Tata Motors' Luxurious New Venture

Is India's Tata Motors (NYSE: TTM  ) about to crash the China party?

It looks that way. Last week, the Chinese government gave Tata and its joint-venture partner, Chinese automaker Chery Automobile, the thumbs-up to start building cars in China.

That may not seem like a big deal at first glance. Nearly all of the world's major automakers have set up shop in the Middle Kingdom in recent years, as China has grown into the world's largest automotive market.

But Tata, best-known around the world for its super-cheap little Nano car, has decidedly bigger -- and more upscale -- aspirations in China.

Going where the Chinese growth is
Those upscale aspirations center on Jaguar Land Rover PLC, the British luxury automaker that Tata bought from Ford (NYSE: F  ) in 2008. The Jaguar and Land Rover brands are the keys to Tata's new joint venture with Chery, which is planning a factory near Shanghai with a capacity of 130,000 vehicles a year.

That factory could end up running at full speed. China's auto market has cooled considerably from the 50%-plus growth rates it regularly posted just a couple of years ago. But one part of the market is still putting up big numbers: Luxury cars.

China's increasingly large population of wealthy folks love Western luxury cars and SUVs. The hot brand of the moment is Audi, whose designs have caught on in a big way with the Chinese hoi polloi. That has translated into big profits: Audi accounted for a whopping 46% of parent Volkswagen's (NASDAQOTH: VLKAY.PK) hefty $3.98 billion operating profit last quarter, thanks in part to the brand's fat 11.6% margin. A big piece of that came from China, and that has VW's rivals paying very close attention.

Some of those rivals already have a substantial Chinese luxury market presence, like Audi's big global rivals Mercedes-Benz, BMW (NASDAQOTH: BAMXF.PK), and Toyota's (NYSE: TM  ) Lexus brand. Others are gearing up for one: General Motors' (NYSE: GM  ) coming overhaul of its Cadillac brand has a lot to do with China, as does Ford's (NYSE: F  ) plan to remake Lincoln.

And soon, they'll be joined by Jaguar and Land Rover, two brands that bring big global cachet.

A big piece of Tata's business, but questions linger
The new joint venture will be headquartered in Changshu, near Shanghai. It will be opened in phases: Land Rover SUVs will be produced initially, and Jaguar cars later on.

As I said above, the factory will have an annual capacity of 130,000 vehicles once it's completed. That's a lot -- the new factory will increase Jaguar Land Rover's total global production capacity by a third. For context, Jaguar and Land Rover together have sold about 36,000 vehicles here in the U.S. this year through August -- and that represents a substantial increase over 2011.

Jaguar Land Rover has been the surprising factor powering Tata's profits in recent quarters, posting big growth numbers in markets around the world. This new venture in China should add substantially to the total in time. But, some analysts have expressed concern that Jaguar's cars are gorgeous, but they're starting to age -- and they were largely developed under Ford's stewardship.

Tata has promised to invest $12 billion in Jaguar Land Rover over the next five years, in part for a series of new and updated models. But, without access to Ford's global engineering resources, which were instrumental in developing the last generation of Jaguars and Land Rovers, how good will they be?

That's very much an open question.­ For the sake of Tata's latest venture, they'd best be very good.

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Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of General Motors, Ford, and BMW. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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