Jaguar Land Rover: March U.S. ASP Clouded By Poor Product Mix

| About: Tata Motors (TTM)

Summary

JLR March +29% but ASP is clouded by poor product mix in LR models.

Incentive remains low, highlighting JLR's pricing power.

Remain bullish on TTM.

Jaguar Land Rover [owned by Tata Motors (NYSE:TTM)] reported +29% y/y growth for March in the US with unit sales reaching all-time high of 10.86k. Although the average incentive and inventory days declined on a month/month basis, the ASP may have declined by roughly 10% due to weaker model mix. Nonetheless, this still compares favorably against the broader luxury market that has experienced a 50bps decline and an 40bps increase in average incentives. In my view, JLR continues to have one of the best growth profiles compared to the other luxury brands and it is quite impressive to see the unit achieving this with low incentives, highlighting JLR's pricing and brand power amongst the consumers. I remain bullish on TTM on the back of solid JLR results.

US sales +29% y/y to 10.86k units driven by both Land Rover and Jaguar, both of which saw growth at roughly +28-29% y/y. The strength in the Land Rover brand was driven by Discovery Sports and Discovery, which largely contributed to the unfavorable model mix. When looking at the flagship Range Rover models, sales declined 10% with Range Rover Sports down roughly 5%. Range Rover Evoque did not benefit from the higher demand for compact SUVs as I have seen in other markets and its sales were down 32%. On a positive note, diesel engine variant is already contributing to the sales in a meaningful way, accounting for 13% of RR and 16% of RR Sports sales for the month. On the other hand, Jaguar sales was driven by the XF model that saw +54% y/y growth followed by the F-Type (+27% y/y). Although the robust sales growth was due to a lower base, I expect sales to improve gradually as the new XE sedan is expected to hit the dealership in May followed by the new F-Pace in June.

Operationally, incentives at JLR declined 5% y/y but the Land Rover incentives increased 18% y/y given the model mix, particularly on the Discovery Sport and the Discovery model. However, the overall LR incentives remains the lowest among all the car brands at $679 in the US, once again highlighting LR's pricing power. More important, Range Rover incentive was near zero and this allows JLR to avoid diluting the LR brand.

When we look at the overall premium car market, total sales declined roughly 50bps with strength in SUVs (+18%) and weakness in sedan (-17%). JLR continues to have better growth profile relative to Audi (+7.5%), Mercedes (-3.3%), and BMW (-12%).

Conclusion, I remain bullish on TTM given the attractiveness of the JLR asset. Amongst all the Indian automakers, TTM has the best chance of becoming a global player.

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