Land Rover Discovery Sport
Shares of Tata Motors, India’s biggest automobile manufacturer, crashed more than 11% in morning trade as news of UK’s exit from the European Union spooked markets.
Jaguar Land Rover, Britain’s biggest car maker, which generates more than 90% of profits for the Mumbai-based company, could risk a Pound 1 billion drop in profits by end of this decade, if the UK leaves the EU, as per an internal assessment prepared by JLR.
The two British brands sold almost a quarter of its total output of more than 520,000 units, in Europe last year, which made JLR one of the biggest automobile exporters from the UK and Europe the single biggest market for the two brands.
With the exit of UK EU will impose new tariffs on vehicles made outside its boundaries which would make JLR cars less competitive than rivals Mercedes-Benz, BMW and Audi.
The possibility of decline in pre-tax profits by 2020 arises if Britain returned to World Trade Organisation rules for trade with Europe, which meant a 10% tariff on exports and about 4% tariff on components.
Last year the two brands posted a pre-tax profit of Pound 1.6 billion on revenues of Pound 22.2 billion. Jaguar Land Rover, however said it would be business as usual.
"We respect the views of the British people and in line with all other businesses, Jaguar Land Rover will manage the long-term impact and implications of this decision: nothing will change for us, or the automotive industry, overnight. Europe is a key strategic market for our business, comprising 20% of global sales, and we remain absolutely committed to our customers in the EU", said a statement from Jaguar Land Rover.
However, not everyone believed that vehicle makers could become the biggest losers in this referendum.
Mahantesh Sabarad, deputy head research, SBI Cap Securities said, “JLR will be a big beneficiary in term of cost. China imports from the UK in Pound and the depreciation in the value of the Renminbi against the Pound will be favourable making JLR products cheaper. Logic tells me that JLR will be a huge beneficiary of all incentives that will be provided by the UK government as they will not allow the automobile industry, which is the largest employer, to suffer.”
Experts say it will take at least 2-3 years for new tax barriers to kick in by which time the UK will be in a position to formulate incentivising strategies for the automobile industry.
"There will be a significant negotiating period, and we look forward to understanding more about that as details emerge. We look forward to working with the British Government and the automotive sector to ensure that the UK’s automotive industry remains as competitive as ever, and that negotiations between the UK Government and the EU will continue to recognise the importance of car manufacturing to the UK and European economies", added the JLR statement.
Further JLR is building 300,000 units per year assembly plant in Slovakia – right in the middle of the EU – which will reduce tariff barriers to some extent. This new Pound 1 billion plant is expected to come on stream in 2018, coinciding with the tax impositions.
To further reduce dependence on the UK JLR, which already has three operational assembly plants (China, Brazil and India) outside its home market, is also in the process of start assembly operations in Austria through the contract manufacturing route.