As the morning sun casts a warm glow over Mumbai, where the 78-year-old home-grown automaker Tata Motors is headquartered, the streets slowly come alive with the sounds of horns honking and engines revving. In the past few decades, neither has the morning sun changed, nor the bustling sounds of Mumbai’s streets. What has changed, though, is the fate of Tata Motors, part of the Rs 21-lakh crore salt-to-software Tata group. The Rs 2.75-lakh crore (consolidated FY22 revenues) commercial vehicles giant is now India’s third-largest passenger vehicles (PV) maker as well. In FY23, its market share of 13.39 per cent is very close to second-placed Hyundai’s 14.51 per cent. Plus, its growth rate (of vehicle sales) in this period is 46 per cent, compared to Hyundai’s 9.6 per cent, giving it more than a sniffing chance of overtaking the Korean major.

The icing on the cake: on March 3, Tata Motors rolled out its five-millionth car, reflecting its long and successful journey. The milestone was achieved nearly 25 years after the company entered the passenger vehicles market in 1998. (It started life as a locomotive manufacturer—Tata Engineering and Locomotive Company or Telco—in 1945, and entered the commercial vehicles market in 1954.)

The next 5 million is going to be much faster and very different from the previous 5 million... this journey will be driven by more electric cars

Shailesh Chandra
MD
Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility

And now, the company has set its sights on the next 5 million cars, for which it has already charted out a road map. “The next 5 million is going to be much faster and very different from the previous 5 million,” says Shailesh Chandra, MD of Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility, who joined the company in 1995 as a production manager. Sitting in Pimpri near Pune, at Tata Motors’ passenger vehicles factory, the soft-spoken Chandra’s poised and confident presence commands attention. He points out that in the early days, the company would take more than five years to produce a million cars. But the last million took just 2.5 years. “This just shows how rapidly we’ve grown,” he says. It does also show that the next 5 million will certainly be produced at a much faster rate, so long as the company can sustain the tremendous consumer demand its products are witnessing in the market. Plus, it needs to match rising competition in a very different car market compared to even a decade ago.

In 1998, Tata Motors gave India its first fully indigenous car, the Indica. Over the years, the company faced speed bumps like design flaws, the perception of a fleet car manufacturer, a political uproar over its proposed plant in Singur (West Bengal), and its much-hyped “world’s cheapest car”, the Nano—that proved to be a disaster. Although it has swerved from one crisis to another, nothing seems to have slowed it down. Today, every seventh car sold in India is made by Tata Motors, a feat that has helped it achieve the 5-million mark.

Between 2006 and 2016, Tata Motors’s PV portfolio faced a double whammy. On the one hand, its three models on the Indica platform—Indigo, Marina, and Indigo CS—faced intense competition. And on the other, Indica and Indigo’s move into the fleet segment caused positioning dissonance with personal car buyers, as Tata Motors found itself in the middle of a major identity crisis.

Amidst tough times, we introduced a new range of vehicles, revamped distribution strategy and proactively led the EV journey in the country

P.B. Balaji
Group CFO
Tata Motors

Enter Guenter Butschek, who joined the trouble-hit carmaker in 2016. For the Airbus veteran, the challenge was to reinvent Tata Motors as a leader in a rapidly evolving transportation world, while simultaneously delivering profits. He brought his learnings from the aeronautical industry and introduced six relevant “angles of attack”: top-line cost reduction, improvement of core processes, customer centricity, new technologies, business models and partnerships, and a lean and accountable organisation. (The ‘angle of attack’ is the angle between the oncoming air and the aircraft wing, which is crucial in facilitating the lift of an aircraft). By the time he stepped down in June 2021, Tata Motors was ready to challenge Hyundai.

“What has worked for us in the past two and a half years is that we came with a portfolio of products which were pretty much in the [PV] segments that were in the sweet spot of growth [in India]. We came with cars that were more stylish and expressive with best-in-class safety and reliability. Our expansion in [monthly] production capacity from 11,000 cars to 45,000 cars also helped,” says Chandra, adding that by the end of 2023, the company is aiming for a monthly capacity of 50,000 units for all PV plants. “The new Sanand plant will further help with a capacity of 300,000 per annum, which is yet to be operationalised,” he says.

At present, the company has a capacity of 480,000 units across multiple plants. In the first nine months (April-December 2022) of FY23, Tata Motors produced 409,173 passenger vehicles compared to 248,600 a year ago.

