jaguar land rover Archives

How Has The Company Performed In Q1FY22?

The Tata Motors Group’s business is broadly divided into two parts. Jaguar Land Rover (JLR) and Tata Motors Limited (TML). JLR has operations all over the world and mainly manufactures high-end cars. TML on the other hand manufactures cars, trucks, buses, and even has a vehicle financing business, mostly in India.

The total revenue of the group was up by ~105% YoY. As compared to the previous quarter, revenue went down by ~25%. Net loss decreased by 41.48% QoQ and by 47.25% YoY.

JLR’s performance accelerated this quarter. As compared to Q1 FY21, JLR’s UK sales (units sold) were up +187%, North America +51%, Europe +124%, China +14% and Overseas +71%. Overall retail sales of JLR were up 68% over one year. The revenue for JLR was up 73.7% YoY, while its loss narrowed down by £303 million (~73%) over a year’s time.

Speaking of standalone results of TML. The company’s revenue increased by 343% YoY. The company’s pre-tax loss narrowed down to Rs 1,289 crore vs. a loss of Rs 2,141 crore in Q1 FY21. TML’s Electric Vehicle (EV) business delivered 5x revenue growth and the highest quarterly sales at 1,715 units.

Why Is Tata Motors Analysts’ Favourite?

Presently, Tata Motors faces three major challenges. Global semiconductor shortage, the impact of the COVID-19 pandemic, and debt management.

Every car requires a semiconductor chip for its vital functions. There is a global shortage and that has impacted the biggest players in the automotive industry throughout the globe. You can read more on the global semiconductor shortage over here. Moving forward, the global semiconductor shortage is likely to ease by year-end. Since this is a global crisis, major auto manufacturers are likely to invest in ramping up the supply of this chip. Tata Motors is handling the chip shortage in an efficient manner. It is using the existing stock to build vehicles that give higher profit margins. This way, Tata Motors can enhance profitability as well as cost-efficiency.

Coming to cost-cutting measures, JLR needs to sell a minimum number of cars every year in order to be profitable. This is because irrespective of the number of cars it produces, there are some ‘fixed’ costs attached to running a factory. In FY21, JLR reduced this ‘breakeven’, where it now only needs to sell 400,000 units to be profitable, instead of the earlier 600,000 units.

While the supply chain for the production of vehicles remains slow, Tata Motors has retail pending orders for more than one lakh units. This is the highest the company has ever received. If things go around smoothly and India manages to curb COVID-19 and ramp up the vaccination drive, one can expect Tata Motors to start operating at maximum capacity, naturally adding to profit margins. The government has come out in support of the auto industry by notifying a Production Linked Incentive (PLI) scheme for the auto sector, especially in the EV segment. Besides, Tata Motors (Tata Electric) is the largest manufacturer of EVs in India.

Tata Motors, including JLR, is a debt-laden company. The company has promised to be zero-debt by 2024. It had managed to reduce its debt quarter after quarter throughout FY2020, reducing debt by at least Rs 7500 crore. Tata Sons Chairman has recently reaffirmed its plans to go debt-free by 2024.

Conclusion

Looking at the brokerage and analyst reports, we see one common thing. None of them are thinking short-term. Almost all brokerages seem to have a long-term approach to the company. Analysts are expecting the chip shortage to end soon. As it should, having eaten up 30% of JLR’s past projected sales. The world’s largest semiconductor chipmakers viz. TSMC (Taiwan), NXP (Europe), and Intel (US) are ramping up production. We can expect an improvement in that area.

Tata is taking stringent cost-cutting measures, as mentioned in the previous section. There has been a surge of orders for Tata Motors. In the domestic market, Tata Motors witnessed a 19% month-on-month growth. It sold 51,981 units of vehicles in July 2021 as compared to 27,024 units sold in July 2020. Its passenger vehicle sales witnessed a 25% month-on-month growth selling 30,185 units of passenger vehicles as compared to 24,110 units in June this year.

So if sales are growing, debt is going down, then what could stop Tata Motors from becoming profitable? In the short term, it could be the rapid growth of different mutated variants of the COVID-19 virus. Another lockdown could obstruct just about any other industry. As long as the COVID-19 virus remains under check, Tata Motors could practically achieve its goal of going debt-free by 2024 and possibly turn into a profitable company sooner.

On February 15, Jaguar Land Rover (JLR) announced a highly strategic plan that could accelerate the struggling carmaker’s revival. With the support of its parent company, Tata Motors, JLR would now focus on the production of electric cars. Governments and stakeholders around the world have welcomed this decision with open arms. Let us understand how this UK-based luxury car brand aims to achieve this huge task.

