Industry

Parts shortage aggravate likely recovery at Jaguar Land Rover


Luxury carmaker Jaguar Land Rover (JLR) is being forced to resort to production cut in the current quarter as well due to continued shortage of semiconductors across the world.

The Tata Motors-owned British carmaker has taken production shutdown at its plants in Nitra (Slovakia) and Solihull (the UK) between October 25 and 29, while the plant in Graz (Austria), which is owned by its partner Magna Steyr, will witness no-production days on October 25 and 26, and November 1 and 2, people familiar with the development told ET.

Some engines such as AJ20-P4 and AJ20-D4 also will have no production from October 25 to November 12, they said.

Together, all this may result in a volume loss of between 5,000-7,000 units and an incremental revenue loss of £300-325 million, or about Rs 3,100-3.350 crore, sources said.

JLR has already suffered a loss of close to £4 billion, or about Rs 41,300 crore, in incremental revenues due to the global chip shortage in the first two quarters of 2021-22.

The company managed to despatch only 84,442 and 64,032 units, respectively, in the first and second quarter of the current fiscal.

But now, it seems reaching annual volume of 360,000-370,000 units – that analysts have forecast – would be an uphill task.

Analysts had forecast a 20% volume growth at the beginning of FY22. Instead, it could be 5-10% lower than last year’s volumes. This may pull JLR’s volumes to its lowest in eight years.

Analysts have factored in wholesale volume of 90,000-95,000 in the third quarter and 120,000-125,000 units in the fourth quarter based on the company’s guidance of easing the chip shortage in the second half.

However, the non-scheduled shutdown may delay expected gradual volume normalisation guidance in the second half of FY22.

There is a fear that JLR may not be able to reach its break-even production volume around 90,000 this quarter, which would weigh on its operating margin.

Tata Motors, in an email response, said no comments since it is in a silent period ahead of the second quarter results.

The current shutdown translates to four days of production loss for Defender, Discovery, Range Rover, Range Rover Sport, I-pace and E-pace.

In the sales release for the second quarter, the company had said it is having global retail orders at record levels in excess of 125,000 vehicles despite the impact of the semiconductor shortage on production and sales.

“The global semiconductor supply issue represents a significant near-term challenge for the industry, which will take time to work through,” said Lennard Hoornik, chief commercial officer of Jaguar Land Rover. “However, it’s encouraging we were still able to grow sales of the Land Rover Defender in Q2.”

Tata Motors’ UK subsidiary manufactures Defender and Discovery models at the Slovakia plant, while its Solihull plant manufactures models such as Range Rover and Range Rover Sport. The contract manufacturing facility at Graz manufactures models such as I-pace.

The cumulative installed capacity at these three plants is around 450,000 for the JLR and accounts for nearly half of the total installed capacity.

It must be noted that Defender, Range Rover, Range Rover Sport, and Discovery together contributed nearly 43% of the total retail revenue for the company in the second quarter of FY22. Any volume loss of high-volume driver models may have a pronounced impact on the overall volume as well as margins.

The importance of the volume loss of Defender can be gauged from the fact that out of 110,000 units of JLR order book at the end of June 2021, 29,000 orders were for Defender. Furthermore, the new RR and RR Sport launches are due at the end of FY22, so the company will need enough inventory ahead of the model upgrade.

For the second quarter ended September, JLR had guided for a cash outflow of about £1 billion, or about Rs 10,300 crore, with a negative EBIT margin for the quarter. The company, however, had a total liquidity of over £5.6 billion, or about Rs 57,800 crore, including a £1.9-billion undrawn committed credit facility (RCF) at the end of the first quarter.

JLR expects the situation to start improving in the second half of the fiscal even as some level of shortages was expected for the coming 12-18 months.

JLR had stated in July 2021 that it expects a substantial improvement in underlying operating cash flow in the second half of the financial year as chip supply improves.



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