China's economic slowdown isn't a pretty sight for major auto firms and it's especially challenging for Jaguar Land Rover given how the latter has become so used to generating big profits there.
Last year, China accounted for 20 per cent of JLR sales but generated perhaps as much as 80 per cent of the firm's profits.
That's because it's been able to sell its cars at such high prices there.
Indeed, it has probably been more dependent on China for generating profits than any other major auto firm.
As noted in a recent blog, the Midlands-based firm said it sold 114,905 vehicles in the quarter to the end of June 2015.
That was down just 0.6 per cent on the same period a year ago and revenue fell 6.6 per cent to £5 billion.
But sales in China were down by a third to 21,920 units during the quarter.
And pre-tax profit and earnings before interest, tax, depreciation and amortisation (EBITDA) took a big hit, with profit down over 30 per cent to £638 million and EBITDA down 24 per cent to £821 million.
More troubling for the firm is that cash flow at JLR turned to a negative £121.6 million in that quarter from a positive £624.7 million a year earlier.
One reason for the negative cash flow is the way JLR manages its short-term finances.
Like other big auto firms, JLR gets paid by customers quickly but then takes a long time to pay suppliers.
So, when sales were growing a year ago, especially in China, it generated lots of cash.
Now that customers in China have gone shy, less cash is coming in through the showroom doors but JLR still has to fork out to pay suppliers from earlier periods.
Add in JLR's continuing huge investments in new products and the firm is in negative cash flow territory.
That is likely to have deteriorated considerably of late as headwinds in China have worsened. On one level, the news has not been a great surprise.
The profit slowdown was expected and shows, if anything, the bonanza in China is over and it is becoming like any other market.
JLR expected this but maybe not the size and the speed of the change.
"China is tough," one senior JLR source told me.
Figures from the China Association of Automobile Manufacturers (CAAM) show Chinese auto sales down by 16.6 per cent in July from the previous month to 1.5 million units.
That was the Chinese market's fourth consecutive month-on-month sales fall.
Premium brands, which had previously seemed immune to sales falls in China, are now taking a hit.
Audi's China sales fell 12.5 per cent in July year-on-year and BMW was down by 6.2 per cent. It was its first ever sales decline in China.
But JLR was especially hit, with sales down by 37 per cent to around 5,400 units.
The slowdown is also seen in JLR building up unsold stock in China.
Tata Motors' finance chief Chandrasekaran Ramakrishnan noted recently that JLR had built up a "pipeline inventory" of 8,000 to 10,000 cars in China.
What's going on? A range of factors have come together to buffet JLR in China.
Firstly, the stock market crash (the Shanghai Composite Index lost 14 per cent in July) and economic slowdown in China (economic growth is at its slowest for 25 years) are denting premium car sales after years of rapid growth.
That may pick up again next year but at the moment there's a distinct slowdown and there's no guarantee that such bumper profits will be back when the premium market does pick up.
Secondly, there is pressure on pricing as the government looks at the prices firms charge.
Some industry experts suggest Chinese consumers are delaying purchases because they expect premium car prices to fall after an investigation by Chinese competition authorities.
China has been putting pressure on foreign car-makers, highlighted by a £38 million fine for Mercedes-Benz.
Global automakers including BMW have cut prices on their Chinese models in recent months to combat weak sales growth.
JLR is doing likewise and stresses this reflects market conditions and is not connected to competition regulation.
The price of the firm's Range Rover Evoque made at its Chinese joint venture was cut by five to six per cent in China back in July while the Jaguar XE is cheaper from this month.
Thirdly, the Chinese authorities' recent currency devaluation strengthens headwinds for the likes of JLR.
The devaluation makes imports more expensive and squeezes profits when reported in home currencies.
That means fewer imports to complement locally produced joint venture sales (which are likely to be below target as noted above).
Fourthly, the effects of losses at the port of Tianjin, where JLR lost some 5,800 cars in the explosion, will also have an impact.
Let's be clear that China still remains JLR's greatest opportunity but, in the short term at least, things have become a lot tougher for the firm and risks have risen substantially.
What does this mean? It's likely the rate of 'cash burn' at JLR has accelerated substantially of late.
That means the firm will have to work harder to cut costs (something auto firms are anyway very focused on to remain competitive).
It will have to prioritise investments more and may face a reduced ability to make investments without further cost cutting unless further support from Tata is forthcoming.
The latter isn't something JLR can rely on. Tata's main automotive division itself burned through £819 million last quarter.
As analysts have noted, while Tata is a long way from being in distress, the firm does bear more debt than some auto firms and doesn't look that well prepared for a downturn.
JLR still faces an exciting period ahead with major investment and expected global sales growth on the back of attractive new models.
Jaguar in particular is set to see sales expand dramatically worldwide on the back of new models such as the F-Pace.
But things have suddenly become a lot tougher for the firm because of what's happening in China.
Professor David Bailey works at the Aston Business School