The Roadmap

Thierry Bolloré, the new Chief Executive Officer of Jaguar Land Rover, has laid out his vision for the luxury carmaker. The company’s ‘Reimagine Strategy’ centres around the electrification of both Land Rover and Jaguar brands. It would be based on separate architectures with two clear and unique personalities. The strategy will involve a deeper collaboration and knowledge-sharing with Tata Group companies to improve sustainability and reduce emissions. JLR will focus on adopting next-generation technology that would cater to the demands of its customers. A centralised team will be assembled to develop pioneering innovations in engineering, manufacturing, services, and much more.

JLR said it is committed to phasing out its internal-combustion cars by 2026. It is also making a heavy investment in hydrogen fuel cell technology. The company’s first fuel cell electric vehicle (FCEV) prototype is likely to run on UK roads by the end of 2021. This can be linked to the firm’s plans of becoming a net-zero carbon business by 2039.

All Jaguar models and 60% of Land Rover models will be completely electric by 2030. Jaguar will become an electric-only luxury brand from 2025, while Land Rover will launch six EV variants within the next five years. These models will be built on the Modular Longitudinal Architecture (MLA), which is an advanced platform used in electric and hybrid vehicles. The company would invest £2.5 billion (~Rs 25,270 crore) every year into electrification and related technologies.

Moreover, the automaker said it is on the path towards securing double-digit EBIT (earnings before interest and tax) margins and positive cash flow. JLR aims to become a negative net debt company by 2025.

JLR: Struggling to Improve Sales

Jaguar Land Rover contributes more than 79% to the total revenue of Tata Motors (as of FY20). However, the subsidiary has been bleeding money due to poor sales. While its operations in China (through Chery Jaguar Land Rover) are doing comparatively better, JLR has turned out to be a huge burden for Tata Motors. The effects of the Covid-19 pandemic and the uncertainty surrounding Brexit had a devastating impact on its production activities. During the previous financial year, the company had reported a loss of £3.6 billion (Rs 34,424 crore)!

JLR aims to address this issue with its latest strategy. The luxury automaker believes that their electric line-up will receive greater demand in key markets of the United Kingdom and China. It has already focused on establishing cost control measures, such as cutting 2,000 jobs globally. Interestingly, the sale of JLR vehicles in China showed a 19% YoY increase during the October-December quarter (Q3 FY21). The company’s global sales are showing a minor recovery as well. In the Indian context, JLR believes that the infrastructure surrounding EVs would improve significantly within the next decade. Thus, the company would be well-positioned to launch its electric Jaguar and Land Rover models in our country. Notably, the company plans to kickstart its India operations by launching the Jaguar I-Pace (which won the World Car of the Year Award in 2019) by March 2021.

Tackling Tough Competition in the EV Market

The announcement surrounding JLR’s ‘Reimagine’ strategy comes at a time when Tesla Inc is all set to launch a factory in Bengaluru. As we know, Tesla has a giant lead in the global electric vehicle race. It has established a strong presence in the US, Europe, and China. marketfeed had prepared an in-depth analysis of Tesla prior to its entry into India. You can read it here. Similarly, Mercedes-Benz has announced that it will launch an electric variant of each car in its current portfolio. The Germany-based automaker has 10 all-electric versions scheduled for launch by 2022 and a total of 25 EVs under development. General Motors, which failed to build a presence in India, also said it would completely electrify its line-up by 2035. US-based Ford plans to switch to an all-electric range in Europe by 2030.

Major auto companies such as Hyundai Motor, Renault-Nissan, and Volkswagen also produce some of the best electric cars globally. Thus, we can see that Jaguar Land Rover will face stiff competition in the electric car market.

However, this is where Tata Motors’ strong EV expertise would come in handy. It has a vast global experience and a better understanding of consumer expectations from diverse markets. Tata Motors has been able to design and develop low-cost EV technology and meet the expectations of Indian customers. The company’s Tata Nexon EV emerged as the best-selling electric car in India in 2020. The share of EVs in Tata Motor’s overall sales last year was 43.3%! Interestingly, sales data of the October-December quarter (Q3) showed that over 50% of retail sales of JLR came from electric vehicles. The knowledge-sharing of Tata Motor’s EV technology would help JLR obtain an edge over its competitors.

Conclusion

JLR has set its mission to become one of the most profitable and sustainable luxury manufacturers in the world. The carmaker is confident that this strategy will have a more sustainable and positive impact on the environment. With a strong management team and support from Tata Motors, the company is ready to face heavy competition from its peers. Let us look forward to seeing how the company executes its plans to disrupt the global EV market. And hoping that the trend of competing companies pushing for better technologies benefits the world as a whole. Let us hope that EVs are the future, and that is indeed the right move.