Back in 2008, Tata Motors made a bold acquisition.

It bought the struggling UK

luxury car-maker, Jaguar Land Rover (JLR) by shelling out close to ₹10,000

crores and vowed to turn it around. Although the first year was a bit topsy turvy

(considering the Global Financial Crisis), JLR soon started churning out big

profits thanks to Tata Motors’ intervention. And I know we could talk about

Nano or the company’s commercial vehicle segment before delving into this bit,

but it’s JLR that’s the primary revenue driver for the company. So it’s

imperative we take a closer look here if we want to isolate the real problem.
So what happened?

Well, for starters …

Brexit

Marketing your vehicle in a foreign nation might sound like a lucrative

opportunity. But geopolitical tensions can upend this equation rather quickly.

Consider what happened in 2016. Britain finally decided it wanted to part ways

with the European Union (EU). This meant the country had to rework its

relationship with other members of the Union —on matters of trade, tariffs, free

movement of people, all that stuff. For instance, back then, the EU

contributed 21% of all sales accruing to JLR. The company, meanwhile,

imported 50% of all its component from other countries in the Union. So

friction between the UK and the EU had to have material consequences for both

Tata Motors and JLR.

In fact, almost immediately after the first Brexit vote, the Pound fell by as much

as 10% against the Euro. At the time JLR owed money to many entities in the

European Union— payables for supplies and raw materials. However, as soon

as the Pound began to lose value, JLR had to cough up a premium (more

Pounds). In fact, they had to take a hit of ~ ₹2,300 crores on account of

currency fluctuations alone. That’s quite steep!!

Also, uncertainties surrounding Brexit began affecting the UK economy as well.

Sales were down. Demand was lackluster and the company’s prospects began

deteriorating rather quickly. But it didn’t stop at that. The problems just kept

piling on.

A Switch to Eco-Friendly alternatives

JLR sold diesel cars. In fact, 90% of all cars sold in the EU were diesel variants.

But after the Volkswagen emission scandal rocked the European Union,

governments began to disincentivize the use of highly polluting fuels (including

diesel) by ramping up taxes. This meant, JLR had to switch things up rather

quickly. They began destocking diesel vehicles by offering massive discounts

and made substantial investments in a bid to produce and promote more eco-

friendly variants. And while this move was critical to their long term vision, it

did weigh heavily on the company’s bottom line.

Elsewhere, JLR was having trouble with quality control. Consider China. For a

population that craved for expensive luxury vehicles, JLR was a godsend in

many ways. And in 2014, the company started local production through a joint

venture with Chery Automobiles. The idea was to modify the cars slightly to

pander to local tastes while simultaneously avoiding the 25% tariff on imported

vehicles.
The move did wonders. China sales surged from ~100,000 in 2015 to ~150,000

in 2017. But with increasing volumes, customer complaints became more

frequent. Product quality was a constant source of concern.

As one article in Automotive News notes —

In 2017 alone, JLR carried out 13 recalls in China for defects with components

ranging from engines, instrument panels and airbags to batteries. The recalls

covered some 106,000 vehicles, which was equivalent to more than 70 % of its

local sales during the year.

And eventually, the carmaker lost its sheen. While once China contributed

almost a third of JLR's sales, today it’s contribution has reduced to a meager

10%.

And all of this culminated in wasteful investments that failed to translate into

meaningful opportunities. In 2018, JLR wrote off ₹27,000 crores in assets.

That’s the company telling you these assets hold no real value and ought to be

written off as a loss. Meanwhile, the company’s debt burden was spiraling out

of control — from ~₹33,000 crores in FY11 to ₹1.2 lakh crore in FY20.

And its prospects back home weren’t all too enticing either. Regulatory

interventions affected sales of commercial vehicles — trucks, tempos etc.

Economic woes affected domestic car sales. In fact, even the company’s

chairman, N Chandrasekaran admitted in 2017, that Tata Motors was losing

money on every car sold in India.

And although the management has been desperately trying to prune costs and

turn around the company, investors don’t seem very hopeful. The company’s

stock price has lost 75% of its value over the past 5 years and the future still
looks grim considering the UK government only recently refused to bail out

JLR.

However, that being said, it wouldn’t be prudent to write off Tata Motors just

yet. It’s an iconic brand. The company still has a strong product portfolio and

they are in fact implementing cost-cutting programs in a bid to reduce that debt

burden. And if Tata Motors does become debt-free within the next 3 years,

maybe we’ll see another spectacular turnaround.