Tata Motors stock makes a pitstop

earlier this week, day traders suffered a little. one of the market favourites, Tata Motors, was stuck in a slide. just last week, its stock was cruising along smoothly. at a price of around Rs 350 per scrip, it was trading at nearly twice what it was at the beginning of the year, and investors were enjoying the ride. but on Tuesday, a ~10% slide in the price saw over Rs 12,000 crore wiped off its market cap in a matter of minutes. so what happened?

chip crunch

Tata-owned Jaguar Land Rover (JLR) released an official statement saying its wholesales were significantly lower than expected due to the semiconductor shortage that’s plaguing the auto industry and several others. it dispatched 84,442 units in Q1 FY22 (April - June 2021) which was around 72% higher than in the same period last year. however, this was about 30,000 units (27%) lower than otherwise would have rolled out if not for the chip shortage and supply chain issues.

what’s worse is that JLR expects a sharper 50% drop (on normal production) in wholesales in Q2 FY22 (July - September 2021) due to the same issues. this could potentially impact over 20% of its annual volumes.

cavalcade

the slide from Tata Motors contributed to a larger skid across benchmark Indian indices on the day, especially among automotive stocks. this isn’t a surprise, as the chip shortage and its impact on the global auto industry has been anticipated for a while now. but we’ve only recently started to see it quantified.

just a few days prior, BMW had termed the situation to be ‘critical’ with production halted at many sites and warned of further losses in production. elsewhere reports suggest Ford Motor Co. could shut down many of its North American factories for a few weeks in July and August. it expects the supply crunch to cost it $2.5 billion this year and halve production in Q2 FY22. Volkswagen is slightly more optimistic, as it expects the crisis to abate slightly post August.

back in gear

following all this, Tata Motors reported rather okay numbers for Q1 FY22. its wholesales for the period, including those from JLR, were at 2,14,250 units, up 134% over the same period last year. it’s also expected to hike prices for its Indian range (yet again) soon — this should help reduce the impact on its profitability. JLR is also testing changes to counter the chip shortage problem.

considering this, many brokerages are already predicting a rebound in the Tata Motors stock price. this will come as a relief for traders and some amount of cheer could be restored.