Jaguar Land Rover’s remarkable success drive continues. The firm recently reported a record £1.68 billion pre-tax profit for last year, boosted by a bumper rise in Chinese sales, where a burgeoning middle class is keen to show off its wealth.

What better way to do it than driving a Range Rover Evoque?

Sales were also up significantly in other markets, including here in the flatlining British economy, where JLR saw 20 per cent sales growth. Europe, meanwhile, saw JLR sales of 80,000, up 18 per cent, despite the general malaise affecting the market brought on by the toxic mix of European banking crisis, lack of consumer confidence and austerity over-drive.

Overall global sales were up 22 per cent to around 375,000 cars, with revenues up 17 per cent to £15.8bn, again a record year’s performance. Sales were boosted by a string of recent launches including the new Range Rover, the four-wheel drive Jaguar XF and XJ (which sell well in markets such as the US), and the XF Sportbrake estate.

The firm now employs 25,000 workers, with all but 1,000 of those here in the UK. Some 3,000 new jobs were added last year, bringing to 9,000 the number of new jobs created at JLR over the last two years. Another 1,400 jobs are planned when the premium car-maker opens its new engine plant at the i54 site near Wolverhampton at the end of next year.

While the much hoped-for ‘march of the makers’ stalled some time ago, in part through the lack of a supportive industrial policy, the UK auto industry in general, and JLR in particular, continue to power ahead.

Key to the firm’s success was selling more than 77,000 vehicles in China – up almost a half – over the 12-month period, with the Range Rover Evoque in particular helping to drive sales. JLR’s Chief Executive Ralf Speth didn’t seem too concerned over fears that the Chinese car market could cool given the state of China’s slowing economy. He forecasts higher sales volumes in China in the current financial year, noting that it is already JLR’s biggest single market, and close to overtaking Europe as JLR’s biggest region.

Speth has a point. JLR is in fact a latecomer to the Chinese market, and has plenty of headroom to grow as long as it gets the products right: Audi for example has been turning in massive sales in China for a few years now, topping 400,000 units last year. JLR can expand substantially on the back of exciting products, a growing middle class, and current low rates of car ownership.

Not surprisingly, JLR is now building an assembly plant in the east of China through a joint venture with the Chinese firm, Chery Automobile, to serve this critical market, and thereby avoid significant import taxes, especially on bigger engined models that sell well in China.

The new JV will be based near Shanghai and will enable the plant to build both Chery and Land Rover sports utility vehicles, along with a new brand of cars designed specifically for the Chinese market. The plant will be able to assemble some 130,000 cars and engines a year.

Making a success of the JV in China will be critical for JLR. In fact, JLR is still a small player in global car industry terms (2013 sales of 375,000 cars as against BMW sales of 1.8 million). Admittedly JLR doesn’t need to be as big as BMW given that it can make a higher premium on every car sold, but it still needs to be significantly bigger than it is now to make its heavy investment in R&D and new models sustainable.

Global output and sales of around 600,000 a year in five years’ time should be the target, and profits from the Chinese venture should in part go back into R&D here in the UK, thus supporting jobs and developing new models to underpin growth.

It also means expansion is needed in China and India – and maybe in Brazil in due course – as well as back in the UK. New models will be critical as the firm needs to grow in size dramatically while maintaining margins.

Overall, JLR’s profits last year were a significant and welcome boost to its parent, Tata Motors, which has had a tough time in its key Indian market. A combination of slowing domestic economic growth, higher fuel prices and increased interest rates have impacted on car and truck sales there.

Tata Motors bought the UK-based business in 2008 for £1.4 billion – less than a year’s profits today at JLR today. Interestingly, JLR now accounts for over three quarters of Tata Motors’ group revenues.

While Tata Motors’ Chief Financial Officer foresees a challenging short term future for the Group given the tough Indian context, the mood at JLR is buoyant, with major investments to the tune of £2.75bn planned on new products, people and infrastructure over 2013-14, including the i54 engine plant.

JLR’s most recent profits success came despite an earlier warning that JLR profits would be less than expected, even if the firm was still on track for a record year.

It appears that JLR’s figures were eventually boosted in part by a depreciation of sterling against key currencies and through lower costs of raw material costs.

It should be noted, though, that JLR’s heavy investment in R&D, new models and international expansion ate into the firm’s cash pile last year, with free cash flow at JLR becoming negative in 2012. This is likely to continue this financial year.

In addition, an increasing reliance on lower-margin models, such as the hugely popular Evoque, had started to affect margins. Indeed, models such as the Jaguar XF, Land Rover Freelander and the Evoque accounted for over 50 per cent of JLR’s sales in the third quarter of 2012/13. These models had an average selling price around £30,000 as against £42,000 on average for the firm’s other models, according to Tata’s own figures.

But newer product launches such as the up-market new Range Rover have helped boost margins more recently. And the new Range Rover Sport and Jaguar F-type should help boost margins even further.

The stunning F-type is being snapped up as fast as the firm can produce them, it seems. The model is expected make up 15 per cent to 20 per cent of the Jaguar brand’s total annual output of 60,000 units, with the car expected to appeal to younger customers new to the Jaguar brand. It’s exactly what the firm needs to do.

Overall it’s a remarkable success story and one based very firmly here in the West Midlands. Ford must be kicking itself that it off-loaded JLR back in 2009. In contrast, the purchase by Tata seems like an increasingly shrewd move, perhaps even the deal of the century for the firm.

* Professor David Bailey is from Coventry University Business School