Tata Motors susceptible to supply chain shocks in FY23

Tata Motors said the non-unavailability of supply of critical parts may force the company to stop production in some or all of its global plants and that this will have a significantly negative impact on its future cash flows. These comments were made by Tata Group Chairman N Chandrasekaran in the company’s annual report released Thursday.

The report also said that ongoing supply challenges have  been compounded by the war in Ukraine and China covid lockdowns,  and that these two factors would impact sales estimates for FY 23. The semiconductor shortage is expected to  continue to create problems through the next fiscal year. Tata registered a record 67 percent increase in FY22 sales to 372,000 units.

“We continue to engage with Tier 1 and chip manufacturers to increase supplies and mitigate other supply chain disruptions. Further, inflation represents an increasing headwind for the business and we expect our refocus actions to help mitigate this in the coming year,” Chandrasekaran stated.

While  pandemic continues to create an uncertain environment that will affect future variants and long-term sustainability, the  semiconductor shortage continues to cause problems as producers shift semiconductor capacity to consumer durable goods from the automotive sector. “While the supply of semiconductors remains constrained,  we may be more susceptible to supply-driven shocks in the future” the report has added.  

China lockdown

On the impact of China's lockdowns, the annual report said the company has had to deal with dealership closures possibly resulting in negative EBIT and negative free cash flows in Q1 of FY 2022-23 for  Jaguar Land Rover while domestic business is also likely to witness a negative impact on financial performance.

On  the  Russian- Ukraine conflict, Tata Motors said the war, now in its fourth month, has had an impact on  that some parts of the auto supply chain sourced from Russia and Ukraine, including neon gas from Ukraine and palladium from Russia. “Should the conflict lead to shortages of these or any other commodities, we may face challenges within our supply chain in sourcing parts or face significant price increases in the future,” the report said.

JLR

As part of accelerating the JLR operations worldwide, the company under its Reimagine strategy, hopes to deliver double-digit EBIT margins within five years with 60 percent of the global Land Rover sales to be purely-electric by 2030 and first of the full BEV options to be available on the market by 2024. For JLR, battery-operated vehicles (“BEV”), rose from 51 percent in fiscal 2020-21 to 66 percent in FY 2021-22.

During the fiscal 2021-22, Jaguar Land Rover has continued to roll out electrification technology across its model range which includes mild hybrid, plug-in hybrid and battery electric vehicles. The company also  launched the New Range Rover followed by the New Range Rover Sport, both of which have extended range plug-in hybrid options. The New Range Rover has, for the first time, introduced plug-in hybrid electric propulsion with a segment-leading official electric-only range of over 100km, the report said.

As part of its electrification drive, the first Land Rover BEV is expected to debut in 2024 followed by another five models offering BEV options by 2026, the annual report stated. The report also confirmed JLR’s new partnership with NVIDIA, a global leader in artificial intelligence computing, connected car services, and automated and autonomous driving systems.

“Together, this partnership can accelerate in-vehicle software strategy, delivering modern luxury experiences and enabling a true leapfrog in automotive technology,” the report stated.

Tata Motors also confirmed that TMPVL (Tata Motors Passenger Vehicles Limited)   and JLRIL (Jaguar  Land Rover India Ltd propose to enter into related-party transactions during FY 2022-23, for an aggregate value not exceeding`1,500 crore for Sale of goods (mainly JLRCars). The report also threw light that TMPVL and JLR UK have plans for RPTs in the current fiscal for an aggregate value not exceeding `1,100crore.

As part of its India investments and to create landmarks in green manufacturing,  Tata Motors said India’s largest solar carport , 6.2 MW plant at the Chikhali car facility near Pune that will  cover 30,000 square meters to generate green power, but will also provide covered parking for finished cars in the plant.

JLR's revenue fell 7 per cent to £18.3 billion in FY22 whilst EBIT margins fell to negative 0.4  per cent, with lower volumes impacting working capital in the first half of the financial year resulting in a free cash outflow of £1.2 billion. Retail sales declined 14 percent.