TAG_HEUER_CALIBRE_CH_80

Analysis: The Future of TAG Heuer’s Calibre CH80

Major news last week, with TAG Heuer announcing that it would focus its manufacturing efforts solely on the Calibre 1887 movement and postpone the launch of the first watch intended to use the new Calibre CH80. For collectors, this was a disappointing development, given both the excitement around the new movement and the positive reaction to the Carrera CH80 that was shown in Basel back in March.

Delays are nothing new in the watch industry, and readers will remember the delays and changes experienced when TAG Heuer launched the 1887 movement back in 2010. However, our view is that these “teething problems” are not what is impacting the decision to shelve the CH80, but rather it reflects a change of strategy at LVMH, the parent company of TAG Heuer.

2014 TAG Heuer Carrera Calibre CH80

History of the CH80

In March 2012 we exclusively broke the news that TAG Heuer was working on a new in-house chronograph movement, which at that time was developed under the code-name Calibre 1888. The new movement would be produced at a new greenfield site in Chevenez, alongside the existing Calibre 1887. Fast forward to November 2013, TAG Heuer launched the movement- now called the Calibre 1969- to journalists at the gleaming new factory. The project appeared to have moved quickly from conception through to realisation, with TAG Heuer noting that the new facility would allow it to become the largest (in-house) manufacturer of chronograph movements in Switzerland.

TAG Heuer ChevenezAt the launch TAG Heuer told us that they had invested CHF10 million (Swiss Francs) in Chevenez and more than CHF40 million in movements over the last five years. While it’s not clear how much of this amount relates directly to the Calibre 1969/ CH80, TAG Heuer had clearly invested a lot of dollars, energy and capability in bringing the new movement to market.

Calibre 1969Impressively, the Calibre 1969 made its way into a production watch within only a few weeks of this launch, when again we scooped the first look at the TAG Heuer Carrera Calibre 1969. The Limited Edition Rose Gold watch was to lead off the new range, with a steel version to follow in 2014.

TAG Heuer Carrera Calibre 1969_27It was something of a surprise when in March 2014 at Baselworld, TAG Heuer announced that it had changed the name of the movement- this time to the CH80- and that the steel version of the Carrera 1969 had been dropped in favour of two retro-flavoured Carreras. While these new watches were very well received at Basel, we did hear rumblings from some authorised dealers that they had not been able to place any orders for the Carrera CH80, partly because deliveries of the new watch weren’t expected until around November 2014.

Postponing the CH80

Carrera CH80 Panda dial Black

Last week, TAG Heuer published the following press release:

TAG Heuer optimizes its production

La Chaux-de-Fonds, June 5, 2014

In order to respond more effectively to current market needs, TAG Heuer has decided to focus on the production of a single chronograph movement, the CH1887, launched in 2010. 

As a result, TAG Heuer is postponing the launch of the Carrera CH80 chronograph, even though the company has completed the development of the movement that powers it. This optimization of production will of course allow for certain synergies, including the grouping of all movement manufacture activities in the brand’s plant in Chevenez, which opened in November 2013. Production staff will not be affected by this measure and will be redeployed to TAG heuer’s three other industrial sites in Switzerland. 

The Calibre CH1887 will thus be able to power up and continue beating at the heart of the Carrera. Consisting of 320 components and equipped with 39 jewels, the integrated column-wheel movement, manufactured and assembled in the Swiss Jura, features a revamped version of the oscillating pinion that Edouard Heuer invented and patented in 1887, which is from where it gets its name. This component functions as a clutch and allows the starting of the chronograph function in 2/1000th of a second. Powerful, robust and easy to maintain, the Calibre CH1887 measures 29.3 mm x 7.13 mm. Its creation gained TAG Heuer entry into the elite ranks of Manufactures in 2010, and won it the coveted “Petite Aiguille” prize at the Geneva Watchmaking Grand Prix. 

So What’s Going On?

TAG_HEUER_CALIBRE_CH_80

One of the first conclusions that commentators reached last week was that there must be a fundamental flaw in the CH80, which had sent the TAG Heuer technical team scurrying back to the drawing boards. But it’s been confirmed to Calibre 11 that this is not the case.

Yes, there were design elements of the Calibre 1969 that TAG Heuer wanted to change, and indeed these were implemented for the CH80, which offered a longer power reserve than the Calibre 1969. Indeed the press release goes out of its way to put this theory to bed, stating the the Carrera CH80 has been delayed “even though the company has completed the development of the movement that powers it.”

OK, so if the movement works, what is going on? Well, there are some very good clues for those that look at recent developments in Le Locle, just down the road from TAG Heuer’s HQ.

