Where is the breakeven in FCF for JLR in terms of wholesales per year? I believe it used to be around 325,000 units per year. Is that the case? How is your order book at the end of Q3? VMEs have significantly increased year-to-date, reaching 7.7%. Where and when do you see them reaching peak levels?
So, it's fair to say that this year our cash breakeven is significantly above 325,000 units, but that's a metric that's best used prospectively to judge how well the business is performing rather than retrospectively. Prospectively we will give you a proper update on FY27 and the years beyond in our Investor Day in June, so probably defer further conversation of that until then. Our order bank is in a decent place at the end of Q3 and is higher than it was at the end of September, so we are building order intake relatively strongly. And I think the power of our brands is our biggest advantage, and I did mention the Dakar win early on, we are already seeing a direct influence of that on the order intake on Defender. So, Defender order intake is now around 10,000 units a month from the global press coverage and brand enhancement that things like Dakar have. So, we will focus on continuing to grow our brand and use that to pull through some of the problems that we face. But we will keep needing to spend money on VME, that's the third part of this question here. It did reach 7.7% in Q3. I expect it may go up marginally in the next six months, but after that point in time when we have run through the Jaguar's and we're starting to think through launching new vehicles, I would expect that to cap and start to come down. So, the peak level relatively close to that 7.7%. And in terms of your fourth part of your question, in the bond market, look, we're assessing it. I don't have anything to announce at this stage, but we're definitely looking at it.
How do you see increasing competition from local brands in the luxury car segment? JLR debt has increased substantially due to operational disruptions. Do you expect to go back to net cash position in the next two-three quarters? How has tariff transmission strategy evolved considering demand, environment, and production disruption? Given the transitory and structural challenges, is there a case to revisit your Capex guidance? FCF guidance implies 4Q FCF for 0.5 billion to 0.8 billion. Does it imply that 4Q production would have to be normalized?
Okay, I'll start at the top. Well, in China, there is definitely a squeeze on the luxury segment, and that is a squeeze from below in terms of the local new energy vehicles, but also a squeeze from above in terms of a general move away from luxury by the Chinese authorities, which is evidenced partly by their increase in luxury car tax thresholds in July, where they basically levied an extra 10% duty on all cars with a transaction price between RMB 0.9 million and RMB 1.3 million. So, there is a bit of a squeeze going on, and you can see that in all OEMs data in relation to China. We are going to make sure, as I referenced earlier, we do not overstock that market and that we rely on the power of our brands to pull through sales. Accepting that in the short term, that is going to mean that we hurt a bit in China, but we will protect that market for its long-term abilities to grow. Our debt has increased. It will certainly not get back to net cash over the next two or three quarters. That is going to be something that takes a little bit more time. You can see from the fact that we started the year with GBP 250 million roughly of net cash. We will lose in our guidance between GBP 2.2 billion and GBP 2.5 billion FCF and additionally paid a dividend of circa GBP 450 million during the year. Tariff transmission strategy, it's a good question, but one that is really difficult to answer. So, we did increase our prices in the U.S. and we increased things like delivery charges and various other mechanisms to try and recover some of the duties. Market forces then overtake and what you find is we are probably compensating a fair amount of that now in terms of increased VME. Capex guidance, I think, will be GBP 3.6 billion, GBP 3.7 billion from what I can see today. And your point around FCF is correct, that GBP 0.5 billion to GBP 0.8 billion positive is where we are heading and what we need in order to meet the numbers that we have committed to, and Q4 production has normalized. All of those plants are now back fully running at capacity and there are no residual cyber issues in those two plants. So yes, Q4 will return to normal.
For India, how much was the commodity impact expectation for Q4? What was the blended price hike in January? Can you indicate the blended discounts for per vehicle in Q3? What is the current outstanding volumes for Sierra and what would be the current capacity? Will March capacity be at 15,000 units?
So, we can't give guidance of what the commodity expectation was for Q4, but generally we have been seeing even in the last few quarters it has been about 1.7% to 2% of our revenue. We are still assessing what is going to be the impact in Q4. We haven't taken any price hike in January. We are yet to take, but in February, we are going to take. The exact percentage increase we are going to announce whenever we take it. Blended discount would be, somewhere around 3.5% to 4% of our revenue. And also, that's not all the consumer discount, it also includes the industrial deals. Yes, we can't share with you the current status of the bookings, but I can clearly tell you that 70,000 is what we had announced on 16th December. It's, of course, in six digits. As far as the capacity is concerned and ramp up, I think in Jan we were able to supply about 7,000 units and the deliveries started only from 16th Jan. So, we are clearly in a ramp up phase and the first, even before I talk about in-house ramp up, the first level problem is, on the supply ramp up from the suppliers itself. And also, there is a clear signal that one is seeing that industry volumes have also increased from 350,000 to nearly 420,000 a month in the last three-four months we have been seeing. And therefore, at Tier 1 to Tier 3 supplier level, especially, let's say, for example, castings and all, we are seeing that there is general capacity constraint that is coming. So, we are working on enhancing the capacities and ramping up the supplies from the suppliers. In-house capacity ramp up is happening to the extent of capacity, which has been dedicated to Sierra in our Sanand 2 factory. But we are also increasing the capacity further in two phases in the next five to six months. And therefore, the waiting period, which today would be, say, around six to seven months, should progressively come down as we ramp up and further ramp up with the enhanced capacity in the next five to six months.
