JLR margin math wobbles on twin hit from China tax, EU-US trade deal move
Starting July 20, China imposed 10% luxury consumption tax on cars priced over 900,000 renminbi. This covers most of the models sold in the Chinese luxury car market. Earlier, only cars priced above 1.3 million renminbi attracted the levy from the Chinese government.
The timing of the twin hits could hardly be worse. Just a month ago, Jaguar Land Rover trimmed its growth forecast for the current fiscal year. Now, analysts are warning that these latest trade and policy shifts risk derailing the company's already modest FY26 guidance of 5-7% earnings before interest and tax (EBIT) margin. JLR had banked on reduced tariffs on exports from its Slovakia plant to the US, but that scenario may now be overtaken by events.
The EU, which is finalizing a trade deal with the US for lower tariffs, has proposed that auto firms that have manufacturing in that country and export from there should be given some relaxation from 25% tariffs on imports.
'The two combined geopolitical headwinds pose a downward risk to the company's FY2026 guidance of 5-7% EBIT margin, which had only factored in lower tariffs on its exports from Slovakia to the US after the EU-US trade deal," analysts at Kotak Institutional Equities wrote in a 21 July note.
Agreeing with a possible near-term pressure on JLR, analysts at Ashika Institutional Equities said in a note on 23 July that the UK-headquartered firm could face challenges on the two fronts, given the latest developments.
'Both developments present strategic challenges for JLR. In China, pricing pressure from new taxes could impact high-end model sales, while in the West, the absence of US manufacturing limits JLR's ability to benefit from policy support, thereby increasing its relative vulnerability in key export markets," the Kotak note said.
JLR rivals' BMW and Mercedes stand to benefit the most if EU's proposal is accepted by US as they have plants in the country, from where they export elsewhere.
JLR has manufacturing plants in the UK and Slovakia in Europe. In India, it has an assembly plant in Pune, where it assembles several models like Range Rover, Range Rover Sport, Velar, Discovery and Evoque.
In FY25, JLR sold 10% fewer vehicles than the previous year in China at 47,200, while Europe saw an 11% decline at 71,700 units. Its biggest market, North America, recorded a 22% jump in sales to 129,000 cars during the year.
However, JLR has faced headwinds in the international market since March, when US President Donald Trump announced a blanket 25% tariff on all automobile imports. During April-June, the first quarter of this FY, the maker of Range Rover SUVs sold 87,286 units, 11% fewer than a year ago due to a pause in shipments to the US in April to assess the tariff impact.
JLR, which was acquired by Tata Motors in 2008 for $2.3 billion, contributed about 71% to Tata Motors overall revenue in the last fiscal. Analysts have earlier expressed concern that the near-term outlook for the company is weak.
'In JLR, discontinuance of 'Jaguar' ICE models, loss of market share in the China region and imposition of tariffs in the US shall lead to volume contraction ahead," Nuvama Institutional Equities had said in a note on 16 June.
The company has acknowledged that its free cash flow will reduce to nearly nil in the current financial year. With the company looking to tackle the negative effects of various headwinds world over, it expects to end the current fiscal year with nil free cash flows.
However, the management had earlier said the impact could have been even worse and the measures being implemented to offset the hit are leading to savings.
'The tariff impact will be primarily on Jaguar Land Rover. Tariff has gone up from 2.5% to 27.5%, and under the UK-US FTA, the tariff is 10%. The overall impact would have been 1.6 billion pounds," Tata Group Chairperson N. Chandrasekaran told shareholders at Tata Motors' annual general meeting on 20 June. 'But due to the steps taken by JLR, the impact has gone down to 600 million pounds, which is visible in the margin guidance," he added.
At Tata Motors' annual investor day event also in June, the company said JLR will undertake several measures to drive savings, including manufacturing cost reduction, lowering vehicle warranty costs, and improving cost efficiencies in the overall value chain. The measures will collectively lead to savings worth 1.4 billion pounds per annum till financial year 2028, the company said.
Jaguar Land Rover declined to comment when asked about the likely impact of the proposed EU-US trade deal and the Chinese luxury tax.
The impact of the headwinds reflects in the company's share price. In 2025, Tata Motors' share price is down 8%, even as Nifty Auto has risen by 4%.
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