The company’s turnaround also involved structural changes in the organisation and a strategic move away from an outdated portfolio to more viable product offerings, with an increased focus on re-designed models, cost reductions, wider integration with its subsidiary Jaguar Land Rover (JLR), and making the business more self-funded and profitable. As a result, the company reported a consolidated net profit of Rs 2,957.71 crore in the December 2022 quarter, compared with a loss of Rs 1,516.14 crore in the year-ago period.

Its new range of products—Tiago, Tigor, and Nexon—is meant for the new, younger set of customers. Catering to the fastest-growing SUV segment, a category that has expanded from 15 per cent of overall PV sales in 2015 to over 42 per cent in 2023, the company shifted its entire product offering to two design platforms—Omega, developed by JLR; and Alpha, which was made in-house—to make its operations more cost-effective. Underperforming new models like Hexa and some older models like Sumo, Nano, Aria, Zest, Bolt, Indica and Indigo were phased out. It then relaunched its popular SUV brand Safari, which evoked very healthy response from buyers. Another relaunch, of Sierra SUV, is expected by the end of 2024, in petrol and EV avatars.

They (Tata Motors) need to launch the skateboard platform in the next three years and for that R&D for sophisticated technologies is required

Gaurav Vangaal
Principal Analyst-Light Vehicle Production Forecasting
S&P Global

Its acquisition of the JLR brand in June 2008 also allowed the company to make use of the UK-based firm’s tech and design capabilities to further refine its product offerings and spice up its look and design. “We have come a long way in the PV business in delivering products our customers love. Amidst tough times, we took the bold decision to introduce the ‘New Forever’ range of vehicles, radically revamped our distribution strategy and proactively led the EV journey in the country,” says P.B. Balaji, Group Chief Financial Officer of Tata Motors. “The spirit of innovation will help the company sustain its future challenges,” adds Chandra, proudly.

While tata motors has launched several models in recent times to attract customers, there’s still a gap between the JLR and the Tata brand, feels Gaurav Vangaal, Principal Analyst-Light Vehicle Production Forecasting at S&P Global. “They have just started selling vehicles like Harrier and Safari. In the next five to seven years, people will be upgrading from Nexon to Curvv [launch expected in 2024] or from Curvv to Harrier. At some point in time, they will need to evaluate bringing a premium factor to the consumer,” he says.

Chandra says that there can always be a debate on whether there’s a need for a brand in between. “That brand should be supported with a very strong underlying volume base. Current Tata brands sell within the range of Rs 6.5-25 lakh-plus. The luxury players start selling at Rs 45 lakh-plus,” he says, asserting that the Rs 25-45 lakh is a very low-volume segment. “I’m moving away from less-than-4-m-heavy to more than 4-m-heavy cars, possibly exiting or reducing my presence in the affordable segment. So, my image will grow. Now there’s an opportunity with JLR to see whether they can create a more affordable brand... whether there’s an overlap starting to come,” he says.

As far as the competition from Hyundai Creta in the 4.3-metre segment is concerned, Chandra is sure that he doesn’t want to come up with a “me-too” product. “Curvv is a coupe kind of a product. It’s a first in that segment. Then I’m coming up with Sierra, which has a classic style combined with all the modern tech. There’s a budget of Rs 12 lakh for that segment of customers and they’re looking for a good product. We’re approaching it from that perspective, to have a target cost in mind and what innovation we can then build in the product,” he says.

Vangaal says that Curvv might be able to undercut Creta’s market but there’s also strong competition from market leader Maruti Suzuki’s Grand Vitara. “The market might shift towards that since Maruti is now aggressively looking at that segment,” he says.

The company’s biggest challenge will be to sustain market share in the face of intensifying competition

Himanshu Singh
Research Analyst
Prabhudas Lilladher

Chandra says that Tata Motors’s range of SUVs is the widest in the Indian market. “It starts from Punch which is the most accessible SUV, [and] ends with Safari, which is the most high-end SUV… we’re trying to address the requirement of SUVs in different size and price points that’ll lead to fragmentation and more customers buying SUVs.”