How do we think of demand guidance for Harrier and Safari post the 1.5 litre petrol launch? How are we thinking on Curvv volumes post the Sierra launch? How do you see growth outlook for domestic PV industry and Tata Motors for next quarter and FY27? How does the product pipeline post Sierra look like?
Harrier, so yes, Harrier, I think petrol is going to - indications basis, the bookings that we have, which has been flowing is about 30% to 35% of our volume should come from petrol. Right now, we are again on the ramp up phase, because as I said that there is common engine sharing between Sierra and Safari, so we are distributing in a balanced way the engine supply. So, again it's more of capacity side issue, which I think we will be able to overcome in the coming months. So, strong bookings, extremely strong, strong bookings we are getting for Harrier and what we are realizing that these customers were only looking for petrol, there is no overlap with diesel or electric is what we see. As far as Curvv is concerned, there are certain interventions that we are taking on the product and we are particularly seeing, December onwards we saw that there has been uptake in the demand for this Rs.15 lakh to Rs.20 lakh segment of EVs in which Curvv .ev falls and we have seen a significant spurt of demand there. And I would say that Curvv is a car, where it's a unique design, first time being seen in India and therefore, it's going to take time just like we had seen for Nexon, when you bring a new design, it takes time for design to be assimilated and accepted in the market, so we are quite optimistic about Curvv going forward progressively increasing in volumes. So, the first month of quarter four was about 14% growth for the industry, we were at about 46%, we clearly see that the growth of industry in Q4 will be around 13% to 14% kind of a zone. We should be 40%, roughly that kind of a growth rate. So, we expect that for FY26, therefore, the industry would grow by about 8% to 9%, rough estimate, I would say. Whereas for us, we should be somewhere in mid-teens. So, it would be a double-digit industry-leading growth for us. As far as product pipeline post Sierra, I think this is something which you will have to wait for. There are clear nameplates, three nameplates that we have talked about in the next 4-5 years. But beyond Sierra, we are also going to get a lot of refreshes, model-year interventions, and also the mid-cycle enhancements for the current portfolio also. And of course, there are EVs, which are going to come, this Punch EV, which is going to come very soon. You have Sierra EV, which is going to get launched.
We mentioned that margins will improve from Q4 FY26, led by Sierra launch and price hike in Jan-26. How much price hike have we taken? Can you please give an update if you are on track to improve margins in light of commodity pressures?
So, as I said in one of the earlier replies that we are going to take price increase this month. And we will be able to tell you the extent of price increase whenever we take it. Sierra, of course, has enhanced our margin. Also, the VME, which was very high in earlier quarters, has come down. So, you can clearly see while the commodity price pressure remains. But as a result of all these actions and the tailwinds that we have in quarter four with very low inventories at the start of quarter four, so you can definitely expect a much better margin as compared to what you had seen in Q3.
Is there a big change in first-time buyers for Tata Motors and for the industry after GST cut, which segment of cars are first-time buyers going for more?
I cannot give you offhand what has been the increase in first-time buyers, but yes, there is a delta increase that we have seen in first-time buyers. Maybe separately we can ask the Investor Relation team to give that information to you. But the segments which have really responded well, post-GST 2.0, I also mentioned it seems, is the subcompact SUV and the compact SUV segment, which has seen growth much higher than the average growth that we have seen of 20% in this segment. Maybe these two segments would be more upwards of 30%, or maybe 25%, 26% or so. So, these are the two segments, which I'll say in the less than four-meter category which has seen significant traction. Post GST 2.0, I think mid-size SUV segment also has seen a growth better than the average growth of the industry, but that is also to do with the new launches.
How do we assess EU trade deals implications for the India auto sector? Does it potentially cap Tata Motors premiumization trajectory in the UV segment? And conversely, are we revisiting localization strategies for the JLR portfolio?
So, first part I'll answer. We have very less details about the European trade deal. But basis, whatever we are reading and whatever information we have, we clearly see that it's not going to impact in any big way as far as our strategy and journey of premiumization is concerned. Any player, who has to compete effectively in India will have to localize with whatever we are reading in terms of the duty rates, which will still remain. So, there's no impact immediately for sure. But over a period of time also, not localizing in India will have a difficult strategy from a strategy perspective for any player. By just exporting, it will be very difficult. But yes, it does give, some flexibility for big players from Europe to experiment with few models in India before they commit to investments here, is what we would say.
