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Luxury carmaker Jaguar Land Rover Automotive Plc issued a profit warning on Tuesday citing the impact of semiconductor chip shortage on vehicle production, sending parent Tata Motors Ltd’s stock down by as much as 10%.

The British carmaker, which saw sales reviving over the last six months, said it will report a negative operating margin and an operating cash outflow of £1 billion this quarter. The company said it expects the supply of semiconductor-based parts to improve in the fiscal second half, though the problem will continue to impact vehicle production for the next year-and-a-half, until suppliers boost output.

Tata Motors shares recouped some of the losses later in the day, closing 8.14% lower on the BSE, while the benchmark Sensex index remained unchanged.

“The company had about £3.7 billion of cash and short-term investments (unaudited). Based on this and broadly in line with expectations given the supply constraints, the company expects to report a cash outflow of about £1 billion with a negative Ebit margin for the quarter. Total liquidity at the end of the first quarter was over £5.6 billion, including a £1.9 billion undrawn committed credit facility," JLR said in a statement.

As demand for vehicles rebounded in large markets in line with the lifting of pandemic lockdowns, chipset suppliers were overwhelmed with demand from the auto industry as they did not expect sales to return so soon.

“The present semiconductor supply issues represent a significant near-term challenge for the industry that will take time to work through, but we are encouraged by the strong demand we see for when supply recovers. We are taking strong steps to ensure the security of our supply chain, working with our suppliers and chip makers directly to increase visibility and control over the chip supply for our vehicles," said Thierry Bolloré, JLR chief executive officer.

JLR has seen a significant recovery in retail sales in the past six months in major markets like China, the US and Europe. In the June quarter, sales jumped 68% to 124,537 vehicles, primarily due to a low base. Sales of Jaguar vehicles surged 55.2% to 29,152 units, while Land Rover recorded a 72.5% rise to 95,385 vehicles.

“We expect the situation will start to improve in the second half of our fiscal. However, the broader underlying structural capacity issues will only be resolved as supplier investments in new capacities come online in 12-18 months, and so we expect some level of shortages will continue through to the end of the year and beyond," JLR said in the statement.

The automaker said it will continue to prioritize the production of higher-margin vehicles for the chip supply available, as well as make chip and product specification changes where possible to reduce impact.

Tuesday’s announcement follows JLR’s decision to write off investments worth 15,000 crore, earmarked for developing internal combustion vehicles, which became unviable after the automaker’s move earlier this year to pivot towards electric vehicle technology.

“The warning disappointed investors as the Street was expecting remarkable improvements in 2QFY22. This would result in a sizable loss on a consolidated basis in 1HFY22E. However, it may get resolved in 1-2 quarters," said Mitul Shah, head of research at Reliance Securities.

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