Tata Motors has halved the volume outlook for its UK subsidiary Jaguar Land Rover (JLR) as the company sees semiconductor shortage deepening in the September quarter of the current financial year. This will have an adverse impact on the free cash flow and earnings before interest and tax (Ebit), the company said in an exchange filing. Following the announcement, the Tata Motor's stock tanked by over 10 per cent in early trade on Tuesday, hitting the lower circuit.
“Based on recent input from suppliers, we now expect chip supply shortages in the second quarter ended 30 September 2021 to be greater than in the first quarter, potentially resulting in wholesale volumes about 50 per cent lower than planned, although we are continuing to work to mitigate this,” it said.
Tata Motors, that had earlier guided for Earnings Before Interest and Tax (Ebit) margins of over 4 per cent plus and a free cash flow break even, has now revised its guidance downward with a negative Ebit in the first and second quarter and a negative FCF of £1 bn.
“Given the supply constraints, the company expects to report a cash outflow of about £1 billion with a negative EBIT margin for the quarter. Total liquidity at the end of the first quarter was over £5.6 billion including a £1.9 billion undrawn committed credit facility (RCF).
It expects the pain inflicted from the shortage to continue through to the end of the calendar year and beyond and anticipates things to start improving only in the second half of the financial year. Long term underlying structural capacity issues will only be resolved as supplier investment in new capacities comes online over the next 12-18 months, the company said.
“The present semiconductor supply issues represent a significant near-term challenge for the industry which will take time to work through but we are encouraged by the strong demand we see for when supply recovers. We are taking strong steps to ensure the security of our supply chain for the future,
working with our suppliers and chip manufacturers directly to increase the visibility and control over the chip supply for our vehicles,” Thierry Bolloré, Jaguar Land Rover Chief Executive Officer, said in the statement.
In the meantime, JLR plans to continue to prioritise production of higher margin vehicles for the chip supply available as well as make chip and product specification changes where possible to reduce the impact.
Led a by strong demand pull from across all the regions including UK, Europe, US, China and other markets retail sales for the first quarter ending 30 June 2021 were 124,537 vehicles, up 68.1 per cent year-on-year but the wholesale volumes got impacted and was lower than what the company had planned for, due to the semiconductor shortage.
JLR claimed it continues to see strong demand for its products when semiconductor supply ultimately improves. The Company presently has about 110,000 global retail orders, the highest in the history of the company, representing three months of sales cover, with five months in Europe and four months in the UK.
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