a fresh outbreak of Covid-19 in China is dampening its outlook
countries across the world have taken different approaches to dealing with the pandemic. while some (like Sweden) initially refused to impose restrictions and sought to achieve herd immunity, others like China adopted a zero-Covid policy. the latter is still one of the last remaining countries to stick to its guns, implementing measures such as mass-curfews, locking down of malls with people inside when even a single case is detected and more.
that policy is hurting an unexpected third party - Tata Motors - whose shares plunged 3% in trading on March 14. what is the connect?
despite its efforts, cases continue to emerge in China. the latest outbreak afflicts two of its biggest cities - Shanghai and Shenzhen. Covid-19 curbs have already placed 17.5 million residents of the latter in lockdown for at least a week and appear set to do the same for the even larger population of the former. the outbreaks will delay a return to normalcy of international travel to these hubs. they are also delivering fresh shocks to the already fragile global supply chain, of which the automotive industry is one of the biggest victims.
but what will concern Tata Motors even more is the direct impact on its sales. China is the second-largest market for its UK-based subsidiary, Jaguar Land Rover (JLR). this is significant because JLR accounts for ~73% of Tata Motors’ annual turnover of ~$41 billion, with a quarter of that figure (~18% of overall turnover) coming from China. any extended disruption there has the potential to majorly disrupt the automaker’s balance sheets.
as of March 14, the Tata Motors stock was down ~15% since the turn of the year as against ~4% for benchmark indices. but it’s not all bad news. the company seems to be building a commanding lead in India’s domestic EV car market, with a whopping 96% of the market share in February. it sold 2,264 EV units in the month with MG Motors coming a distant second at 38 units. more significantly, this was a jump of over 66% from the 1,360 units sold in the preceding month. the company is also introducing novel measures in the domestic market such as mobile car showrooms to encourage buying in rural areas.
it is impossible to predict the direction that the outbreak of Covid-19 in China will take. however, the Chinese authorities’ expected reactions to them are rather reliable. the longer it lasts, the more likely that Tata Motors’ share price will slip.