Can you please update on Freelander rollout plan? It appears it is going to be sold outside China as well, and which all markets and the royalty income arrangement?
Okay, so Freelander is also going to start production I think this year. It will be initially for China only, but when we announced Freelander, we did say it would be available for global rollout over time, and that I think is still the case. It will be managed by our joint venture in China between ourselves and Chery, and look, obviously there is a royalty arrangement within that. I am absolutely not going to comment on what that is. However, we are very much expecting that vehicle to be, or that vehicle and vehicles, because it won't end up as being just one to be a big success.
JLR gross margins can you please explain the sharp improvement quarter-on-quarter, even high VME, what is the outlook on account of commodities and semiconductor prices?
So, look, gross margins, the explanation is simple and complex at the same time. Whenever you build down inventory, you take manufacturing cost out of your balance sheet and charge it through the P&L. Whenever you build up in inventory, the reverse happens. So, in Q2, we destocked massively, because we weren't producing any cars. So, that meant that the P&L took a charge from the balance sheet for fixed manufacturing and other overheads. In Q3, that reversed. That's the main cause of the difference in gross margin. It's simply a timing effect and the stocking cycle. You can see the flip side of that in our working capital numbers, because our working capital grew rapidly in Q3.
Any insight on product launches along with rough timelines in FY27 for JLR, especially Range Rover EV, and Jaguar ramp-up?
Yes. Of course. So, look, plans are always adjusting, but as of now, we're going to launch the Range Rover Electric this year and start delivering to customers. And we'll also unveil the new production Jaguar car this year. And finally, also unveil the first car off our EMA platform. That's a unique new model from the Range Rover family that's going to get built at Halewood. So, we are approaching a really, really busy launch period for JLR in the next couple of years. Again, we'll give you more details on timings etc. at the Investor Day.
How much PLI was accounted in the quarter and what was the percentage of the portfolio getting PLI?
So, Kapil, I think we put that in the IR deck, the total PLI for the Q3 was about Rs. 361 Cr and Rs. 573 Cr for year-to-date in the first nine months. And about 40%-45% of our revenues are eligible for PLI incentives and that's what we are accruing and that should go up even more when we move to Harrier docking.
How are the dealer inventory levels across markets? Are they much below normal given that we've not been able to supply? Warranty expenses remained high at 7.7% of sales, any quarterly related one-offs there? How could you sustain it in the next one or two years? How should one look at sustainable EBIT margin levels between FY27 and FY28?
Okay, so I'll try and cover this. Dealer inventory levels, certainly in some markets such as the U.S. are fairly low at the moment. I was in the U.S. earlier this year and there are large numbers of dealers, who normally would have vehicles all over their front lots, where it was fairly empty. So, dealer inventory in the U.S. is tight. We are filling it now, but it has been fairly tight as we work to basically refill our supply chain following cyber. That is temporary and it will relieve itself during Q4. There was a question I can remember on warranty, and yes, there were one-offs in this quarter to the tune of c. GBP 100 million related to one-offs in campaigns and buyback provisions in the USA. So, we are not running at a normalized rate of 7.7%. It is a lot lower than that and we intend these one-offs to stop as quickly as we can.
EBIT margin guidance was 5% to 7% before the cyber-attack. What would the range be possible ahead? Our key models, Range Rover, Range Rover Sport, and Defender are in niche premium categories. Is competitive intensity from Chinese OEMs high in these categories in North America, Europe, and China, and media reports indicate Chery Automobile is in early-stage negotiations to use JLR production capacities in UK?
Yeah, so absolutely right on that. So, EBIT margin 5% to 7% before the cyber-attack. Always difficult to say. I would suspect we would have been close to the bottom end of that range before cyber. The fact that foreign exchange, a little bit of VME etc have moved to adverse to us quite significantly over that period means I think we would have been around the bottom end of that. In relation to Range Rover or Range Rover Sport and Defender, look, Chinese OEMs are coming, and they're coming globally. So far outside of China, there hasn't been that much of an impact in terms of the segments of the markets in which we operate. Because the one thing Chinese OEMs do not have is brands. And brands is where we are focusing, our unique selling point, along with the capabilities of the vehicles, which sort of emphasize those brands. So, there's two choices. Either the world goes completely protectionist, in which case they're protected from Chinese cars, but with considerable disadvantages, or it goes free trade. JLR prefers a free trade model. It is a better model for JLR, and we welcome competition. It will force us to be better. So, are we concerned? Yes. Are we paying close attention? Yes. Are we frightened? No.
Can you comment on VME and warranty costs that have continued to go up?
Yes. So VME, I think, is an industry trend at the moment. As I have mentioned, there are, the China market is shrinking for many OEMs and that is increasing pressure in other markets for all OEMs to try and access the sales. So, I mentioned beforehand, I do think it is near peaking, but it may have a little bit further to go over the six months. So, nothing more to say other than that at this point.