Jaguar Land Rover (NYSE:TTM) reported April US retail sales growth of +14.8% despite the lower volume due to the model change of the Discovery Sport. Although inventory increased on a month-to-month basis, incentive declined to the lowest level in five years and underscored JLR's prior track record of limiting incentives to avoid brand dilution.
With ASP flat and volume rising to result in robust sales growth, it is clear that JLR is able to maintain its pricing power while competitors are offering higher incentives to attract customers. That said, it appears that JLR faces a supply issue rather than a demand issue with the Range Rover and the Range Rover Sports all sold out and average wait time is 4 to 6 months in some dealerships. I reiterate my bullish view on Tata Motors due to its attractive JLR assets.
Not your typical April Fool's joke
Total sales of +14.8% to 6390 units was driven by +17% sale in the LR unit while Jaguar sales grew by +4%. Discovery was the bestselling LR model with sales up 7x y/y followed by the Range Rover's 18% growth. Evoque also fared well with +25% growth. Although RR Sports declined 12% y/y, it is worth noting that the decline was due to supply constraints rather than demand (an issue that I am quite comfortable with).
LR2 and Discovery Sports also saw a -41% decline in sales due to model changeover, an issue which I believe can be rectified post model change. On the other hand, Jaguar sales remain muted with +4% growth mostly driven by F-type and the XF model while XJ and the XK models saw sales plummet due to lower demand.
Consistent with JLR's prior strategy, the segment has been maintaining its pricing power and avoiding offering high incentives to protect brand value. I cannot argue with this strategy as lower incentive maintains JLR's pricing power and brand. I note that Evoque incentive declined by 26% while LR4 declined 80%. RR, RR Sports and Discovery Sports continue to see no incentive. While many may see this to be a negative as other luxury brands are offering incentives to compete, it is worth noting that the low double digit growth with flat ASP highlights JLR's brand and pricing power.
Tata Motors remains my top pick within the Indian auto OEM. The JLR asset is the most attractive of the company with US executing as planned and emerging markets such as Asia and the Middle East are two likely regions to drive the medium term growth.
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