Meanwhile at Zenith…

EliteZenith- another LVMH brand- surprised observers at Basel when it announced that it would start using Sellita’s SW300 movement in its 3-hand watches (branded as the Zenith 3001- below) instead of its own in-house Elite movement. In an interview with Robin Swithinbank in the Financial Times this week, a Zenith spokesperson confirmed that there were two reasons behind the decision- a desire to focus on expanding production of the El Primero calibre and to “recruit new customers”, which in the Zenith context means offering lower-priced watches. And the price difference is meaningful, with the article noting that the new movement allowed the entry level Zenith watch to be priced at GBP2200, rather than GBP3800 for the Elite-powered equivalent.

As the spokesperson concludes: “Unless brands can produce in-house movements at an affordable price that makes commercial sense to the end consumer, they will have to [follow us]”. In other words, move away from low-volume in-house movements back to lower cost high-production movement from specialists such as Sellita than offer greater margin and allow prices to be kept down.

SellitaFormally, Zenith has not announced that it will stop production of the Elite, although former-CEO Jean-Frédérique Dufour was quoted as stating this at Basel. And there are some very good reasons a company would be loathe to officially scrap a movement. Accounting standards dictate that investments in R&D and equipment can be held at (depreciated) cost on the balance sheet, so long as they are still in use. If the movement was no longer in use, then the total value of those assets would have to be written off, directly impacting profit.

The article concludes that this decision to focus on one movement reflected the influence of Jean-Claude Biver, the former CEO of Hublot, who now is the head of LVMH’s watch business that includes both TAG Heuer and Zenith. Could we be seeing the same thinking, albeit potentially for different reasons, being applied to TAG Heuer and its CH80?

Delayed?

2014 TAG Heuer Carrera-Calibre-CH80-CBA2111Our view is quite simple: we believe that the Calibre CH80 is dead for the foreseeable future.

At a minimum, the decision to suspend production indefinitely means that we won’t see a CH80 model in 2014 or 2015. And given lead-times on getting a new movement into production and re-configuring Chevenez, a reversal of this decision would need to happen in the next few months if it was to be part of the 2016 range. Given the magnitude of the decision to hold back a movement that is ready to go, there would have to be a major change in strategic thinking to reverse that call in the next few months.

Our guess is that TAG Heuer had to effectively choose between manufacturing the Calibre 1887  and the CH80. The watch lover in us would of course choose the newer, in-house Calibre. Not only is the CH80 a more modern and thinner design, but it’s also more efficient to produce with fewer parts. But, the problem is that while there are no “live” CH80 models, the bulk of TAG Heuer’s top-selling Carrera range now feature the 1887, meaning that a decision to halt production of that movement would have been incredibly disruptive and expensive. The rationalist in us would have chosen the 1887.

But what about the future? Of course it’s possible that we will see the CH80 down the track, but trying to guess what might appear in the 2017 catalogue is highly dependent on economic conditions, sales performance and other strategic initiatives. When we spoke to then-incoming TAG Heuer CEO Stephane Linder last year, he identified two new movement projects- an in-house 3-hand watch movement and a sub-$10,000 Mikrograph 1/ 100th movement. It’s possible that one or both of these projects could take priority over re-starting the CH80, on the assumption that these ideas are still viable under the current strategic thinking at LVMH.

Seeking Consolation

Jack Heuer Carrera 81 AnthraciteWhile we hope we’re wrong about the CH80, the open question is what happens to the Carrera CH80? Could we see the watch launched with an alternative movement? The obvious choice would be to launch Panda/ reverse Panda versions of the Carrera Calibre 17 Chronometer, the watch based on the Jack Heuer Carrera 80. The Calibre 17 is available in both two register and three register variants, and we know that the Carrera CH80 prototype and the Cal. 17 Carrera used the same case.

Over the next few months, and once the dust settles, it will be fascinating to understand the new strategic thinking and how it will impact TAG Heuer watches for the next 5 years and beyond. Will we see more Calibre 36 models at better prices? Will TAG Heuer invest in variants of the 1887? And what is the future of the other movement projects? Stay tuned, as we’ll be doing our best to bring you the answers.

***

 

  • imagwai

    Very intelligently-written and insightful article, thanks! The clues are all there in the press release that this is a Corporate decision based around logistics, costs and strategy. But it's still a bit of an own goal coming so soon after demonstrating the new movement at Baselworld!

  • Thomas Lubbock

    Great article David. A shame to see this movement shelved though.

  • Stephen

    Tag-Heuer and Zenith would both be better off without LVMH. Unfortunately, given today's corporate realities, I realize that's not likely.

    • That's a hard one- the re-emergence of TAG Heuer happened thanks to LVMH ownership and guidance. As watch lovers, we are free to ignore any economics of a watch and whether it makes money…we just want the best hand-made watch with an advanced in-house movement…all at a low price.

      I do have faith that without a compelling rational reason, the decisions would not have been made.

