Better to sell or weather the financial storm?
Things haven't been easy at Jaguar Land Rover over the past several months. A swelling of factors has led to severe financial losses at a time when the luxury market is more competitive than ever. An economic slowdown in China and uncertainty over Brexit could not have come at a worse time. In response, JLR has initiated a $3.2 billion savings program and eliminated thousands of jobs. At this point, you have to ask whether JLR is worth keeping for its owner, Tata Motors. The Indian-based automaker had a huge financial success not long after it bought JLR from Ford in 2008.
Within just a few years, sales dramatically increased thanks to the Jaguar F-Pace and Land Rover Range Rover Evoque. China and Russia, in particular, played a significant role in the sales boom. But that's all over, at least for now. Bloomberg reports that, despite everything, Tata has no plans to sell JLR. "We're not going to sell," said Natarajan Chandrasekaran, chairman of Tata Sons Ltd., the holding company that includes Tata Motors.
"Auto is a core business for us. From revenue terms, auto is our largest company." Tata's problem, however, is that it requires cash to operate a major automaker and, unfortunately, it's having some cash flow problems. One recent rumor claimed BMW, which has plenty of cash on hand, was potentially interested in purchasing JLR, but Tata quickly denied this. It even ruled out selling a stake.
Tata remains open to partnerships but has no interest in deals where "we just sell a stake and we have no say." While JLR's capital expenditure has outpaced operating cash flow for the past two years, Chandrasekaran says his goal is to reverse that by 2021.
But why would BMW even be interested in JLR in the first place? Because the two automakers already have a growing partnership from engines and electric vehicle development. An expanded relationship could enable two things: additional technology development savings for BMW and a financial lifeline for Jaguar. But as Chandrasekaran made crystal clear, he has no intention to sell the automaker, let alone any of its shares. Only time will tell whether his strategy is correct.