Will Forced Price Cuts Affect Tata's Luxury Car Sales in China?
Tata acquired its Jaguar Land Rover subsidiary from Ford Motor Co. (NYSE: F) in 2008 for $2.3 billion. The new Jaguar and Land Rover models are among the most appealing cars in the U.S., according to research firm J.D. Power’s latest APEAL study. The Jaguar brand was ranked second and the Land Rover brand was ranked fourth.
Sales of Jaguar and Land Rover vehicles in China rose 61% year-over-year, and 30% of all Tata’s sales in the quarter were due to the two luxury brands. The two brands’ success in China could be threatened, though, by recent Chinese government investigation into Jaguar Land Rover’s pricing policies.
Tata cut prices by up to 19% on two Land Rover SUVs and one Jaguar sports car in a preemptive move ahead of a demand from China’s National Development and Reform Commission. Tata hopes that this will forestall even more severe mandated price cuts. According to The Wall Street Journal, the price of a Range Rover Sports 5.0 V8 has dropped from 1.89 million yuan (a stunning $305,000) compared with just $87,000 in the U.S.
China imposes a tariff on all vehicles sold in the country that are not at least partially assembled in the country. A Model S from Tesla Motors Inc. (NASDAQ: TSLA), for example, carries a base price of around $94,000 in the United States compared with the equivalent of $121,000 in China.
Tata is more dependent on China for sales of its luxury vehicles than is Tesla or certainly Ford. A new Jaguar Land Rover manufacturing facility will open in China by the end of this year, and that will once again boost margins for the luxury vehicles to a point where the recently announced price cuts won’t matter much.