TATA Motors is a household name today. From a trivial market share of 4.8% in FY20 to becoming India’s third largest carmaker. Its Passenger Vehicle (PV) market share rising to 13.9% in FY24.
They overtook Maruti Suzuki as India’s largest carmaker in terms of ‘Market Capitalization’ for the first time in 7 years. The automobile giant TATA Motors has been busy scripting a remarkable turnaround.
The automobile giant announced a consolidated net profit of Rs 17,529 Cr. for the quarter ending March 31, 2024. This figure exceeds the net profit reported in the same period last year (Q4 FY23) by Rs 12,033 Cr. Revenue from Operations has increased by 13% to Rs 1.2 lakh crores. The company has declared a final dividend payout which is up to 300-310%, the highest in 14 years.
TATA Motors Initial Rise
TATA MOTORS, as we know today, was previously known as Tata Engineering and Locomotive Co. Ltd. (TELCO). It was founded in 1945 by Jehangir Ratanji Dadabhoy Tata as a locomotive manufacturer. It entered the commercial market in 1954 after forming a joint venture with Daimler-Benz AG of Germany.
After years of dominating the commercial market, it was in 1988 when the company started the manufacturing of passenger vehicles. In 1991, it launched TATA SIERRA, the first indigenous passenger vehicle based on the Tata Mobile platform. It was followed by the launch of TATA SUMO (a multi utility vehicle) in 1994. Then TATA SAFARI (a sports utility vehicle) in 1998.
However, the major turning point for the company came when they launched their most anticipated product in 1998. The Indica was designed and developed entirely in-house and was the first car to be fully engineered in India. The car was a success and helped establish Tata Motors as a serious player in the passenger car market.
The company continued to expand its product portfolio, launching the Safari (1998), Indigo (2002) and Nano (2009). They also acquired the Jaguar Land Rover (JLR) from Ford in June 2008 for $2.3 billion. This move gave the company a foothold in the premium car segment.
The Fall of TATA Motors
Foreign companies such as Hyundai entered the market, the competition grew, and sales fell as they offered more quality and reliability. Also, there were many quality and service-related issues in the tata produced vehicles.
‘NANO’- World’s Cheapest Car Ever Built
The company launched NANO in 2008 as an attempt to fill in the gap between the two-wheeler market and the four-wheeler market which was huge and wanted to have dominance in the passenger vehicle segment. But maybe the problem lied with the marketing as the product was marketed as the “cheapest product” rather than the “most affordable product”.
Prior to the launch of Tata Nano in 2008, it grabbed headlines worldwide as the Rs 1 lakh car. However, Tata could not stick to the price tag of Rs 1 lakh for too long due to increased production costs. The car initially launched in 2008 at Rs 1 lakh came with the bare minimum features which excluded airbags, power steering and power brakes.
To equip the car with better features added to its cost and it was relaunched in 2009 at an increased price of Rs1,12,735. The dream of a Rs 1 lakh car was short-lived.
As a result, Nano was never able to achieve its sales targets. Subsequently, they launched more vehicles but due to the past track record of bad quality products, less reliability and frequent breakdowns people lost trust in the company and most of the people didn’t even consider buying their cars anymore.
‘JLR’- The Primary Revenue Driver of TATA Motors
Back in 2008, Tata Motors made a bold acquisition. It bought the struggling UK luxury car-maker, Jaguar Land Rover (JLR) by shelling out close to ₹10,000 crores and vowed to turn it around. JLR soon started making big profits and became the primary revenue driver of the company (It contributed to more than 70% of the company’s revenue).
But the problem with JLR was that its numbers in India weren’t so enticing and a major part of its revenue came from UK & CHINA. In the UK, 90% of the cars that JLR sold were diesel variants, but with the rise in environmental concerns, heavy taxes were imposed on diesel cars. As a result, JLR was forced to destock by selling its diesel cars at discounted prices which resulted in heavy losses for the company.
Elsewhere, it was having troubles with quality concern. For instance, in China with increasing volumes, customer complaints became more frequent. The company was forced to recall a large portion of its cars from the market due to defects with components ranging from engines, instrument panels and airbags to batteries.
The carmaker lost its sheen. In 2018, JLR wrote off ₹27,000 crores in assets while the company’s debt burden rose from ₹33,000 crores in FY11 to ₹1.2 lakh crore in FY20. Regulatory interventions affected sales of commercial vehicles — trucks, tempos etc.
In fact, even the company’s chairman, Mr. N Chandrasekaran admitted in 2017, that Tata Motors was losing money on every car sold in India.
TATA Motors Turnaround
In many ways the real turnaround of Tata Motors dates back to the peak of Covid-19. India’s automobile industry had come to a standstill, and Tata Motors was right at the bottom of the personal buyer’s preference. Share of Tata Motors had fallen to a low of Rs 63.50 on March 24, 2020 during the Covid-19 blues.
The company’s new models such as the Tiago, launched in 2016, Nexon in 2017, and Harrier and Altroz launched in 2019, were still to drive big sales.
