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auto | IST

Tata Motors flags concerns over chip shortage; share price plunges 10%

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Tata Motors shares saw a sharp fall on Tuesday after the company said that the chip shortage issue will result in 50% lower wholesale volumes than planned. The company has also said that there will be an operating cash outflow of 1 billion pounds with negative EBIT margin in the second-quarter earnings.

The share price of Tata Motors, the owner of luxury car brand Jaguar & Land Rover (JLR), plunged 10 percent on Tuesday after the company raised concerns over chip shortage and expected a cash outflow of about £1 billion in the quarter ended September 2021.
Tata Motors said JLR first-quarter retail sales were up 68.1 percent compared to the same period last year at 124,537 units, reflecting recovery in demand but wholesales were lower than demand due to semiconductor supply.
Based on this and broadly in line with expectations given the supply constraints, the company expects to report a cash outflow of about £1 billion with a negative EBIT margin for the September quarter.
“The chip shortage is presently very dynamic and difficult to forecast. Based on recent input from suppliers, we now expect chip supply shortages in the second quarter ended 30 September 2021 to be greater than in the first quarter, potentially resulting in wholesale volumes about 50 percent lower than planned, although we are continuing to work to mitigate this,” Tata Motors said.
The company expects the situation to start improving in the second half of the financial year.
However, the broader underlying structural capacity issues will only be resolved as supplier investment in new capacities comes online over the next 12-18 months and so we expect some level of shortages will continue through to the end of the year and beyond,” it added.
“The present semiconductor supply issues represent a significant near-term challenge for the industry which will take time to work through but we are encouraged by the strong demand we see for when supply recovers. We are taking strong steps to ensure the security of our supply chain for the future, working with our suppliers and chip manufacturers directly to increase the visibility and control over the chip supply for our vehicles,” said Thierry Bolloré, Jaguar Land Rover Chief Executive Officer.
While the present supply constraints continue, the company will continue to 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.
“We expect an operating cash outflow of about £1 billion with a negative EBIT margin in the second quarter and a substantial improvement in underlying operating cash flow in the second half of the financial year as chip supply improves,” the company said.
Further, the company added that it continued to see strong demand for its products when the semiconductor supply ultimately improves.