Three months ago, optimism over Jaguar Land Rover was so high, its Indian parent’s shares were up almost 80 percent this year, valuing Tata Motors Ltd. (TTMT) more than Porsche AG’s holding company. Reality may be setting in.
Tata Motors has fallen 30 percent in Mumbai trading since the stock peaked on April 19, when it was the year’s best performer among the world’s biggest carmakers. This week, the company reported sales of Jaguar cars fell for the first time in seven months. Deliveries of Land Rover sport utility vehicles -- excluding the sold-out Evoque -- dropped for a third month, according to CLSA Asia-Pacific Markets.
The fading optimism is raising the pressure on Chief Executive Officer Ralf Speth to revamp Jaguar’s aging designs and increase the appeal of Land Rover models other than the Evoque. Tata is committing to invest $12 billion in its British luxury-vehicle unit over five years and is preparing to unveil Jaguar’s first two-seat sports car in almost four decades.
“I definitely think that the euphoria over Jaguar Land Rover has come down,” said Taina Erajuuri, a Helsinki-based money manager at FIM Asset Management, which oversees about $1.2 billion, including Tata Motors shares. “Tata Motors has to revamp Jaguar’s models and their strategy and brand.”
Jaguar CEO Speth was unavailable to comment.
Mounting signs of weakening non-Evoque sales at Jaguar Land Rover led Abhijeet Naik, a Mumbai-based analyst at CLSA Asia- Pacific Markets, to cut his rating and earnings projections for Tata Motors on July 16.
Naik is in the minority. Of the 60 analysts tracked by Bloomberg, 43 have the equivalent of a buy rating on Tata Motors. Their average 12-month target price on the stock is 293.52 rupees, or 41 percent higher than the consensus at the beginning of the year and 31 percent more than Tata’s latest close of 224.80 rupees.
The Evoque, which has a special edition styled by Victoria Beckham, went on sale in September 2011 and now accounts for more than 21 percent of Land Rover-brand sales, in the year ended March 31. Its popularity drove total June deliveries at Jaguar Land Rover to climb 39 percent to 28,215 units. Excluding the compact SUV, named by the Automotive Press Association in January as the North American truck of the year, sales declined 6 percent, according to CLSA estimates.
“The only factor going for Tata Motors is JLR,” said Basudeb Banerjee, an analyst with Quant Broking Pvt. in Mumbai. “If JLR numbers continue to be under 30,000 in the coming months, the stock will definitely see more corrections.”
Tata Motors is also facing mounting investor concerns because all of the current models were designed before the Indian company acquired the two British luxury marques from Ford Motor Co. (F:US) for $2.4 billion in 2008, said Deepesh Rathore, New Delhi-based managing director of IHS Automotive. The next wave of products will help investors determine whether Tata Motors can keep Jaguar and Land Rover designs appealing, he said.
“All of Jaguar Land Rover’s models are getting old and the next 24 months are crucial for the company,” said Rathore. “I don’t think investors have much faith in Tata Motors keeping to its deadlines. In the luxury car space especially, buyers will quit the brand if they don’t see anything new.”
Jaguar’s XF, which accounted for 62 percent of Jaguar’s total deliveries in the year ended March 31, was introduced in 2008. Mercedes-Benz redesigned the E Class a year later, while BMW did the same with its mid-range product in 2010, and Audi in 2011.
Andrew Jackson, an analyst at Datamonitor in London, said Jaguar’s limited number of vehicle lines is holding back the company’s ability to evolve from a niche player to a serious competitor to Volkswagen AG (VOW)’s Audi, BMW and Daimler AG (DAI)’s Mercedes-Benz, he said.
Jaguar’s current three-vehicle lineup consists of the high- end XJ sedan -- positioned to compete with the BMW 7-Series, Mercedes S-Class and Audi A8 -- and the mid-range XF saloon, which vies against the 5-Series, E-Class and A6. Jaguar also makes the XK, which is available as a four-seat convertible for 99,400 euros ($122,300) and was seen as the closest thing to an E-Type successor when it was introduced in 1996.
“The one thing that Jaguar is crying out for is a 3-series rival,” said Jackson, in reference to BMW’s low-end sedan. “There is an absence of a volume vehicle that will give them the ability to do the same that Land Rover has managed to do with the Evoque.”
The carmaker, which in 1961 introduced the E-type -- described by Ferrari founder Enzo Ferrari as “the most beautiful car ever built” -- will unveil a new sports car in September. The two-seat F-Type will go on sale as early as next April, and will help attract rich customers to its stores, said Rathore.
In May, Tata Motors said it would spend 2 billion pounds this year in capital expenditure as it looks to fund an expansion that includes a pipeline of 40 new or upgraded vehicle models over the next five years
Investors will be looking closely at those new designs.
“I think Jaguar has to look at design and they have to bring in a new model that appeals to younger buyers,” said Erajuuri at FIM Asset. “When I think of a Jaguar, I think of it as a car that my father would drive, not something that I would buy.”
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