Tata Motors’ JLR Expects Chip Shortage To Worsen In Q2; Shares Fall

Jaguar Land Rover expects chip shortages in the quarter ending September to be greater than in the preceding three months, hurting sales, just when demand for Tata Motors Ltd.'s luxury cars started improving in key markets.

Chip shortage is very dynamic and difficult to forecast, Tata Motors said in an exchange filing. That, it said, would result in wholesale volumes about 50% lower than planned in the second quarter. “Some level of shortages will continue through to the end of the year and beyond.”

“While the present supply constraints continue, the company will prioritise production of higher margin vehicles for the chip supply available as well as make chip and product specification changes where possible to reduce the impact,” the filing said.

“We are continuing to work to mitigate this. We expect the situation will start to improve in the second half of our financial year,” it said. The broader underlying structural capacity issues, however, will only be resolved as supplier investment in new capacities comes online over the next 12-18 months.

JLR, which reported wholesales of 84,442 units in the first quarter, expects an operating cash outflow of about £1 billion with a negative EBIT margin in the second quarter. The company, however, sees a substantial improvement in underlying operating cash flow in the second half of the financial year as chip supply improves.

The shortage of chips, the brains of electronic components, began in December last year as sale of laptops and mobile phones to televisions surged with people working remotely during the pandemic. Bosch Ltd., a key supplier of chips to automakers, said it faced escalated demand from the consumer electronics industry, worsening the shortage.

Lack of semiconductors hurt Indian automakers' ability to keep up with the demand for personal mobility arising from fears of contracting the virus, derailing a recovery after an unprecedented disruption caused by the pandemic.

Automakers such as Nissan Motor Co, Hyundai Motor Co., and Volkswagen AG, too, have indicated that shrinking inventory due to chip shortages is squeezing sales this summer. Back home, sports utility vehicle maker, Mahindra & Mahindra Ltd., highlighted prolonged supply chain issues arising from lack of semiconductors.

Shares of Tata Motors fell as much as 10% to Rs 311 apiece, its biggest intraday fall since April 12.