Tata Motors posts surprise loss on China slump, explosion costs
A slump in China sales at Jaguar Land Rover amid a market slowdown and a one-time expense contributed to its Indian parent Tata Motors posting an unexpected loss.
Jaguar Land Rover suffered a $139 million loss. Tata Motors took a one-time charge of $375 million on damages to the vehicles of its luxury unit from a blast at Tianjin port where they were stored.
Jaguar Land Rover retail sales plunged 32 percent in China and Tata Motors took an exceptional charge for about 5,800 vehicles involved in the Tianjin port explosion in August. To spur demand in China, the luxury unit will introduce new models such as the new Jaguar XF, and locally produce the Range Rover Evoque and Land Rover Discovery Sport.
"Overall the stark compression in margins at JLR spooked us as well as the street," Nitesh Sharma, an analyst at PhillipCapital (India) Pvt., wrote in a note Friday. "We await clarity from the management about any one-time costs and new launch expenses during the quarter. Outlook on margins to be very critical for us to form a concrete view on the stock."
Tata Motors sees a higher impact on margins with "many" new introductions by the luxury unit over the next two years, Group CFO C. Ramakrishnan said in Mumbai. The company said it will start selling a new version of the Jaguar XJ sedan in the current quarter.
Jaguar, long synonymous with sleek race cars and sedans, is joining the fastest-growing passenger car segment with its first crossover, the F-Pace, next year and will compete with Audi's Q5 and BMW's X models. F-Pace is part of a Jaguar strategy to broaden a product lineup that began with the midrange XE sedan, its cheapest model and a competitor for the BMW 3 series.
Soft demand in China for luxury vehicles has prompted some carmakers to temper expectations. Mercedes-Benz, which posted a 31 percent jump in China deliveries in the year through September, says it now expects demand there to rise only slightly. For the first nine months, BMW AG posted a 2 percent sales gain, while Audi AG reported nearly level sales.
'Room to grow'
"The China market is growing again and given that we're selling fewer vehicles in China than in the U.K., I think we have plenty of room to grow," Jaguar Land Rover CEO Ralf Speth said Friday in Mumbai. "The Discovery Sport began local production today. So I'm optimistic that China's economy will begin growing again and car manufacturers will see growth."
Industrywide passenger vehicle sales in China increased at the fastest pace in seven months in October after the government cut a tax on some car purchases to boost sagging demand.
"Looking ahead we expect Chinese Range Rover and Range Rover Sport volumes to decline, and expect further moderation in pricing. But we do not expect a collapse," wrote Sanford Bernstein analysts Robin Zhu, Max Warburton and Yang Liu in a note to clients. "We are convinced that JLR is beginning to move past its problems of the past year" in China.