Yet another automaker stock has fallen prey to the global chip shortage. Shares of Tata Motors (TTM) are tanking today and were down 11% as of 12:25 p.m. EDT. India's automotive bellwether was within an arm's reach of its 52-week high on India's National Stock Exchange (NSE) when an announcement from subsidiary Jaguar Land Rover (JLR) this morning sent the stock down 8.5% by NSE's close.
Ironically, Tata Motors just announced plans to hike prices of passenger cars for the second time in less than two months, but that isn't enough to offset the big hit JLR is about to take.
First things first: JLR brought in almost 78% of Tata Motors' total revenue in fiscal year 2021, so any adverse development at the British subsidiary is bound to hit the parent company hard.
This morning, JLR announced it expects to report a negative earnings before interest and taxes (EBIT) margin and a cash outflow of 1 billion pounds for the quarter ended June 30 despite a 68% jump in retail sales. The global semiconductor-chip shortage that has brought the global automotive sector to a grinding halt is to blame.
Worse yet, JLR expects chip-supply constraints to worsen in the second quarter ending September, hit its wholesale volumes by 50%, drive the EBIT margin to the negative territory, and trigger yet another 1 billion pound of cash outflow.
Tata Motors downplayed chip concerns during its Q4 quarterly earnings-call conference in May when management said, while it expected supply to worsen in Q1, it saw things improving in the second quarter. Not surprisingly, investors didn't read much into the chip shortage and flocked to buy shares of Tata Motors, which had rallied 19% since May before crashing today.
Although JLR expects the situation to improve in the second half of its financial year, investors might want to take that with a grain of salt, what with leading chip makers warning the global chip shortage could take years to address and with even non-tech stocks feeling the heat now.