Shortage of semiconductors may see Jaguar Land Rover report 50 percent lower wholesale volumes by the end of the September 2021 quarter coupled with a negative EBIT margin, Tata Motors, the owner of the two British brands, has warned.
“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 percent lower than planned, although we are continuing to work to mitigate this,” Tata Motors said in a release.
The company expects the situation to start improving in the second half of the financial year.
Several industries are hurting because work for home and more businesses embracing IT during the coronavirus pandemic has led to an explosive demand for chips and placed a huge strain on the supply chain.
Jaguar Land Rover added that the broader underlying structural capacity issues would only be resolved as supplier investment in new capacities comes online over the next 12-18 months.
“We expect some level of shortages to continue through to the end of the year and beyond,” Tata Motors further added.
At the end of Q1FY22 JLR had about GBP 3.7 billion of cash and short-term investments (unaudited). Based on this and broadly in line with expectations given the supply constraints, the company expects to report a cash outflow of about GBP 1 billion with a negative EBIT margin for the quarter.
Total liquidity at the end of the first quarter was over GBP 5.6 billion including a GBP 1.9 billion undrawn committed credit facility.
Looking ahead, the chip shortage is presently very dynamic and difficult to forecast, Tata Motors added.
“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,” Thierry Bolloré, Chief Executive Officer, Jaguar Land Rover, said.
“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,” he said.
The two British luxury automotive brands lost about 7,000 units of production to the semiconductor shortage during the March quarter.
In April it suspended production at two of its factories in the UK for a “limited period” due to the non-availability of the computer chips even as the order backlog climbed to 100,000 units and a waiting period that has hit 12 months.
JLR said it will 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.
It is expecting a substantial improvement in underlying operating cashflow in the second half of the financial year as chip supply improves.
JLR has about 110,000 global retail orders, the highest in its history, representing three months of sales cover, with five months in Europe and four months in the UK. Orders for the Defender alone total over 29,000, representing over four months' cover.
JLR’s retail sales for the first quarter ending June 30, 2021 were 124,537 vehicles, 68.1 percent higher than the 74,067 vehicles sold in Q1 last year. Retails were higher year-on-year in every key region including in the UK, Europe, North America and China.