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Tue 11 Dec 2012 05:11 PM

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Jaguar Land Rover inks deal, mulls Saudi plant

UK luxury marque signs preliminary deal to explore possibility of building $1.2bn facility

Jaguar Land Rover inks deal, mulls Saudi plant
(Getty Images - for illustrative purposes only)

Saudi Arabia will sign a letter of intent with Tata Group to manufacture 50,000 Land Rover vehicles a year in the kingdom, using locally produced aluminium and steel, the commerce and industry ministry said on Tuesday.

The SR4.5bn ($1.2bn) investment may later be extended to other Jaguar Land Rover brands, said a press release distributed at the signing ceremony in the Saudi capital.

The factory will start up in 2017 in either the Jubail or Yanbu industrial cities. Saudi Arabia is seeking to develop local industry to diversify its economy away from oil exports. India's Tata group owns Jaguar Land Rover, Tata Steel and Tetley Tea in Britain. Jaguar Land Rover is owned by Tata Motors, a unit of Tata Group.

JLR has seen huge demand over the past year from emerging markets such as China, Russia and countries in the Middle East for its luxury SUVs and sleek sedans, offsetting sluggish growth in developed markets.

The company and its Chinese partner Chery Automobile said last month they had laid the foundation stone for a factory near Shanghai.

"I can't make any statement for these kind of investment figures. We have just signed a letter of intent .... it's a letter of intent to investigate the project," JLR Chief Executive Ralf Speth told reporters in the Saudi capital.

"A memorandum of understanding is ... scheduled in the next year and this memorandum of understanding will have more facts and figures."

Saudi Arabia, which does not have an existing automotive industry, is seeking to develop local industry to diversify its economy away from oil exports, leveraging its abundant natural resources and low electricity prices.

JLR said in its statement it had already identified opportunities for aluminium component production in the country, but it did not specify where the investment for the proposed plant would come from.

The company would not lose British jobs to any new Saudi plant, Speth said. "If we proceed, it will complement our existing expansion in the UK and elsewhere," Speth was quoted as saying in the JLR statement.

For Tata Motors, JLR is a key unit which delivers 90 percent of group profit. The group's shares jumped last month after it reported that July-September margins at JLR had improved to 14.8 percent from 14.4 percent a year earlier.

Ratan Tata, outgoing chairman of Tata Group, told a magazine in September that Tata Motors was looking using local aluminium production in Saudi Arabia, where Saudi Arabian Mining Co (Maaden) and Alcoa Inc are building a smelter scheduled to start production next year.

That smelter is on Saudi Arabia's Gulf coast, across the country from Yanbu, but Shalabi said a rail link connecting the two areas would be operational by 2017 to ship rolled aluminium to the Land Rover factory.

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Solly 6 years ago

This should be feasible. An initial government subsidy and the high prices of such vehicles will cover both the tax on the foreign workers who do the fiddly little things like build and maintain the plant, make the cars, do accounting and admin, procurement and logistics, etc etc and also provide very large salaries for Saudis with titles like 'Director of Colour Selections', 'Chief of Big Somethings', 'Head of Driving About' and so forth. An ideal arrangement.

Hong 6 years ago

Cheap energy. Cheap aluminium. Reduced customs for the small amount of cars that will be sold in Saudi each year. What's not to love?