Sanctions on Russia, closures in China could impact us: Tata Motors

Swaraj Baggonkar | | Updated on: Jun 16, 2022
Tata Motors believes that there is a risk of further escalation of the conflict during FY23 which could bring challenges to its wider supply chain

Tata Motors believes that there is a risk of further escalation of the conflict during FY23 which could bring challenges to its wider supply chain | Photo Credit: PAUL NORONHA

The carmaker says it may be forced to stop production in some or all of its plants

The Russia-Ukraine war has crippled the supply chain of semiconductors and pushed up gas prices, while the resurgence of Covid-19 has led to lockdowns in Chinese cities, all of which could impact business, warned Tata Motors in its latest annual report.

“Full year performance in FY22 was significantly impacted by the constraint on production and sales resulting from the global chip shortage. The ongoing supply challenges are compounded by the conflict in Ukraine and China’s covid lockdowns. We expect the global semiconductor shortage to continue through the next fiscal year with gradual improvement,” Tata Motors pointed out in the report.

While China is one of the three biggest markets globally for Tata Motors-owned British brands Jaguar and Land Rover, the markets of Russia and Ukraine represent just 2.5 per cent of JLR’s revenue. However, European governments are seeking to reduce energy reliance on Russia in the future and are restricting imports of oil and gas sourced from Russia. “This is driving up energy costs, which could increase inflationary pressures during FY 2022-23,” Tata Motors added.

Russia and Ukraine control global supplies of neon gas and palladium, which are used during the production of semiconductors. Tata Motors believes that there is a risk of further escalation of the conflict during FY23 which could bring challenges to its wider supply chain.

China lockdown

Recent lockdowns in parts of China to contain the spread of Covid-19 are adversely impacting Tata Motors’ supply chains as its suppliers are unable to produce or deliver products. The company is also witnessing a temporary decrease in demand. These lockdowns have also led to some temporary closures of dealerships in some regions of China, which may have an adverse impact on our sales outlook in FY23.

“If we are unable to ensure a supply of critical parts from China for production, we may be forced to stop production in some or all of our plants, which will have a significantly negative impact on our cash flow in the future. We are witnessing certain supply chain disruptions as a result of China’s lockdowns and dealership closures, possibly resulting in negative EBIT and negative free cash flows in the first quarter of FY23 for Jaguar Land Rover, while our domestic business is also likely to witness a negative impact on financial performance,” Tata Motors added.

Published on June 16, 2022
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