Mention emerging markets like India to investors and typically, their eyes light up. With growing economic infrastructures and a massive consumer base, India-based Tata Motors (NYSE:TTM) should be flying high. However, the opposite is true. TTM stock is one of the worst-performing investments among major publicly traded firms this year.
Just how bad is it?
On a year-to-date basis, TTM stock has shed nearly 42%. But even more problematic, the volatility appears to be worsening. Since its January opener, TTM appears mired in a declining trend channel. Every month of this year so far has ended in the red. The closest Tata has come to a respite was April, when it opened at $26.06 and finished at $25.12.
Adding to shareholder jitters, TTM stock rarely looked convincing outside of a reactionary surge following the 2008 financial crisis. That, and a huge run-up from the summer of 2013 to early 2015. But that’s really the extent of Tata’s market success. Another rally occurred two years ago, but it never quite hit the heights seen in 2015.
A significant reason why Tata Motors has generated buzz among auto enthusiasts but not among investors is U.S. auto sales. Tata acquired the Jaguar and Land Rover brands from Ford (NYSE:F) in 2008. For their high-profile purchase to pay out, both these brands must do well here.
Unfortunately, the automotive environment isn’t conducive for luxury autos. For starters, domestic auto sales have flatlined since the spring of 2015. More importantly, demographic trends lever significant headwinds. As older folks retire, they have less need to drive. And younger folks have demonstrated less interest in car ownership than prior generations.
Does TTM Stock Carry a Trump card?
That’s not to say that everything is ugly for TTM stock. In 2017, Jaguar Land Rover booked its best year ever, thanks in large part to Jaguar’s new product offering. The iconic brand introduced its first SUV called the F-Pace. According to The Telegraph, “Two in every five Jaguars in 2017 sold were F-Paces.”
That’s mighty impressive. What made it even more so is that the U.K., Jaguar Land Rover’s home market, experienced disappointingly flat sales. Logically, other regions like the U.S. and China picked up the slack. So in order to capitalize on this resurgent hunger for SUVs, Jaguar launched a more economical iteration, the E-Pace.
Will that be enough to convince buyers to reconsider TTM stock? While Jaguar Land Rover’s sales haul is nothing to ignore, future sustainability is an issue, particularly under President Trump’s administration. Concerns about expanding trade wars worry markets as Trump has adopted an unashamedly nationalistic view on economic policies.
“America First” doesn’t leave much room for English automotive brands, let alone Indian-owned English automotive brands. Keep in mind that the U.S. market accounts for 20% of Jaguar Land Rover’s sales. Any impact to this critical channel, and it’s lights out for Tata. Traders recognize this, and have abstained from touching TTM stock with a twenty-foot pole.
To combat this dilemma, Tata must aggressively cater their luxury brands to the consumers that still want them; namely, we Americans. Jaguar and Land Rover aren’t making much progress in the U.K. and Europe because gasoline prices there are through the roof compared to what Americans pay on average.
The other thing to note is that while domestic interest rates have soared recently, we’re still below long-term averages. Combined with an improved economy, Americans are able to splurge on car purchases.
Tata Shares Need to Baseline Before Considering a Purchase
The question, of course, is will they? At the moment, recent sales results seem to favor the Jaguar and Land Rover brands. However, both subsidiaries lag behind the electric-vehicle movement, and we’re not just talking about Tesla (NASDAQ:TSLA).
General Motors (NYSE:GM) achieved significant success with EVs with their Chevrolet Bolt. To a lesser extent, so has Nissan’s (OTCMKTS:NSANY) Nissan Leaf. To appeal to the next-generation of car buyers, EVs are a must. Jaguar has just released its first EV, while Land Rover is still considering its EV.
As a contrarian, I love the massive discounted opportunity in TTM stock. From a fundamental perspective, I’m impressed that Tata delivered record sales in an unfriendly environment for automotive companies.
But that said, speculators should wait it out a bit until shares stabilize and form a baseline. Currently, the risks against TTM outweigh the reward, and that is reflected in the stock’s extreme volatility.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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