Jaguar Land Rover (JLR) says it plans to cut about 4,500 jobs globally as part of a £2.5bn plan to reverse losses.
The British company, which employs 44,000 in the UK and cut 1,000 temporary workers at its plant in Solihull last year, has been hit by poor sales in China and a drop in demand for diesel cars.
It posted a £90m loss in October.
JLR has said the next stage of its “transformation programme” would begin with a voluntary redundancy programme in the UK.
The company’s chief executive Ralf Speth told Sky News: “It’s a very, very hard day. And I know what it means at the end of the day to lose people, and what kind of impact it has to families and to the respective people. But we have to act.”
It is believed most of the job losses will affect its managerial, research, sales and design staff.
“This strategic review will create a leaner, more resilient organisation with a flatter management structure,” said JLR.
The savings and “cashflow improvements” will be made over the next 18 months.
Owned by India’s Tata Motors, the firm operates factories in Halewood, Solihull, Castle Bromwich and Wolverhampton.
Reacting to the news, Labour MP for Birmingham Erdington, Jack Dromey, said: “Areas like mine, of high poverty and unemployment… It’s nothing short of tragic that tonight there will be workers at home wondering what their future holds.”
As well as the job losses, the company has revealed some new investments.
A new battery assembly centre will be set up in Hams Hall, Warwickshire, and “next generation” electric motors will be produced at its facility in Wolverhampton.
Mr Speth said: “We are taking decisive action to help deliver long-term growth, in the face of multiple geopolitical and regulatory disruptions as well as technology challenges facing the automotive industry.”
JLR’s announcement came on the same day that Ford also said it would axe jobs across Europe in a drive to return its operations to profitability.
In its biggest market, China, the car industry recorded its first slump in sales in more than two decades.
Sales fell 6% to 22.7m units last year, the China Passenger Car Association said.
Trade tensions between the United States and China have made Chinese consumers more cautious.
JLR’s sales have also been hurt by consumer confusion and a shift away from diesel-powered cars in Europe following the VW emission cheating scandal.
Diesel accounts for 90% of the company’s British sales and 45% of global demand, the company said last year, but new taxes on the sale of vehicles has also hurt sales.
The company has also been grappling with the cost of Britain’s decision to leave the European Union.
It has warned a poor exit deal could cost it £1.2bn a year.
The company has opened a £1bn plant to Slovakia where it currently employs 1,500 people.
Brexit has made the future of the UK’s car manufacturing industry uncertain, with Toyota and Vauxhall among those to warn of negative impacts in the event of a hard Brexit.
Sky News’ Adam Parsons said Mr Speth “pretty much shuddered” when asked if a no-deal Brexit could be problem.
“It would be a huge problem for the company because we have to make sure that the physical logistics to produce 3,000 cars in the UK daily… if we miss a part, we have to stop production, and stopping production costs between £80m and £100m per day.”
Rebecca Long Bailey MP, Labour’s shadow business secretary, said: “This is more concerning news for workers across Jaguar Land Rover today who have suffered months of uncertainty not least as a result of the government’s Brexit chaos.
“The government needs to realise that the automotive sector from factory floor and right across supply chains desperately needs tangible support not warm words.”