Is it too late for Tata Motors
Maybe not: Tata announced on Wednesday that its Jaguar Land Rover division had agreed to form a joint venture with Chinese automaker Chery Automobile to manufacture its luxury cars and SUVs in eastern China.
If it's successful, this deal will be huge for Tata. British-based Jaguar Land Rover, which Tata bought from Ford
But that's a big "if." Tata is already late to this party -- and it's still possible that it won't get to arrive at all.
A late entry to an already-crowded -- but white-hot -- market segment
While Jaguar and Land Rover are long-established global luxury brands with immense cachet, they are relative newcomers to a Chinese luxury auto market that has already formed distinct brand preferences. That doesn't mean they can't get established -- indeed, their chances of carving out a profitable niche are probably pretty good -- but it does mean that it won't be as simple as showing up and selling cars.
Growth of the overall auto market in China has stagnated in recent months, but luxury cars -- at least, the favored German brands -- remain white-hot. After soberly predicting 8% growth for its Audi brand in China in 2012, Volkswagen (OTC: VLKAY.PK) was delighted to report that sales were up over 42% through the first two months of this year. Daimler's (OTC: DDAIF) Mercedes-Benz has been hot as well, with sales of its cars up nearly 28% through the end of February, even as the overall auto market fell 4.4%.
But not all luxury brands have found that kind of traction in the fickle Chinese luxury market. Buick and Chevy are regulars at the top of China's mass-market sales charts. General Motors
GM is revamping Cadillac's product portfolio, and new models are expected to help its position in China within a few years, but its struggles so far highlight challenges facing any new auto brand in the Middle Kingdom -- challenges that Jaguar and Land Rover will have to fight to overcome in an increasingly crowded market.
Of course, that's assuming that this new joint venture manages to get off the ground at all.
It's suddenly a lot harder to build car factories in China
Foreign automakers that want to build and sell cars in China have always faced a lot of hurdles, but recently, one of those hurdles has been raised considerably. China's government has recently been concerned about overcapacity -- put simply, having more auto factories than their country's market can profitably support. Worse, from the Chinese perspective, is that foreign automakers like GM have been gaining market share as domestic firms' sales decline, even as the overall market has stalled.
For years, hoping to lure foreign investment and know-how, the government offered incentives to foreign automakers willing to meet its (extensive) requirements. But the incentives program was discontinued at the end of January, and the government signaled that future joint-venture applications would face stiff review, rather than favorable treatment.
The new venture announced by Tata and Chery will be an early test of China's toughened approach, and that makes it all but impossible for an outsider to predict its chances of successfully acquiring the necessary approvals to proceed. While a Ford request to restructure an existing joint venture has stalled under the government's new approach, the Jaguar proposal could find itself treated quite differently (or not).
Should it be approved, the partners will begin building a factory, a new technical center, and an engine plant. The effort could take a year or more to complete before production starts.
Will it succeed? It's hard to say at this point, but if it does, it could be a huge boon for Tata. Stay tuned.
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