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Tata Motors' Jaguar Land Rover to invest $18 billion in three years

Company plans to introduce several new vehicles including electric cars

A man walks past a billboard advertising Jaguar
Jaguar Land Roveraccounts for more than half of Tata Motors' revenue and nearly 90% of its operating profit.    © Reuters

MUMBAI (NewsRise) -- Tata Motors' Jaguar Land Rover unit plans to invest 13.5 billion pounds ($18 billion) over the next three years, as the British luxury automaker seeks to launch several new products including electric vehicles to shore up its flagging sales.

JLR will invest 4.5 billion pounds annually over the next three years in new products and technologies, and thereafter moderate the spending to up to 13% of sales, the company said in an investor presentation to analysts on Friday.

The new plan comes as Britain's largest car maker grapples with subdued sales due to weaker demand in some of its largest western markets. The challenges forced the company to desert its ambitious goal of making 1 million cars a year by the end of this decade and shift focus instead to bulking up profit margins that have been shrinking.

"In the past three years, we have had slower volume growth and experienced lower profitability," JLR said. "Volume growth plans (have been) moderated to reflect revised market conditions."

The subdued outlook reflects the economic headwinds in the U.K., which is in the process of exiting the European Union, as well as the sluggish demand for diesel vehicles that are facing higher taxes and a regulatory crackdown, it added.

Further, the automaker is also facing increased competition from larger rivals Daimler, BMW, and Volkswagen's Audi.

Meanwhile, a looming trade war between the U.S. and Europe cast a pall over JLR's already fading prospects in some of western markets. On Friday, the U.S. President Donald Trump threated to escalate a trade war with Europe by imposing a 20% tariff on all U.S. imports of EU-assembled cars.

Trump's latest warning came after the EU retaliated against the U.S. for imposing tariffs on European steel and aluminum, by targeting $3.2 billion worth of American goods exported to the 28-member bloc, according to a Reuters report.

The escalating row hurt the shares of JLR's Indian parent Tata Motors, sending them down as much as 6.5% in Mumbai trading on Monday. The shares later pared some losses and closed down 5.9%, while the benchmark S&P BSE Sensex lost 0.6%.

Mumbai-based Tata Motors acquired the luxury automaker from Ford Motor in 2008 for $2.5 billion. JLR accounts for more than half of Tata Motors' revenue and nearly 90% of its operating profit. Since 2011, JLR has spent 20 billion pounds to launch new products, and develop new technologies.

JLR said it remains confident of improving the operating margins before interest and tax up to 7% by fiscal year 2021 and up to 9% thereafter, from the 3.8% at the end of last fiscal year. However, the company expects free cash flow to be negative in the near term.

The company said it aims to improve the margins through better sourcing of components, increased in-house engineering, as well as shift to a modular architecture that support both electric and conventional powertrains, and the ramp-up of its plant in Slovakia. Its new factory in the Slovak city of Nitra is due to begin production by September and will have a capacity of up to 300,000 vehicles per year.

JLR, which had 12 models at the end of last fiscal year, also plans to expand the number of models to 16 by 2024, including its first electric car I-Pace and a new version of Land Rover's Defender.

While JLR remained confident of addressing the industry's new challenges such as automation and electrification, analysts remain wary of the company's prospects, given the operational headwinds.

"We find JLR's initiatives commendable but believe the benefits of the latter two will come gradually, while operating leverage will be limited, given weak demand," CLSA said in a report.

--Dhanya Ann Thoppil

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