Tata Motors Limited’s UK-based subsidiary, Jaguar Land Rover Automation Plc, is grappling with semiconductor shortages. The automaker provided an update on the business environment in a meeting with analysts at Motilal Oswal Financial Services. The chip crunch is one of the main hurdles for the Jaguar and Land Rover (JLR) segment.
The company said JLR’s focus is on prioritizing available semiconductors for high-margin products. At present, the visibility for its entire range is 2-3 weeks, but JLR aims to increase it to 2-3 months. In addition, it aspires to eventually boost production to 110,000-115,000 units per quarter. In Q2FY23, the company had guided JLR wholesale volumes of 90,000 units.
Recall that in the June quarter (Q1FY23), chip shortages, a slower than expected ramp up of the new Range Rover (RR) and RR Sport and the COVID-led lockdown in China resulted in muted performance in the JLR segment. The vertical’s Ebitda (earnings before interest, taxes, depreciation and amortization) margin fell 630 basis points sequentially to 6.3%. One basis point is 0.01%.
However, it helps that the demand outlook is strong. The order book for products like Defender, RR and RR Sport is growing. The chip situation is likely to improve going forward, leading to a reversal in working capital taking JLR closer to the zero net debt target by FY24.
Meanwhile, the demand conditions for Tata Motors’ passenger vehicle (PV) and commercial vehicle business are also strong. With regard to its PV business, Tata Motors said the capacity is 550,000 units. The acquisition of the Ford India plant will involve 300,000 units and can be further scaled up to 400,000 units, which should meet the requirements over the next two years.
“Tata Motors should see a gradual improvement as supply-side issues (for JLR) ease and commodity headwinds stabilize (for India businesses). This will benefit from: a) a macro recovery, b) company-specific volume and margin drivers, and c) a sharp improvement in free cash flow and leverage across JLR as well as the India business,” Motilal Oswal’s report added.
As things stand, Tata Motors shares are down nearly 18% from the 52-week high seen in November. A meaningful turnaround in the JLR segment will strengthen investor sentiment.
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