Jaguar Land Rover, the luxury automotive brands controlled by Tata Motors, expects the shortages in semiconductor supply to continue for several years creating uncertainty in production-related linkages despite mitigating steps taken internally by the two British brands.
Collectively, in the first half of this financial year, both the brands failed to surpass total wholesales of the same period last year. JLR’s wholesales during H1FY23 stood at 147,122 units, down nearly 1% compared to 148,474 sold in the same period last year.
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Speaking to analysts in a post earnings call, Thierry Bollore, chief executive officer, Jaguar Land Rover said that the company recently signed new agreements for chip procurement. There has been positive news on chip availability too, but he also cautioned that the shortages will not ease anytime soon.
“We should also not forget that the chip supply crisis is going to continue. I gather from my discussions with all the CEOs of the industry, that this problem is going to continue in the coming years and it is not a matter of months or quarters. It will be years before the situation comes back to normal,” Bollore said.
JLR is engaging directly with the chip suppliers and entering into partnership agreements to improve visibility of supply in the near term and support future product programmes. Agreements have been signed with several of the most critical chip suppliers and further agreements are in progress.
“We have almost finalised our long-term supply agreements on chips. But it is very clear that if you miss one, it’s enough to create a problem that we had in September. The last such agreement we signed will become effective by CY2023 which means that we are seeing very positive signs but the full effect of these agreements will be seen gradually with the global supply base and our Tier 1,” Bollore added.
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One of JLR’s suppliers could not meet production commitments leading to a lower than expected improvement in volumes during September. It had to resort to further prioritisation of production to the highest margin products such as the Range Rover and Range Rover Sport.
JLR is targeting a 9% increase in volumes in the second half of the year (H2FY23) to 160,000 units to meet its claimed order bank of 205,000 units.
Adrian Mardell, Chief Financial Officer, Jaguar Land Rover said, “We are more certain of supply from January than we were in October. We have guided for 160,000 units (production) in the second half. Our (model) mix will improve. Total units in Q3 will be modestly better but the ASP and average revenue per unit will increase a lot.”
“Range Rover and Range Rover Sport refresh production picked up to 2400 units a week as against 6000 units wholesale in Q1FY23, and thus, the mix is set to improve further from Q3FY23 with a new chip supply agreement coming in place. We believe JLR is likely to revert towards 12% margin levels,” said an ICICI Securities report.
