Tata Motors’ drive continues to be hindered by chip shortage


Tata Motors Ltd’s UK-based subsidiary, Jaguar Land Rover Automation PLC, continues to be plagued by the semiconductor shortage. The automaker provided an update on the business environment in a meeting with Motilal Oswal Financial Services analysts. The chip crisis is one of the main roadblocks for the Jaguar and Land Rover (JLR) segment.

The company said that JLR’s focus is on prioritizing available semiconductors for high margin products. As of now, visibility for its entire chain is at two-three weeks but JLR aims to increase this to 2-3 months. Further, it aspires to boost production to 110,000-115,000 units per quarter eventually. In Q2FY23, the company had guided JLR wholesale volumes of 90,000 units.

Recall that in the June quarter (Q1FY23), chip shortage, slower-than-expected ramp up of the new Range Rover (RR) and RR Sport and covid-led lockdowns in China resulted in a muted performance in JLR segment. The vertical’s Ebitda (earnings before interest, tax, depreciation and amortization) margin dropped sequentially by 630 basis points to 6.3%. One basis point is 0.01%.

However, it helps that the demand outlook is robust. The order book for its products such as Defender, RR and RR Sport is on the rise. The chip situation is likely to improve going ahead, which would lead to a reversal in working capital taking JLR close to its zero net debt target by FY24.

Meanwhile, the demand conditions for Tata Motors’ passenger vehicle (PV) and commercial vehicle business are also on a strong footing. With respect to its PV business, Tata Motors said that the capacity stands at 550,000 units. The acquisition of the Ford India plant will add 300,000 units and is further scalable to 400,000 units, which should cater to requirements in the next two years.

“Tata Motors should witness a gradual recovery as supply-side issues ease (for JLR) and commodity headwinds stabilize (for the India business). It 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 in both JLR as well as the India business,” added the Motilal Oswal report.

As things stand, shares of Tata Motors are about 18% below their 52-week highs seen in November. A meaningful turnaround in the JLR segment would boost investor sentiments.

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