Tata Motors Braces for Possible Brexit Impact to JLR

With the Brexit vote just around the corner, Tata Motors is therefore worried about its subsidiary, Jaguar Land Rover (JLR) which contributes to almost 90 per cent of Tata's profits. More than 15 per cent of vehicles that JLR manufactures in the UK are sold in other EU member states. JLR also sources approximately 40 per cent of its components from various EU countries.

By Carandbike Team

1 mins read

Published on June 21, 2016

Highlights

Jaguar Land Rover (JLR) contributes almost 90% of Tata Motors' profits
Potential Brexit could mean a negative impact to JLRs bottomline
JLR is on the remain side of the impending referendum

Later this week, the people of the United Kingdom (UK) will decide whether to stay part of the European Union (EU) or not through a nationwide referendum. If Britain decides to leave the EU, then the country will have to draw up new strategies and policies for trade. This means that there will be a stark change in its relationship with the rest of the EU. The impact, should the UK decide to exit EU, will hurt the industries - say experts. In the auto space, Tata Motors is therefore worried about its subsidiary, Jaguar Land Rover (JLR) which contributes to almost 90 per cent of Tata's profits. More than 15 per cent of vehicles that JLR manufactures in the UK are sold in other EU member states. JLR also sources approximately 40 per cent of its components from various EU countries. If UK exits the EU, the cost of sourcing and manufacturing will go up as tariffs and import duties will come into play. For its part JLR has an official 'remain' position on the current question, saying "Jaguar Land Rover supports continued UK membership of a reformed EU. Access to our customers and suppliers is important to us - any changes could impact our sales, our costs and the skills base." (Jaguar XE manufacturing line at Solihull) The impact will most definitely be severe but will also likely be short term according to analysts. "If the UK decides to exit EU, it can either enter into a Free Trade Agreement with EU or can go by the WTO norms for trade. This will have a negative impact on the cost of exports, sales and workforce as well. It will be a short term impact, but it will be a negative one. UK has always been a strong member in the EU and its exit will definitely be felt in the EU as well. The UK economy will definitely feel the hit, and is expected to slow down for a couple of years thanks to the tariffs and duties." says Abdul Majeed, partner and auto practice leader, PricewaterhouseCoopers. He also says, "The other part of the story is that should the Sterling Pound depreciate in its value, it will have a benefit on JLR as most of its vehicles are manufactured in the UK and almost 80 per cent of them are exported." That could see other EU based automotive brands becoming more expensive in the UK - thus providing British car manufacturers an opportunity to gain marketshare in the UK. This is why Tata Motors - JLR's parent company - is also watching the vote very closely. Any impact to JLR's bottomline, would have an immediate effect on its own too. In the event that the UK exits the EU, a major revamp of JLR's European strategy and its future manufacturing spread will have to be carefully considered by the management. Also under doubt would be the terms of the agreement between JLR and the government of Slovakia - another EU member state - for JLR's plan to build a full-fledged manufacturing plant there. Construction of the £1 billion manufacturing facility in the city of Nitra, is all set to begin this year. The plant is meant to add 150,000 units initial capacity to JLR's annual manufacturing output. JLR had announced that it selected Slovakia as the location for its next manufacturing plant after a 'robust analysis of a number of locations around the world including other European countries, United States and Mexico'.