This is expected, since a JPG image simply isn't a bitmap (BMP) image.
You have to convert it to a bitmap in order to do something with it:
var
bm: TBitmap;
begin
bm := TBitmap.Create;
try
bm.Assign(Image1.Picture.Graphic);
bm.Canvas.DoSomethingReallyAwesome(ttExtraAwesome);
bm.SaveToFile('C:\Users\Andreas Rejbrand\Desktop\test5.bmp');
finally
bm.Free;
end;