By Professor David Bailey
25th January 2026

A JLR – Chery tie-up could be a win-win.

A JLR – Chery tie-up could be a win-win.

Auto makers are continually anticipating and adjusting to volatility: electrification timetables shift, trade regimes harden, software reshapes vehicle value, and consumers demand more choice delivered faster.

In this context, a partnership (reported first by the Financial Times over the weekend) in which Chery assembles  selected models using spare capacity at JLR’s British plants appears less radical than it might once have done. Indeed, Stellantis and Leapmotor have a similar JV arrangement whereby Leapmotor cars are made at Stellantis’ Tychy plant in Poland.

Such moves reflect a pragmatic attempt to manage risk, improve asset use, and sustain industrial capability during a period of structural change. While such an arrangement carries material challenges, the underlying idea is good and possible benefits could be significant.

At the heart of the case lies the economics of automotive manufacturing. Vehicle plants are capital-intensive assets with high fixed costs, and their profitability depends on running close to capacity. Where demand fluctuations, model cycles transition, or the disruption associated with electrification leave capacity underutilised, each vehicle produced bears a heavier share of overhead.

For JLR, spare capacity in its British plants represents not latent opportunity but stranded cost. Allowing another manufacturer to assemble vehicles on those lines can improve cost absorption, stabilise margins, and support workforce continuity.

For Chery, the logic runs in parallel. As a fast-growing Chinese manufacturer looking to expand in mature markets, Chery faces barriers in the form of tariffs, logistics costs, regulatory complexity, and political scrutiny. Local assembly in the UK, using established facilities and processes, offers a faster and less risky route to market than building a greenfield plant or relying solely on imports, and could be politically popular in helping a local manufacturer.

This logic is reinforced by a global trading environment that increasingly favours proximity between production and end markets. The assumption that vehicles can be built anywhere and shipped everywhere is being eroded by tariff uncertainty, rules-of-origin requirements, shipping disruption, and a renewed emphasis on national industrial resilience.

UK assembly could reduce Chery’s exposure to import duties and logistics risk for cars sold in Britain and the EU, while also creating a credible narrative of local value creation. For JLR, hosting added assembly work provides a hedge against demand volatility and helps sustain its UK manufacturing base during a time when its own product mix is evolving rapidly.

The transition to electrification further strengthens the case. Shifting from internal combustion platforms to electric architectures is rarely linear. Tooling changes, workforce retraining, and slower-than-expected ramp-ups for new models can create periods where capacity is technically available but economically idle.

A contract manufacturing arrangement can act as a bridge, keeping lines running and skills current while JLR completes its transformation. Chery benefits in turn by testing market demand through partial localisation rather than committing at once to heavy sunk costs and full-scale European manufacturing.

Importantly, such a partnership need not imply any blending of brands. Structured as contract manufacturing, it can remain focused on production rather than marketing or co-branding. This distinction matters because JLR’s premium positioning depends heavily on feelings of quality, craftsmanship, and heritage, while Chery’s Jaecoo and Omoda brands occupy different segments with different price points and customer expectations. Keeping the relationship operational rather than promotional allows both companies to capture economic value without undermining brand equity.

The benefits for JLR are potentially large. Improved plant utilisation can help protect jobs, stabilise shifts, and improve labour productivity at a time when the company faces heavy investment demands. A steadier flow of volume could also support the UK supplier base (depending on the degree of local content), which is highly sensitive to production swings and whose health directly affects JLR’s own resilience.

There may also be softer benefits in terms of operational learning: contract manufacturing demands rigorous process definition, digital traceability, and disciplined change control, all of which can strengthen internal manufacturing capability. And from a financial perspective, monetising spare capacity effectively turns fixed assets into a source of revenue rather than a drag on cash flow.

For Chery, assembly in the UK offers brand credibility as well as cost and risk reduction. Vehicles built locally can reassure customers, fleet buyers, and regulators about quality standards and long-term commitment to the UK market. Reduced reliance on long supply chains lowers exposure to shipping delays, currency volatility, and sudden policy shifts. Operating within a mature manufacturing environment also accelerates learning in areas such as quality systems, regulatory compliance, and European market expectations.

There are broader benefits for the UK economy too. Sustaining volume in existing plants supports employment, preserves high-value manufacturing skills, and underpins local economies (in this case in the West Midlands and North West). If the partnership encourages even incremental localisation of components over time, it could stimulate investment across the supply chain, from logistics and interiors to electronics and battery-related activities.

There are also significant challenges to such a partnership. Foremost among them is brand and reputational risk for JLR. Even with clear badging and marketing separation, public and political narratives can blur, particularly in a sensitive geopolitical climate. JLR would need to ensure that its own products, standards, and future investment plans are still clearly prioritised and visibly protected.

Quality governance presents another critical hurdle. In any contract manufacturing arrangement, responsibilities for process control, defect resolution, recalls, and warranty costs must be unambiguous. Robust shared quality systems, full traceability, and clear audit rights would be essential.

Labour relations and community acceptance also matter. UK plants work within established industrial relations frameworks, and workforce support cannot be assumed. However, if a partnership is framed credibly as a means of protecting jobs and skills through a period of transition, it can win support from workers and unions. Operational integration poses its own risks: mixing different products, parts logistics, and IT systems can introduce inefficiencies unless spare capacity is genuinely surplus and carefully ring-fenced.

Finally, there is the question of long-term alignment. What begins as a solution to short-term capacity gaps can become problematic if JLR later needs that capacity for its own expanding EV portfolio, or if Chery seeks deeper localisation. Any agreement would need built-in flexibility, with clear exit and expansion pathways to avoid strategic lock-in.

Taken together, the rationale for a JLR–Chery partnership based on UK assembly is strong. Better use of expensive assets, reduced trade risk, and greater resilience during the EV transition are all powerful incentives. Yet success would depend on careful design, disciplined execution, and sensitive stakeholder management.

If approached as a focused manufacturing partnership rather than a symbolic alliance, it could offer a workable model for how established and emerging automakers share capacity in an increasingly uncertain global industry.

 

Professor David Bailey works at the Birmingham Business School and is a Senior Fellow at the UK in a Changing Europe Programme.