Why are Tata Motors shares falling?

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The company has warned that due to a semiconductor shortage, Jaguar Land Rover (JLR) could report 50% lower wholesale volumes with a negative EBIT margin (earnings before interest and taxes) by the end of the quarter in September 2021.

In a listing on the stock exchange, Tata Motors said the chip shortage is very dynamic and difficult to predict with a view to the future.

“Based on the latest input from suppliers, we now expect the chip supply bottlenecks in the September quarter of 2021 to be greater than in the first quarter, potentially resulting in about 50% lower wholesale volumes than planned, although we continue to work on to mitigate this, ”it added.

The more general underlying structural capacity issues will not be resolved until the supplier investment in new capacity goes online in the next 12 to 18 months.

The company assumes that there will be bottlenecks by the end of the year.

How does this affect the company?

In contrast to JLR, the production of Tata Motors on an independent level has not yet been affected due to the shortage of chips. But the company’s car division generates tiny revenues compared to JLR, which operates in the US, UK, Europe, China and other international markets.

More than 80% of Tata Motors’ sales come from JLR.

Why is there a shortage of semiconductor chips?

The shortage is largely due to significant fluctuations in demand due to the pandemic and the increased use of semiconductors in modern vehicles.

It will take time to restore market equilibrium because semiconductor manufacturing is not suited to rapid and large shifts in demand.

The manufacture of a semiconductor is one of the most complex manufacturing processes. Lead times of up to 26 weeks are common in the industry to produce a finished chip.

The lack of these chips has cut auto industry sales by $ 110 billion. It has also forced automakers to revise the way they get the electronic components that are critical to modern vehicle design.

Equitymasters take on Tata Motors

Co-Head of Research at Equitymaster, Rahul Shah, said, “Lately I’ve seen a noticeable change in the way car enthusiasts think of domestic brands, especially those that wear the Tata badge. They believe that Tata Motors has definitely gained. ” his game when it comes to cars that offer a much better slap for the back in terms of safety, reliability and style. So much so that they even convinced some in the group to choose a “Tata” next. Well, Tata Motors is not only a hot commodity in these chat rooms. It also set the Indian stock market on fire with its stellar run over the past year or so. However, there isn’t a strong link between the company’s company jump share price and its vastly improved vehicle range should be treated with caution. The company’s auto division makes a small contribution to total assets. What really moves the company in terms of its fundamentals is its overseas subsidiary of Jaguar Land Rover and its commercial vehicles division. Therefore, investors should closely monitor these businesses if they need to seek out the company as an investment candidate. “

You can read Rahul’s entire article on the matter here: Is Tata Motors Stock Running Out of Juice?

This is how the stock is doing today

Tata Motors shares opened lower at Rs316 on both the BSE and NSE today and fell nearly 3% in intraday trading.

The company’s shares fell for the second straight day today. The stock had hit a lower price yesterday when the stock fell 10% to Rs316 apiece.

However, the stock has zoomed over 190% in the 12 months.

Investors saw the benefit of a macro rebound and significant improvement in both Jaguar Land Rover (JLR) and the company’s Indian operations.

The scrip hit its 52-week high of 360.7 on June 15, 2021. It had hit its 52-week low of 100.6 on July 16, 2020.

Show full picture

Tata Motors share performance.

About Tata Motors

Tata Motors is a leading global manufacturer of automobiles, commercial vehicles, buses, trucks and defense vehicles.

As India’s largest automotive company and part of the $ 113 billion Tata Sons. Tata Motors has offices in the UK, South Korea, Thailand, South Africa and Indonesia through a strong global network of 76 subsidiaries and affiliates, including Jaguar Land Rover in the UK and Tata Daewoo in South Korea.

At home, Tata Motors is the market leader in commercial vehicles and, with 9 million vehicles on Indian roads, is one of the top car manufacturers.

For more information on the company, see the Tata Motors factsheet and Tata Motors quarterly results.

(This article is syndicated by Equitymaster.com)

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