Wheels and deals
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Jaguar Land Rover (JLR) is on the acquisition prowl. The luxury car unit, owned by Tata Motors, wants to buy upscale marques (that’s a fancy word in the car world that just means brand) that would fit into its portfolio. Should a deal take place, it would be the first by JLR since 2008, when Tata bought it for Us$2.4bn from Ford, which, if you remember, renewed focus on its
North American operations.
Most investors were sceptical when that deal was first mooted. By most accounts, however, the tie-up didn’t end up a bust. Land Rover remained sustainably profitable and Jaguar eventually turned the corner. (Granted, cost savings and synergies erred on the side of underwhelming.) Tata is now almost entirely dependent on JLR for profits. The luxury unit accounts for 80% of its revenue and 96% of operating income.
Lately it’s been hairy, though.
Tata’s domestic business has been doing poorly, and sales of its luxury brands are waning. It now wants to bulk up and buy its way to growth so that it remains competitive.
Possible marques
Money is clearly not an issue: Tata had more than $6bn in cash and equivalents at the end of June — that’s up 87% from a year ago, Bloomberg data shows. So, with Fiat Chrysler Automobiles NV rumoured to be eyeing a spin-off of its Maserati and Alfa Romeo brands (worth about $8.3bn), the pair Deal scouting is said to extend to purchasing of technology companies that will boost Tata’s electric push. Stricter emissions rules, a decline in sales of diesel cars and cheaper battery prices (oh, and Tesla!) have resulted in the auto industry’s incumbents investing heavily in electric cars and autonomous tech. I realise that demand for electric vehicles is still small and the scarcity of charging stations might make this all sound very Marty Mcfly/back to the Future, but it’s not.
This is what some of the other guys are up to: VW will increase the number of electric models it offers to 80 (by 2025) — up from the 30 it originally planned. Also (and this is big) it will sell electric versions of all its 300 or so models by 2030.
Daimler AG will do the same by 2020, and BMW AG has committed to offering 25 new electric cars and hybrids by 2025.
JLR is already dabbling in the space. By way of its mobility services arm, Inmotion Ventures, it has pumped $25m into Uber rival Lyft. The cash influx supports the expansion of the ride-hailing group in the US, as well as the development of self-driving technology.
Meanwhile at Jaguar, the I-pace electric-powered SUV will go on sale next year. There are already 25,000 orders for it.
Still, Tata’s return on invested capital has fallen by half in the past five years, according to Bloomberg. It desperately needs to show investors that they can get more bang for their buck. And soonish.