Coronavirus outbreak crashes demand for JLR in China: Tata Motors

MUMBAI: The novel coronavirus outbreak has thrown a wrench into the works of Jaguar Land Rover’s recovery plan with its sales in China — the largest market for the UK-based luxury carmaker — crashing 85% in February.

The drop in China sales was estimated to reduce JLR’s full-year earnings before interest and tax (EBIT) margin by about 1%, its parent Tata Motors said in a statement on Friday. JLR had earlier given a guidance of EBIT margin between 3-4% for 2019-20.

EBIT margin during the first nine months of the financial year stood at 1.3%. Substantial recovery was expected during the ongoing quarter.


“Jaguar Land Rover sales in China grew on average about 25% year on year for the six months from July through December 2019 and we continued to see strong growth for the first three weeks of January,” the carmaker said in a note.

The demand is expected to be impacted in other markets where COVID-19 has spread to, Tata Motors said, citing South Korea, Japan, and Italy as examples.

There could be some pressure on the supply side as well. While the supply chain for JLR is primarily based out of Europe, risk of a shortage of critical component impacting production cannot be ruled out, the company said. Most parts would be available for at least the next two weeks, it said. Also, almost all its suppliers in China were resuming production.

Following the release of the statement, the stock of Tata Motors crashed 9.07% to close at Rs 114.25 per share on the BSE on Friday while the benchmark Sensex fell 2.32%.

JLR accounts for about 80% of Tata Motors’ consolidated revenue. A slowdown for the former in China earlier had brought down the parent company’s financials even as its domestic business in India was showing signs of recovery.

Still, the company expects to end the quarter with positive free cash flow.

Tata Motors’ domestic business in India too could be impacted by the virus outbreak. While the company has finished its production run for vehicles compliant with Bharat Stage-IV emission norms — the deadline for selling and registering such vehicles is March 31 — the ramp up of production for BS-VI vehicles could be jeopardised due to parts shortage, the company said. ET had reported this on Thursday.