Blame Hubris for Jaguar Land Rover's Misfire
At the rate JLR was bleeding cash and eroding equity value, Tata Motors had few options but to look outside for a solution.
(Bloomberg Opinion) -- How the mighty have fallen.
The Tata Group is exploring options for its iconic Jaguar Land Rover Automotive Plc unit including a stake sale or finding a venture partner to jointly develop cars and lower costs, P R Sanjai, Ruth David, Tommaso Ebhardt and David Welch of Bloomberg News wrote Friday, citing people familiar with the matter.
At the rate Jaguar Land Rover was bleeding cash and eroding equity value, as I’ve written, Mumbai-listed Tata Motors Ltd. had few options but to look outside the company for a solution.
How did it get here? A complete lack of fiscal prudence in recent years, a one-tracked focus on investing billions of pounds in technologies that haven't returned much, and a flawed and failed China strategy.
The numbers are dismal: Free cash flow is in the red, debt and associated costs continue to climb, and yet the company couldn’t hold back on its hubris, continuing to spend relentlessly on future projects such as electric cars and batteries. It took a 3.1 billion pound ($4.1 billion) impairment charge last quarter, which signified more than just a non-cash loss. Operating cash flows are falling relative to capital expenditures. Meanwhile, a recently unveiled turnaround plan is falling short: The money just isn’t coming in as fast as it’s going out.
The reality is this has been a long time coming. With no turnaround in sight and the unit threatening to eat away any value created at the recovering Indian business of its parent, it’s cornered. A Jaguar Land Rover bond prospectus in September noted that it can ultimately tap its parent company for financial support “if necessary.” That the parent is now seeking outside investors means Tata Motors probably isn't willing to bail out the unit yet.
Investors cheered the news, driving up shares of Tata Motors as much as 3.7 percent. It’s understandable they’re celebrating. They should also hope there’s solution on the table – soon.
To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net
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Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.
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