The Covid lockdowns in some parts of China have resulted in supply chain disruptions as well as temporarily shutdown of Tata Motors’ dealerships in the country, impacting its cash flow in the first quarter of the ongoing fiscal and leaving adverse impact on sales outlook for rest of the year, the automaker said in its annual report for FY22.
It said that the during the recent China lockdowns suppliers were unable to deliver products and it could be forced to stop production in some or all of its plants if it is unable to ensure the supply of critical parts from the country.
On the ongoing shortage in the supply of semiconductors, Tata Motors said it has “impacted and continues to impact our production schedules and our ability to meet the demand for some of our vehicles”.
Such shortages that affect the entire automotive industry, it said, “may impact us more pronouncedly than our competitors as they may have a greater level of buying power with suppliers or have a different range of features on their vehicles that are dependent on semiconductors, as well as impact our ability to divert the supplies on lower-end models, in which our competitors exclusively operate or for which our competitors are able to better manage supplies”.
The homegrown auto major has apprehensions that the ongoing global semiconductor shortage may impact it “more pronouncedly” than its competitors, who may have a greater level of buying power with suppliers or have a different range of features in their vehicles that are dependent on semiconductors.
“Recent lockdowns in parts of China as the government pursues a strategy of containing the spread of COVID-19 are adversely impacting our supply chains as our suppliers are unable to produce or deliver products to us,” Tata Motors said in the report.
Similarly, it said, “we are also witnessing a temporary decrease in demand. These lockdowns have also led to some dealerships in some regions of China to temporarily close, which may have an adverse impact upon our sales outlook in fiscal 2023”.
In its elaboration of risk factors, Tata Motors further said, “If we are unable to ensure a supply of critical parts from China for production, we may be forced to stop production in some or all of our plants, which will have a significantly negative impact on our cash flow in the future”.
“We are witnessing certain supply chain disruptions as a result of China’s lockdowns and dealership closures possibly resulting in negative EBIT and negative free cash flows in the first quarter of fiscal 2023 for Jaguar Land Rover while our domestic business is also likely to witness a negative impact on financial performance,” it added.
The company, however, said production schedules continue to be actively managed by the management in line with the availability of semiconductors and vehicle margin.
“Along with supply chain uncertainty caused by the COVID-19 pandemic and sudden factory shutdowns due to natural disasters at major semiconductor production sites worldwide, longer-term trends, such as a general rise in demand in the automotive sector competing with other rapidly growing industries for semiconductor manufacturing capacity and structural issues within the semiconductor supplier landscape have complicated our ability to secure sufficient supply,” it added.
Stating that there can be no assurance that it will be able to source alternative supplies of semiconductors or that such alternative supplies of semiconductors will be readily available, Tata Motors said, “The shortage of semiconductors has and is likely to continue to impact us in the near future”.
If the shortages continue for a prolonged time, Tata Motors said its “production levels may be affected, which would materially affect our business, financial condition and results of operations”.
“In addition, the shortage of semiconductors could also have an adverse impact on the implementation of Jaguar Land Rover’s Reimagine strategy to expand into EVs, which may contain a higher level of semiconductors than that used in conventional vehicles,” the company added.
