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Back in 2008
Back in 2008
crores and vowed to turn it around. Although the first year was a bit topsy turvy
(considering the Global Financial Crisis), JLR soon started churning out big
profits thanks to Tata Motors’ intervention. And I know we could talk about
Nano or the company’s commercial vehicle segment before delving into this bit,
but it’s JLR that’s the primary revenue driver for the company. So it’s
imperative we take a closer look here if we want to isolate the real problem.
So what happened?
Brexit
opportunity. But geopolitical tensions can upend this equation rather quickly.
Consider what happened in 2016. Britain finally decided it wanted to part ways
with the European Union (EU). This meant the country had to rework its
relationship with other members of the Union —on matters of trade, tariffs, free
movement of people, all that stuff. For instance, back then, the EU
imported 50% of all its component from other countries in the Union. So
friction between the UK and the EU had to have material consequences for both
In fact, almost immediately after the first Brexit vote, the Pound fell by as much
as 10% against the Euro. At the time JLR owed money to many entities in the
European Union— payables for supplies and raw materials. However, as soon
as the Pound began to lose value, JLR had to cough up a premium (more
Sales were down. Demand was lackluster and the company’s prospects began
deteriorating rather quickly. But it didn’t stop at that. The problems just kept
piling on.
JLR sold diesel cars. In fact, 90% of all cars sold in the EU were diesel variants.
But after the Volkswagen emission scandal rocked the European Union,
diesel) by ramping up taxes. This meant, JLR had to switch things up rather
and made substantial investments in a bid to produce and promote more eco-
friendly variants. And while this move was critical to their long term vision, it
Elsewhere, JLR was having trouble with quality control. Consider China. For a
population that craved for expensive luxury vehicles, JLR was a godsend in
many ways. And in 2014, the company started local production through a joint
venture with Chery Automobiles. The idea was to modify the cars slightly to
pander to local tastes while simultaneously avoiding the 25% tariff on imported
vehicles.
The move did wonders. China sales surged from ~100,000 in 2015 to ~150,000
In 2017 alone, JLR carried out 13 recalls in China for defects with components
ranging from engines, instrument panels and airbags to batteries. The recalls
covered some 106,000 vehicles, which was equivalent to more than 70 % of its
And eventually, the carmaker lost its sheen. While once China contributed
almost a third of JLR's sales, today it’s contribution has reduced to a meager
10%.
And all of this culminated in wasteful investments that failed to translate into
That’s the company telling you these assets hold no real value and ought to be
written off as a loss. Meanwhile, the company’s debt burden was spiraling out
Economic woes affected domestic car sales. In fact, even the company’s
And although the management has been desperately trying to prune costs and
turn around the company, investors don’t seem very hopeful. The company’s
stock price has lost 75% of its value over the past 5 years and the future still
looks grim considering the UK government only recently refused to bail out
JLR.
However, that being said, it wouldn’t be prudent to write off Tata Motors just
yet. It’s an iconic brand. The company still has a strong product portfolio and
they are in fact implementing cost-cutting programs in a bid to reduce that debt
burden. And if Tata Motors does become debt-free within the next 3 years,