Jaguar Land Rover scraps plans for Saudi car factory

Jaguar Land Rover has quietly scrapped an ambitious plan to build a factory in the desert in Saudi Arabia, according to people familiar with the matter.

Codenamed Project Fern, the plan sought for the first time to place production of JLR’s premium vehicles in the Middle East — an important market for the UK-based carmaker. The plant would also have potentially given JLR the opportunity to use Saudi-produced aluminium in its lightweight cars.

For Saudi, it was an attempt to reduce the country’s dependency on oil revenues and establish a manufacturing base in the kingdom.

In response to a request for comment from the Financial Times, JLR, owned by India’s Tata Motors, said the Saudi project was now “on hold”.

Several people familiar with the matter went further, saying the plans had been called off. “Saudi’s dead and buried,” said one of the people, adding: “That’s finished.”

JLR had signed a letter of intent with the Saudis in December 2012 to build a factory expected to produce about 50,000 cars a year by 2017 — small in industry terms — but carrying a large initial investment.

Reasons for the collapse of the project are not fully clear.

The original plan had been to put the JLR factory next to the world’s biggest aluminium smelter at Ras al-Khair, on the Gulf coast. But the location of the plant was later switched to the other side of the country, at King Abdullah Economic City on the Red Sea.

One person close to the situation said Saudi wanted to keep control of the factory and charge JLR rent and maintenance fees.

A Saudi official said the country’s ministry of commerce and industry had not ruled out JLR’s participation in the project, but stressed that the company would likely need to modify its proposals.

The official said JLR had not met criteria focusing on “added value elements” in the manufacturing process.

Other issues came up. For example, there were questions over how to keep fine sand particles out of the car assembly process, and strict Saudi rules on gender segregation in the workplace clashed with JLR’s diversity policy.

The geopolitical situation in the Middle East only added to the risks. “There were just so many reasons,” said one of the people familiar with JLR’s thinking. “In the end, nobody really wanted it.”

The Saudi factory also became less of a priority as JLR focused on ramping up in China at its plant in Changshu, building its Brazilian facility and carrying out a search for a base in eastern Europe.

That search has now settled on Slovakia, where JLR plans to build a factory capable of building 300,000 cars each year. As such, plans to establish an outpost in the US or Mexico have also been put on hold.

JLR has big ambitions to increase production as it seeks to close the gap on its German premium rivals, which build about 2m cars a year.

JLR shipped 460,000 vehicles last year, so therefore needs all the factory capacity it can get. But expansion in the UK is hamstrung by planning delays and lack of capacity at some suppliers.

JLR said it regularly reviewed “opportunities to secure further manufacturing capacity in a range of markets. Our manufacturing plans for UK, China, Brazil and Europe are our main focus and priority at this time”.

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