The ‘NEW FOREVER’ Range
During Covid-19, when carmakers were being careful about splurging their money, in the face of uncertainty. It quickly discontinued its old brands which lacked innovation and design and came out with its ‘New Forever’ range. Tiago, Altroz, and Tigor in the car segment and Safari, Nexon, and Harrier in the SUV segment. It led to a significant jump in inquiry.
The company decided to take a bold move of increasing its prices with the hike ranging between Rs.9000 to Rs.15000. By December of that year, sales were increasing once again and grew 89 percent in the October-December quarter. Between October and December 2020, the company sold over 68,000 units in comparison to 36,354 units in the year-ago period. It was also the highest number in 8 years. The Tata Tiago and Nexon were the growth drivers, followed by the Harrier, and the Altroz.
New Forever Range increased their sales due to the improved performance of Tata cars in Global NCAP’s crash tests. In December 2018, the Tata Nexon compact SUV became the first made-in-India model to score a five-star rating. It was in the adult occupant safety in a crash test by the global safety watchdog.
After the Nexon, the Tata Altroz premium hatchback also scored a five-star crash test rating for adult occupant safety. The 2023 Tata Harrier and Tata Safari facelifts are now the safest cars made in India, as per GNCAP. Not only have they received 5-star safety ratings in both adult occupant protection (AOP) and child occupant protection (COP), but these Tata SUVs also boast the highest scores for both compared to all other models in the list.
Entry into the CNG & EV Market
The biggest game changer in this turnaround has been the pivot to sell multi-power trains. Tata Motors sells diesel, petrol, CNG, and EVs in the country, unlike others such as Maruti Suzuki, which sells petrol or hybrid engines, and Skoda Volkswagen which sells only petrol engines.
The adoption of EVs and CNG is giving the automaker an edge over some of its rivals. Earlier they were not present in the CNG market and this fiscal year they have already overtaken Hyundai in CNG sales, while it remains the market leader in EV sales. While some companies haven’t even plunged into the EVs market, TATA sells about 75000 cars in a year.
Another critical aspect of the turnaround was the anticipation of the global semiconductor shortage that gave a lot of trouble to the carmakers. Tata Motors had already anticipated the shortage and in addition to making improvements to reduce the use of chips, it went on to tie up with additional suppliers. Thus, the company was able to turn an adversity into an opportunity as its market share increased in that period.
But the turnaround of TATA MOTORS is not yet complete. The last 4 years was just getting back into the game. With an early mover advantage in the EV segment and with such a diversified product portfolio and improved financials, the next few years will be about getting to the top.
What’s Next for TATA Motors
The turnaround has helped TATA MOTORS to regain its position as a key player in the automobile industry. It is the No.1 Commercial Vehicle (CV) manufacturer in the country with a market share of 39.1%.
It has also been able to increase its market share in the Passenger Vehicle (PV) sector to 13.9% falling only behind Hyundai and Maruti Suzuki. Having the first mover advantage in the Electrical Vehicle (EV) sector, it continues to be the market leader contributing to almost 73.1% of EV sales in the country.
With a promising GDP growth outlook, incentives from the government will improve productivity in both manufacturing and agriculture sectors. By and continuing focus on infra, demand for CV’s is expected to improve from H2 FY25.
The company also expects the demand for passenger cars to remain strong. Although the high base effect, coupled with extraneous factors such as elections, heat wave, etc. may keep the growth rate moderate.
Stellar Show of the PV Sector Continues
In FY24, Tata Motors Passenger Vehicles (including EVs), posted its third consecutive year of highest ever sales. With wholesales of 5,73,495 units (up 6% vs FY23) and retail sales growing around 10% vs FY23 (Vahan-based). It enabled the company to deliver healthy growth with vehicles powered by CNG and EV contributing nearly 29% of sales.
In Q4FY24, Tata Motors Passenger Vehicles (including EVs) recorded its highest ever wholesales of 1,55,651 units. Thereby, registering a growth of 15% vs Q4FY23. During the quarter, the highest number of EVs (20,640 units) were sold, posting a robust growth of 29% vs Q4FY23.
The company crossed sales of 50k units for the third consecutive month led by new launches in CNG and EVs. Continued strong response being received for the new Nexon, Harrier and Safari, launched in earlier quarters.
Demerger of TATA Motors
The automobile giant TATA MOTORS is going to split into 2 separate listed companies. The company has seen a turnaround in its business over the past few years. It has been operating its commercial vehicles, passenger vehicles and Jaguar Land Rover segments independently under separate CEOs since 2021.
After the demerger, one company will house the passenger and electric vehicles as well as JLR businesses. The commercial vehicle business and related investments will be spun into the other entity.
But why is the company splitting?
Chairman N Chandrasekaran said, “This demerger will help them better capitalize on the opportunities provided by the market by enhancing their focus and agility. This will lead to a superior experience for our customers, better growth prospects for our employees and enhanced value for our shareholders.”.
Post the split, shareholders will continue to have an identical shareholding in both the listed entities. Also, the demerger will have no adverse impact on employees, customers, and business partners.