China concern now for Jaguar Land Rover

JLR was forced to cut prices last year on three high-end models in response to a pricing and anti-monopoly probe by Chinese authorities

A limited line-up, short distribution reach, slowing demand and an adverse import tax policy have affected sales of Jaguar Land Rover (JLR) in China, which was single-handedly pushing profits of the two luxury British brands for several quarters.

Retail sales fell as much as 21 per cent in April to 8,289 vehicles as German rivals Mercedes-Benz, Audi and BMW posted double-digit growth. The two Tata Motors-owned brands depend on China for a fourth of their global sales; however, the country’s share dipped to under 20 per cent last quarter.

 

Mercedes' best worldwide growth in April came from China, where sales grew 21 per cent. Audi reported sales growth of 13 per cent in April while BMW saw sales zoom 25 per cent in the January-April period in China.

Luxury car makers in China have come under pressure following the government's decision to reduce duties that make importing vehicles 20 per cent cheaper than buying from local showrooms. This has created a grey market for luxury cars in that country.

JLR was last year forced to reduce prices for three of its models, the Range Rover V8, the Range Rover Sports V8 and the Jaguar F-Type, in response to an anti-monopoly investigation by Chinese authorities.

To remain competitive in China, the company hinted it was not averse to cutting prices again. This might put further pressure on margins, analysts warned.

 

Vijay Somaiya, vice-president and head of treasury and investor relations at Tata Motors, said, “We will see a certain slowdown in the (Chinese) market and competitors are going to reduce prices. We will not be the first to reduce prices."

The Chinese media has been alleging car makers like Mercedes-Benz and JLR are overcharging, with premium car prices being four times higher than elsewhere in the world. JLR, for instance, sells the Range Rover for 1.89 million yuan in China and 540,000 yuan in the US, according to a report.

"A ramp-up of the China joint venture will be margin dilutive for JLR. Dealer discounts in China have increased and are expected to remain at these levels in 2015-16," Jay Kale from Elara Capital said in a report.

"We are ramping up the Range Rover Evoque, faster than originally expected in terms of quality, but also productivity because we really can launch that vehicle in a brand new plant," Somaiya added.

Reacting to Tata Motors’ disappointing results announced on Tuesday, the stock closed at Rs 471.65, 5.12 per cent below its previous close of Rs 497.10 on the BSE.