JLR’s volumes may take further hit in Q2 as chip woes continue

Jaguar-Land Rover (JLR), which registers bold Indian presence in the global luxury automotive industry, could slip into the red in the second quarter. Shortage of chips — not demand — is to blame for an anticipated cut in vehicle output, the announcement of which immediately cost the Tata Motors stock 10% of its value.

Wholesale volumes of these luxury Tata Motors brands slumped more than a fourth in the first quarter due to disruptions in the supplies of semiconductors, which move everything from gears to rear-view mirrors and wiper blades in the tech-heavy, new-age cars.

The shrinkage could accelerate to 50% in Q2. This could potentially impact over 15% of the annual volumes for the company and drag it below the red line in the September quarter, which was otherwise expected to be a strong reporting period for the maker of Defender and XJ.

According to analysts, the supply disruption could result in revenue foregone of around 3-4 billion (₹30,000-40,000 crore) and break-even free cash flow guidance could be at risk.

The silver lining forthe company is healthy inventory at dealerships and factory stockyards, arresting any decline in retail volumes.

Discounts are also moderating.

The company on Tuesday informed bourses that based on the recent inputs from suppliers, it expects the chip supply shortage in Q2 to be greater than the first quarter and resultantly “the wholesale volumes for the quarter are expected to be 50% than planned.”

Chip supplies are very dynamic and difficult to forecast, it said.

After the announcement, Tata Motors plunged 10% before erasing some of the losses on the Bombay Stock Exchange.

Thierry Bolloré, Jaguar Land Rover chief executive officer, said the present semiconductor supply issues represent a significant near-term challenge for the industry which will take time to work through. Still, he is encouraged by the strong demand JLR expects 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,” said Bolloré.

The company also guided for a negative margin for the quarter. At the end of July, JLR will report its interim unaudited results for the three months ended June 30, 2021.