Tata Motors warns of uncertain times; gets downgraded by Moody’s

Brexit is costing Tata Motors dear, with the company Chairman warning of uncertain times in some of the company’s major markets.

“The global automobile industry is undergoing a structural shift due to technology-led business and market disruption, evolving consumer preferences, market cyclicality, regulatory overhauls and geopolitical uncertainty,” said N Chandrasekaran, Non-Executive Chairman at Tata Motors, in a letter to shareholders in the company’s annual report.

The ACES (Autonomous, Connected, Electric, Shared) phenomenon is likely to transform mobility and influence consumer preferences going forward, he pointed out.

He added that some of the key operating markets for the group are faced with “diverse market dynamics requiring specific interventions to ensure sustainable profitable growth”.

“North America is nearing the peak of the demand cycle and growth is likely to remain muted in the near term. While regulatory restrictions on diesel, market cyclicality, Brexit and taxation in UK pose specific challenges in Europe and the UK, the key Asian markets of China and India offer high growth opportunities led by GDP growth, strong domestic consumption and favourable demographic support,” he said.

While the domestic market has been performing well for Tata Motors, JLR, that contributes to a lion’s share of the company’s overall revenues, has been under tremendous cost pressures due to increased taxes in the UK.

In the March quarter, while JLR reported 4 per cent rise in net revenue at £7,555 million, its PBT fell 46 per cent to £364 million.

“Jaguar Land Rover continues its investment for growth, launched exciting new products and landmark partnerships during the year. The company also announced its electrification roadmap to address diesel challenges. The company will focus on optimisation, drive operating leverage and manage capital spends prudently to offset the impact of headwinds facing the business,” Chandra said.

Recently, Ralf Speth, CEO of JLR, told a financial daily in the US that a “bad Brexit deal” would cost the company over £1.2 billion in profit each year.

In his note in the annual report, Seth said, “While we respect the democratic decision of the UK people, JLR is seeking clarification and certainty on the terms of Britain’s withdrawal from the European Union. It is of paramount importance that as many benefits as possible are preserved. Demand has been undermined in Europe by consumer uncertainty over diesel, particularly in the UK where diesel cars face unfair tax treatment.”

The challenges at JLR have also led to a downgrade for Tata Motors by global ratings agency Moody’s.

“The downgrade to Ba2 reflects our expectation of continued weakness in TML's consolidated credit metrics over the next two years, led by its wholly-owned subsidiary Jaguar Land Rover Automotive Plc (JLR, Ba2 stable),” said Kaustubh Chaubal, a Moody's Vice-President and Senior Credit Officer.