In his first message to Tata Motors shareholders in June, 2021, Thierry Bollore made the promise to make group company Jaguar Land Rover (JLR) “one of the world’s most profitable luxury carmakers.” He also noted that the British luxury brand planned to focus on value creation through a profit-over-volume approach.
The ‘Reimagine strategy’ was supposed to provide a clear view and a future of modern luxury by design. “Reimagine allows us to confidently transform the business and its distinct brands, to over-satisfy our customers and reward both our investors and our people,” Bollore had said.
He had also promised investors of delivering a double-digit earnings before interest and tax (Ebit) margin and make the company net zero carbon by 2039.
But there was a minor hitch – a global shortage of semiconductors. And that roadblock became a serious problem that continued to plague the former CEO of Groupe Renault during his entire two-year tenure. In FY22, it lost a minimum of 150,000 units due to the chip shortage. And given the fact it produced 294,000 units in FY22, it was a production loss of 50%. More importantly, given the average selling price of a JLR product is $700,000, it is a massive loss.
Interestingly, Bollore’s appointment as CEO of JLR happened after a six-month-long head-hunting exercise by Tata Motors, which happened after the announcement of Ralph Speth’s retirement. Before that Bolloré was ousted from Renault and was known to be close to former-CEO-turned-fugitive Carlos Ghosn.
When he took over the reins as the fourth CEO (after David Smith, Carl-Peter Forster and Ralf Speth) since Tata Motors’ acquisition of the iconic brand in 2008, JLR had recorded a £469 million net loss in FY20, which was preceded by a massive £3.32 billion net loss in FY19. Its retail sales had fallen significantly – by 12% year-on-year to 508, 659 vehicles in FY20. Worse still, the company’s China joint venture (CJLR) had recorded its first loss in five years in FY20.
In the last two years, due to Covid restrictions and semi-conductor problems, the problems for JLR have only multiplied. In fact a report by Nuvama Equities noted that for JLR, the last three quarters have been precarious due to semiconductor uncertainty, model changeovers of Range Rover (RR) and Range Rover Sports (RRS), and ongoing China lockdown.
While Tata Motors stock is up 200% since September 2020 vis-a-vis Nifty’s 60% rise, it is largely because of its domestic operations.
After Tata Motors’ Q2FY23 results, Nuvama Equities said: “We believe JLR’s H1 performance is a classic case of a storm delaying the product cycle story to FY24E. Hence, we are lowering consolidated FY23E/FY24E Ebitda by 11%/7% (due to JLR, which is ~75% of consolidated Ebitda).”
The report also noted that JLR’s reported Ebitda of £541million, missed their estimate by 14% – a second quarter of sharp miss despite in-line revenue. “The challenges of slower ramp-up (that began in Q4FY22) of RR and RRS persisted due to chips shortage. While management has taken steps, its impact will be visible only Q4 onwards,” added Nuvama.
However, ICICI Securities believes that the outlook of JLR is improving because RR and RRS refresh production picked up to 2,400 units a week versus 6,000 units wholesale in Q1FY23, and thus, the mix is set to improve further from Q3FY23 with new chip supply agreement coming in place. “Thus, with most headwinds for JLR on the verge of being resolved, we believe JLR is likely to revert towards 12% margin levels,” it said. Other analysts have been harsher with some like Jinesh Gandhi from Motilal even expecting Tata Motors to make a loss this fiscal.
Interestingly, speaking to analysts in a post-earnings call, Bollore said that the company recently signed new agreements for chip procurement. There has been positive news on chip availability too, though he also cautioned that the shortages will not ease anytime soon.
When things might be just be looking up, he has chosen to resign.