  • Thanks Thomas and Imagwai

    dc

  • Robert

    Me, waiting for an Aquaracer Chronograph, based on the CH80, enhanced with a flyback and a day-date or simple full calendar, maybe with a more up-to-date escapement, feels loss of a dream for quite a while.
    Robert

  • david

    I wonder whether they might sell/license the CH80?

  • Jason

    Thanks for the insight, David. I have to say that I am very disappointed by this decision. For me, the CH80 was exciting because it gave credibility to the fact that TAG was heading in an exciting new direction. If Zenith is content looking to Sellita to start supplying 3 hand movements, then why would TAG be motivated to develop their own 3 hand movement as they've recently stated they would like to do? It seems like this points to TAG going in the exact opposite direction of where a lot of us were hoping they were headed. I don't see much to get excited about in the near future.

  • Nathan Smith

    I do think its a postpoment rather then an abandonment. Very surprised to read though that 2017 is the ealriest we can expect this! A three hand in house can still be on the cards and i do think TAG Heuer need this more then they need the CH80. if they can get a 3 6 9 dial layout from an CH1887 i would be very happy. as this is what i loved about the CH80.

  • Richard

    Such a great movement was put on hold. I guess this will have some negative effect at least to TAG Heuer's credibility as a serious movement manufacture.

  • shane0mack

    Man, this is a real bummer. This was the first Tag I'd been interested in for quite some time.

  • coldface

    I was prepared to buy my first TAG Heuer w/ a CH80 in it … what a blow

    • Georgef

      Me too!!! Pity!

      Should I settle with 1887??

      I started a thread in watchuseek

  • George

    Not to backlash at TAG Heuer for this decision but I wonder if there is more to the story than meets the eye…I'm in the field of intellectual property and can't help but wonder that the design and end results of the CH80 mirrors that of major competitors, e.g., Rolex the dial layout are the same as in a Daytona in the sense that the hour totalizer is at 9 o'clock, the 60 seconds at 6 o'clock and 30 minute counter at 3 o'clock. Even further they have similar power reserves, the only thing different with CH80 is a date wheel, in the intellectual property world things like these are considered obvious variants. Long story short, what if TAG Heuer got a friendly seize and desist letter from a competitor, and TAG via way of legal consultation were told to hold off on it and go back to the drawing board? This sounds crazy doesn't it? Well it does happens a lot in the intellectual property world. The whole story about logistics, costs and strategy kind of gives me ideas. But what if there is more to this story we'll only know in the near future, what comes about it.

    • Interesting theory George, but no, haven’t heard that one. Rolex hardly invented that layout either, so there’d be law suits running thick and fast if Rolex had a case.

      Nothing has changed my view over the last month that this is simply a change in strategy from LVMH. And I still think it’s never coming out…sadly.

      Dc

  • Remy

    The decision to cancel the CH80 is (in my humble opinion) a big misstep in TH history. 🙁
    The CH80 was an important step to show that TAG Heuer is able to develop an inhouse movement without outside development (Seiko/Cal.1887).
    I am a big fan of the Cal. 1887 and the whole brand for years.
    But there are others, who think that TH isn´t a remarkable brand in developing a movement.
    An 100% inhouse development would have been a great Chance and would imho generate a lot of new customers for TH.

  • Accountant

    Very good article. Just let me correct one statement: “And there are some very good reasons a company would be loathe to officially scrap a movement. Accounting standards dictate that investments in R&D and equipment can be held at (depreciated) cost on the balance sheet, so long as they are still in use. If the movement was no longer in use, then the total value of those assets would have to be written off, directly impacting profit.”
    In fact, depreciations might cause book losses, but they have don’t Impact a company’s liquidity. Moreover, the tax base decreases. So, the only reason to maintain such Investments on the balance sheet is to avoid book losses. If a company is part of a business group, this might be a reason. But it’s not a good reason to abandon movements in terms of accounting policy.

    • calibre11

      Agree…but what if I was an Executive who was compensated on EBITDA/ NPAT, as most are? As you say, it’s not a cash issue, but LVMH’s latest accounts show that the Watch & Jewelry business has a poor recent EBITDA performance, so I reckon rebuilding book profits that would be a focus.

      dc

      • Focused

        Actually, likely the cost of the CH80 movement would have been capitalised as an intangible asset and then amortised over the life of the movement which could conceivably have been 20 years depending on what their auditors sign off on. This would likely be greater than the cost of the machinery or tooling, which could likely be redeployed and not “impaired” under IFRS 16.

        Calibre11 you are right that incentive scheme’s can be based upon these criteria. However its never a good look at C-Suite to invest capital into something that is then mothballed.

        • calibre11

          Yes, and that’s the point I guess. The auditors will be happy with 20 years, unless you formally announce that the movement is dead- in which case you’d have to write it all off then and there. Who says watches and accounting don’t mix 😉