Prabhudas Lilladher’s Research Analyst Himanshu Singh agrees that the company’s primary future challenges will come from competitors aggressively eyeing the SUV market. “The company (Tata Motors) has been quite aggressive in the PV segment. The company’s biggest challenge will be to sustain market share in the face of intensifying competition. Maruti has lost a lot of market share, and now that it has become aggressive, it might be difficult to grow as much for Tata Motors,” says Singh.

Tata Motors has attained close to 14 per cent market share in PVs, which, according to Singh, is “more or less a saturation point” for the auto major. “For them to gain more market share might become very difficult. Its market share has almost doubled in this fiscal. They might not see that kind of market share gain. It has reached saturation in terms of market share,” he says.

A leader in India’s electric vehicles (EV) market (it sells around 4,000 EVs a month), Tata Motors aims to capitalise on consumers’ new-found thirst for EVs. Chandra is confident that the company’s future will be powered by more emission-friendly technologies and bigger cars. “This journey will be driven by more electric cars. We expect 20-25 per cent of the next 5 million to come from EVs,” he says.

On the back of just three EV offerings—Nexon, Tigor and Tiago, Tata Motors has already garnered the lion’s share of 83 per cent of the Indian passenger EV market. But the company is not resting on its laurels. It recently announced its plans to invest Rs 15,000 crore in the segment over 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. All these efforts are bearing fruit. 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—becoming the most affordable EV in the world at that point. “We’re not in the race of making the cheapest cars. We want to focus on bringing different aspirational features and body styles and then we see the cost aspect. But we don’t compromise on the aspiration quotient,” says Chandra. “Tiago EV is a very feature-rich vehicle. Our production processes have matured. We have sold nearly 70,000 EVs by now. These learnings help us stay ahead of the curve,” a confident Chandra adds.

With scorching competition in the $1.45-billion (Rs 11,881 crore) and growing Indian EV market, the journey ahead may not be easy for Tata Motors. Another home-grown automaker, Mahindra & Mahindra (M&M), too, is planning to launch its first EV, XUV400, early next year. “Both Tata Motors and M&M are well placed to compete in the SUV and EV space. M&M has been very successful with its last few launches like XUV700. And both are well placed to ride on their gained market share. I don’t see them cannibalising each other’s markets for now. Tata Motors will aggressively accelerate its journey in electrification,” Singh says.

However, a confident Balaji expects Tata Motors’ nimble approach to help it battle challenges both in the EV and SUV space. “We have been agile in managing our supply chain, including semiconductor shortages, stepping up investments in capacity through targeted de-bottlenecking and doubling down on the safety of our vehicles. Due to these efforts, our market shares have increased multi-fold and our margins have grown steadily. The PV business is now cash positive, whilst the EV business is well funded to invest in line with our aspirations,” he says.

Experts point out that India will see a mix of alternative fuel technologies like hydrogen, flex fuel, CNG, hybrids, etc. and Tata Motors is mindful of that. “We’re not betting only on one technology. Our next 5 million will come from a mix of ICE, which is still going to grow. CNG will also grow while flex-fuel will be mandated by the government. There will be other adjacent technologies along with electrification. In the high-end SUVs, diesel might still remain,” Chandra says.

According to Vangaal, the company needs to look at fresh investments for its new skateboard platform, considered to be the best for EVs, to develop these new technologies. “They need to launch the skateboard platform in the next three years and for that R&D of sophisticated technologies is required. It’s about how quickly they can raise funds and keep up with their product launch timelines,” he says.

Tata Motors is currently working on a three-platform strategy that will underpin the company’s line-up for the next decade. And the success of its next 5 million target is heavily dependent on how quickly it is able to integrate these platforms—that includes a converted IC (internal combustion) engine platform, a bespoke EV platform and eventually, a skateboard (which will be launched in three distinct phases). With a lot on his plate, Chandra, meanwhile, likes to march ahead with laser-sharp focus. “We did not work with a rank in our mind. It’s welcome but not something we’re obsessed about. We just want to concentrate on growing the acceptance of our vehicles and make sure we’re in the Top 3 in all the segments we play in,” he says.

“The company [Tata Motors] has become quite aggressive on an annual basis. Even if they don’t see any growth, then the figure of the next 5 million should be achieved in 10 years. I don’t think it’s very difficult to achieve that number sooner,” says Prabhudas Lilladher’s Singh.

Surely, Tata Motors has put its pedal to the metal. The journey is going to be interesting, so fasten your seat belts and enjoy the ride!