As Jaguar Land Rover hits Coronavirus speed bump, infection may spread to Tata Motors

Kshitij Bhargava

"We are safe for this week and we are safe for next week and in the third week we have... parts missing," said Sir Ralf Speth of Jaguar Land Rover this week. He was talking about the impact China's Coronavirus has had on Britain’s biggest car maker. Speth was not shying away from telling how significant an impact the virus and the subsequent virtual shutdown of the Chinese economy has had on Jaguar Land Rover. He went on to say that Jaguar Land Rover has been flying in parts from China in suitcases for its assembly line in the United Kingdom.

It is no secret that people in China concerned about Coronavirus are not looking to buy cars for now, which is bound to impact sales and revenue of Jaguar Land Rover in the ongoing quarter. The impact of this will be felt by Jaguar's Indian parent — Tata Motors. Tata Motors earnings for the quarter ended 31 December 2019 show the dependence of the Indian automobile manufacturer on its British subsidiary. Tata Motors posted a consolidated profit of Rs 1,739 crore in the October-December quarter. On the other hand, the standalone earnings of the company saw Tata Motors post a loss of Rs 1,039 crore.

Sales in China

Ralf Speth joined the likes of Apple on Tuesday to announce that sales and supply will be hit due to the deadly virus in China that has taken nearly 2,000 lives so far. The impact on revenues for the coming quarters could also be significant if normalcy fails to resume in Asia's largest economy. "In the near term, the Covid-19 (Coronavirus) outbreak could negatively affect China region revenues of Tata Motors which accounts for 11% of consolidated revenues," said analysts at Emkay Global in a research note. Emkay has marked Tata Motors as one of the companies that could be hurt significantly due to Coronavirus.

According to Jaguar Land Rover's quarterly earnings report, its China sales were up 24.3 per cent on-year basis in the third quarter of this fiscal. Meanwhile, Jaguar Land Rover sales dropped 12 per cent in Britain; 10 per cent in Europe and 11.5 per cent in the rest of the world, making China its biggest market. "After Apple gave lower guidance of sales due to China, other global companies, which are either supply or manufacturing dependents, are worried to follow suit. China has been an important territory for JLR in terms of volumes and profits. Retail sales in China have seen a good rise. Also, total sales from China contributed almost 20 per cent with 1,41,000 units," Pritam Deuskar, Fund Manager at Bonanza Portfolios, told Financial Express Online.

Tata Motors derives about 11 per cent of its consolidated revenues from the China region through JLR's exports and joint ventures. "Assuming China volumes are impacted by 25% in the near term consolidated EBITDA estimates could reduce by 6% and 5% in Q4FY20 and Q1FY21, respectively," analysts at Emkay Global said. Ralf Speth claimed that Jaguar Land Rover is making no sales in China currently.  

Coronavirus will only add to Tata Motor's woes. The company reported a 17 per cent decline in total sales at 47,862 units in January. Total domestic sales were down 18 per cent at 45,242 units as compared to 54,915 units in January last year, the company had said.  

Manufacturing hurdles elsewhere

China extended the Lunar New Year holiday break due to the outbreak in Hubei province. Factories are yet to start manufacturing in China which might have a significant impact on the world in the coming quarters. It is not just sales in China that are set to witness a sharp fall in the coming quarters, with factories in China closed and lack of imports of key auto parts, the supply chain will take a hit too. Ralf Speth has already said that the company has been flying in parts packed in suitcases to its facilities in the United Kingdom. 

In the last 5 years, import of car equipment from China has gone up by 22.1 per cent, according to a report by Geojit Financial Services. For Tata motor's JLR's 17% volume mix comes from China. Jaguar Land Rover's joint venture in China with state-owned Chery Automobiles in one of the biggest factories of the Auto Manufacturer outside Britain. Employing over 3,000 people the factory accounts for 200,000 units produced per year.

On the back of closed manufacturing plants in China, Indian auto-giant Tata Motors has seen its share price drop more than 12 per cent since mid-December, when the news of the outbreak of Coronavirus in China reached ears across the globe.