Virus sends Jaguar Land Rover China sales plunging | Automotive Industry News

Shanghai-based JLR China & Chery Jaguar Land Rover staff had been working from home since the end of the lunar holiday and the offices and JV plant reopened in the week of 24 February

Shanghai-based JLR China & Chery Jaguar Land Rover staff had been working from home since the end of the lunar holiday and the offices and JV plant reopened in the week of 24 February

Tata Motors said its Jaguar Land Rover sales in China plunged 85% year on year in February.

“The coronavirus has significantly impacted China sales,” it said in a statement on Friday (6 March).

“In the first half of the month about 20% of dealers were open which has since improved to now over 80% although most are still operating with reduced staffing and facilities.”

Improvement was expected during the rest of March but “retail sales are expected to recover more gradually”.

“The spread of the virus to other markets such as South Korea, Japan, and Italy will also impact sales in those markets.”

Tata noted Chinese JLR sales had grown “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”.

Then coronavirus hit.

“Suppliers in China are resuming operations but remain below full capacity,” Tata added.

The automaker added the transition from BSIV (emission rules) was almost complete in India.

“However, materials management to support the ramp up of BSVI has become a daily affair and we are seeing improved availability position as vendors come on stream in China.

“With some flexibility in mix (models, trim levels) current [forecast] protects production volumes up to mid-March.”

Further out, there were “some uncertainties which are expected to be mitigated to a large extent” but this could lead to “limited volume losses in Q4”.

Tata expects to recover those losses as “market demand is likely to improve gradually upon transition to BSVI”.

It added the timeline for a complete rebalancing of supply and demand was dependent on the further developments in the coming four to six weeks.

“Domestic business is positive to overcome the current challenge with a limited impact on its overall FY21 performance.”

The automaker noted Jaguar Land Rover’s supply chain was based primarily in Europe and the UK with a relatively small percentage of parts direct from China.

Over 95% of its Tier 1 and Tier 2 suppliers in China were now open but at reduced capacity while JLR is talking with suppliers on the status of their sub-tier vendors in China.

Jaguar Land Rover “has visibility of availability” of most parts out two weeks or more and has managed to avoid potential parts shortages by working closely with suppliers and by “some” increased air freight.

“In the event of specific parts shortages, Jaguar Land Rover would ordinarily be able to still build cars and retrofit missing parts when available, however, we cannot rule out the risk that a shortage of a critical component could impact production at some point,” Tata said.

“The spread of the virus to South Korea, Japan, and northern Italy is creating similar issues which we are managing in the same way.”

Financial Impact:

Subject to change, of course, it estimated the reduction in China sales resulting from the coronavirus would reduce JLR’s full year EBIT margin by about 1%, however, free cash flow in Q4 was still expected to be modestly positive as JLR had GBP5.8bn total liquidity at the end of December 2019 (GBP3.9bn in cash and an undrawn GBP1.9bn revolving credit facility).

For Tata Indian business, Q4 performance was already expected to be significantly affected by the switch from BSIV to BSVI emission rules and the shortage of parts is likely to have some additional effect on specific BSVI models but that should be sorted out in coming months.

“Tata Motors expects to end the quarter with positive free cash flow,” it said.

Shanghai-based JLR China & Chery Jaguar Land Rover staff had been working from home since the end of the lunar holiday and the offices and JV plant reopened in the week of 24 February.

 Production would be ramped up as both the number of employees returning to work and demand increase.