BT 500: Is JLR holding the growth of Tata Motors back?

Tata Motors, India’s third-largest carmaker, is well known for its risk-taking nature. Be it with the launch of India’s first true-blue sports utility vehicle (SUV) Tata Safari in 1998, or now with its aggressive push into India’s nascent electric vehicles (EV) market, the home-grown automaker is at its competitive best. This competitive intensity is also reflected in the carmaker’s performance on the BT500 2022 list, where it has climbed 15 spots to No. 33, and its average market cap has jumped 72.1 per cent to `1.51 lakh crore during the study period (October 2021-September 2022).

While all is well for the firm domestically, its UK-based subsidiary Jaguar Land Rover (JLR) has hit a speed bump. “It [Tata Motors] exists in the global market and its financials depend a lot on the overseas market. Right now, we’re looking at a slowdown that is disrupting demand globally,” says Gaurav Vangaal, Associate Director of Light Vehicle Production Forecast-Indian Subcontinent at S&P Global Mobility.

But JLR is only one part of the behemoth. Its portfolio also includes commercial vehicles (CVs), traditionally its largest segment; passenger vehicles (PVs), where demand has increased rapidly; and EVs, its fastest growing segment.

The only wild card in all this seems to be JLR, whose CEO, Thierry Bolloré, resigned recently citing personal reasons. Although JLR has announced that company veteran Adrian Mardell will replace Bolloré, the reshuffle at the top has thrown in another challenge for Tata Motors to contend with. Not only that, after Tata Motors CEO and MD Guenter Butschek stepped down in June 2021, the company has kept the position vacant and created a structure where its three units—CVs, PVs and JLR—operate independently.

But despite these, the company is not ready to step off the gas. “We’ve started to ramp up production and we’re seeing a continued increase in demand. The global markets are volatile and we will closely watch them, but given the strong order book, it is not something we’re concerned about,” says P.B. Balaji, CFO of Tata Motors.

So, how does the company plan to regain lost ground globally and keep growing domestically? First, let’s take a look at the pain points.

Rough Driving

Tata Motors reported a consolidated net loss of Rs 944.6 crore in Q2FY23 owing to the slower-than-expected volume ramp up of JLR vehicles. The company says that the global chip shortage restricted its ability to meet the wholesale guidance for Q2FY23, excluding the guidance of 90,000 units for China. In the second quarter, JLR sold just 75,307 units globally (excluding China), but things seem to be getting better. Per an ICICI Securities report, with the improved outlook for chip supply, Tata Motors is targeting nearly 160,000 units in H2FY23 versus the 147,000 units it sold in H1FY23. “We had a shortage of specialised chips, which has since been resolved. JLR’s capex in the region will be £2.5 billion and there’s no change in that plan,” says Balaji, adding that JLR’s order book continues to remain strong.

In China, JLR’s portfolio in premium luxury seems to be more resilient, Balaji explains. “There is a... strong order book of 25,000 units. We do not see any near-term concerns,” he says, while adding that although second quarter volumes were disappointing globally, PV and EV sales in India have picked up.

Tata Motors recently announced its plans to invest Rs 15,000 crore in the EV segment for the next five years and launch around 10 products. It has also raised $1 billion in funding from private equity major TPG for its EV division. The company’s aggressive foray into the electric PV segment—on the back of just two models, Nexon and Tigor—has allowed it to corner 85 per cent of the EV market in FY22.

Its newly-launched Tiago EV at an introductory price of Rs 8.49 lakh received more than 10,000 bookings on the day after its launch. Also, Tata’s Nexon EV was the most-sold EV in the country in H1FY22 with 13,280 units, followed by Tigor EV at 5,532 units. But it’s not like the competition is slowing down. MG Motor India’s ZS EV sold 1,198 units in H1CY22 while Mahindra & Mahindra is planning to launch its first EV, XUV400, early next year.

Recently, brokerage firm Jefferies wrote in a report that the company is expanding its EV footprint from around 85 cities to 165 cities as it expects good acceptance of its EVs in Tier II and III cities. The report adds that EVs now form 8 per cent of Tata’s India PV volumes, which is likely to go up. “In EVs we clocked the highest-ever volumes this quarter at 11,500 units, up 326 per cent. And while demand outlook remains strong for now, supply is expected to improve further,” says Balaji, adding that EV is a long-term bet for the company. “Our intention is to increase EV penetration. It is growing faster than all our segments... and the intention is to localise more,” he explains. But capacity constraints might limit its total PV volumes in the near term, the report by Jefferies states.

Off-Roading on Track

The capacity constraint is more pronounced in the internal combustion engine (ICE) segment as demand for its compact SUVs and hatchbacks rises. This turnaround in demand is a result of the company’s product portfolio and design strategy that has helped it gain significant market share in the past five years. “If you compare from FY18-19, from 6 per cent market share, SUVs have risen to 14 per cent. Tata Motors, which operates in the compact SUVs space, has benefitted from this,” says Mansi Lall, Research Associate at Prabhudas Lilladher. Tata Motors sold 46,566 cars in the domestic market in October this year, cornering 14.17 per cent of the segment on the back of its successful SUV launches, data from Federation of Automobile Dealers Associations (FADA) shows. Despite a fairly successful festive season, the company had sold only 26,329 cars in the corresponding period last year.

Sales of compact SUVs contributed nearly 50 per cent to the entire SUV market. “The share of the compact segment has gone up significantly. In FY16, it was just 20 per cent. Now it’s 50 per cent,” says Lall. Moreover, the ICICI Securities report states that the demand outlook for the company across PVs and CVs remains steady.

But there’s something else that has helped Tata Motors sell more cars this year. “If you see the market conditions last year, Maruti was struggling with semiconductors. So was Hyundai, but Tata bought chips on the spot and at a premium to make its cars available in the Indian market. The consumers lapped them up due to a lack of other options,” explains Vaangal.

And this has helped it close the gap between second-placed Hyundai Motor India, which sold 47,783 PV units in October and cornered 14.54 per cent of the market. Vaangal says that there are high chances that the company may surpass Hyundai next year.

While Tata Motors’ PV market share grew from 11 per cent last year to 14 per cent this year, its CV market share fell from 44 per cent last year to 36 per cent now. As the largest player in the CV segment, the company’s sales will pick up as commercial activity increases and the CV cycle has not peaked yet, says Lall of Prabhudas. “We will see volume growth despite the [commodity] price increase. For CVs, I’m positive for the next two to three years.”

One of the biggest challenges for the company in the CV segment is any slowdown in economic and infrastructure activity, analysts say, while adding that in the PV segment, the company needs to identify newer segments. “They should get into more segments. There’s a gap in the over 4-metre sedan segment. One of the major things they should also focus on is service and customer touch points,” says Vaangal. The carmaker also needs to bring in additional trims and variants with feature enhancements in order to cater to the evolving needs of customers in the SUV segment, experts point out.

But true to its competitive spirit, Tata Motors is trucking through the bad roads with nary a dent.

@PLidhoo