Tata exploring options for Jaguar Land Rover unit

The Jaguar Land Rover Automotive XE SV Project 8 vehicle is displayed during a reveal event in Los Angeles, California. (Bloomberg pic)

MUMBAI: Tata Group is exploring strategic options for its Jaguar Land Rover Automotive unit including a potential stake sale in the struggling luxury carmaker, people familiar with the matter said.

India’s biggest conglomerate is considering alternatives ranging from a minority stake sale to finding a venture partner that would jointly develop vehicles and lower costs, said the people, who asked not to be identified because the discussions are private. The company is holding early-stage talks with potential advisers, and the deliberations may not lead to any transaction, they said.

Just over a decade after purchasing the Jaguar and Land Rover brands, the business has turned from crown jewel to burden, culminating in the biggest corporate loss in Indian history just last month when Tata drastically slashed the value of the asset. Jaguar Land Rover has been hit hard by slumping sales in China, the shift away from combustion and diesel engines, and the brand’s strong historic links to the UK, where concern over a disruptive Brexit has weighed on demand and prompted some brands to move production.

“There is no truth to the rumours that Tata Motors is looking to divest its stake in JLR, and we would not like to comment further on any market speculation,” Tata Group said in an emailed statement. A spokeswoman for Jaguar Land Rover declined to comment on Tata’s intentions for the business.

The company would be reluctant to give up control and may prefer instead to seek fresh equity from investors such as a strategic partner or sovereign wealth fund, some of the people said.

Tata Motors’ shares surged as much as 3.7% and were trading at 180.3 rupees, up 1.6%, at 4.39pm in Mumbai.

Jaguar Land Rover’s woes have grown in the past few months. Sales in China have continued to fall, and Jaguar Land Rover said in January it will cut 10% of its workers amid flagging demand and uncertainty around Brexit. Tata Motors wrote down the value of the business by 3.1 billion pounds (US$4.1 billion).

“The UK stays the most important market for JLR and that market has a lot of problems due to Brexit,” Deepesh Rathore, London-based director at Emerging Markets Automotive Advisors. “With so many headwinds, JLR needs massive investments to prepare and ride the next upturn of the market.”

Jaguar Land Rover said last month it was seeking alternative funding sources as conditions were not right to borrow from the bond market. The maker of the Jaguar XE sedan and Land Rover Discovery sports utility vehicle needs to raise US$1 billion in 14 months to replace maturing bonds and is also burning cash on an investment program for electric cars.

Tata Motors bought the brands from Ford Motor Co. more than a decade ago for US$2.3 billion in its biggest-ever acquisition. The company has considered listing a stake in Jaguar Land Rover in previous years, people familiar with the matter have said. Moody’s Investors Service, S&P Global Ratings and Fitch Ratings all have a negative credit outlook on Tata Motors for risks related to the UK business.

Land Rover still ranks as the most valuable of the marquee brands owned by Tata Group, which also controls Tetley tea and New York’s luxury Pierre hotel. The automotive marque was worth an estimated US$6.2 billion last year, according to Interbrand.

In China, not only did Jaguar Land Rover had problems with the distribution network, it also overestimated the price it could charge for its cars made there, said Aston Business School professor David Bailey. And the company tried to compete in segments that were hard to crack because they were occupied by more powerful players, he said.

“JLR also tried to compete head-on with BMW in every segment, which happened to be an impossible job,” the academic said. “BMW is four times as big.”