to fulfill its investment plans, needs at least 11.5 billion yuan.

Yin Tongyue, president of Chery, said recently that Chery has worked hard on an IPO plan to finance its ambitious investment goals.