Tata Motors stock is available at a deeply discounted price and is currently trading at its 10 year low. Here’s some analysis about what the Company’s future holds based on recent developments.
- Tata Motors Limited (“the Company” or “Tata Motors”) is India’s largest OEM (original equipment manufacturer) in the automobile space.
- The Company is part of the US$ 100 billion Tata Group. The Company has a presence in over 175 countries and has a product portfolio of cars, utility vehicles, trucks and busses.
- Tata Motors is the leader in India’s commercial vehicle market with a market share of 45.1%.
- Tata Motors also owns the Jaguar Land Rover Group (“JLR”) which is Britain’s largest automobile manufacturer. Tata Motors bought JLR in 2008 for US$ 2.3 billion form Ford Motor Company. JLR contributed towards 74% of Tata Motors revenue in FY 18-19.
- Tata Motors also offers finance solutions for new vehicle buyers under the name Tata Motors Finance Limited as well as for dealers/vendors under the name Tata Motors Finance Solutions Limited.
- The Company also owns Tata Daewoo Commercial Vehicle Company Limited in South Korea which exports its vehicles to more than 40 countries.
The Company has several partnerships and joint-ventures (JV) including:
- 51:49 JV with Marcopolo S.A. of Brazil for manufacturing busses in India;
- 50:50 JV with Cummins Inc. U.S.A. for design and manufacture of diesel engines;
- an industrial JV with Fiat Group to manufacture passenger vehicles (PVs), engines and transmissions for the Indian and Overseas Market; and,
- 50:50 JV between Chery Automobile Co. Ltd. of china and JLR to manufacture certain JLR models.
Apart from the above JLR also has a collaboration with the BMW Group to develop next generation Electric Drive Units (EDUs) and a long term strategic partnership with Waymo (formerly Google’s self-driving car project) to develop the world’s first premium self-driving Electric Vehicle (EV) for Waymo’s driverless Transportation services.
Why is Tata Motors stock price falling?
Tata Motors stock price has been falling constantly and consistently since hitting its highs in September 2016. Several factors have been cited over the period which has led to the stock falling to a 52 week low Rs.116.9 on 8th August 2019.
The biggest contributor to the fall in the stock has been Jaguar Land Rover. JLR being a British manufacturer has been facing the brunt of Brexit, since the outcome is still uncertain, failing to secure a good trade deals with other regions upon exit can harm JLR’s operations heavily.
Apart from this, there are higher taxes on fuel in the UK as well as new restrictions and even bans being placed on diesel vehicles in Europe. These factors together have affected JLR sales in the UK and EU. China is the largest and most important market for automobile manufacturers. China is now facing a downturn in sales after years of growth. In China, auto sales fell by 9.6% in June 2019 and fell by more than 12% in the first 6 months of CY 2019. The Chinese government also plans to introduce stricter China 6 emissions norms which will require a new range of compliant engines and capex to execute the same.
JLR reported a y-o-y 11.6% decline sales in Q1 FY20 and pre-tax loss of GBP 395 million. Tata Motors also logged the largest quarterly loss by an Indian Company when it reported a loss of Rs. 26,961 crores in Q3 FY19 due to a one-time impairment charge for Jaguar Land Rover. This impairment was on account of weak sales and change in market conditions, especially in China.
India too has seen a slowdown in demand for automobiles. Q1 FY20 saw Tata Motors domestic passenger vehicle sales drop by 30.1% and commercial vehicle sales drop by 19.5%. The NBFC crisis has resulted in banks being more cautious in providing vehicle loans and new axle load norms announced by the government has increased the official maximum load carrying capacity of heavy vehicles including trucks by 20-25% leading to a much lower demand for commercial vehicles. The government of India has been pushing for more stringent emission norms for automobile manufacturers as well. The government has announced an April 2020 deadline for Bharat Stage VI BS-norms a jump from Bharat Stage IV norms which were put into effect from April 2017. This change in norms would mean additional expense for automakers for introducing compliant engines.
Passenger Vehicle Product offerings – a secondary play
Tata Motors in India and JLR globally have struggled to compete in the auto sector. Tata Motors has never had the sales volumes of Maruti Suzuki and Hyundai in the domestic market. Maruti leads the passenger vehicle sector with an approx. 48% share of the market (by sales) followed by Hyundai which has an approx. 20% share of the market. Tata Motors currently ranks 4th with an approx. 5% share, now behind Mahindra & Mahindra which commands an approx. 8% share of the market.
Tata Motors’ most popular passenger vehicle currently by sales is the Tata Tiago. The Tiago is a small hatchback starting at Rs.4.40 lakhs. Tata Motors sold 4689 units of the Tiago in the month of July, down 41.5% y-o-y.
Globally JLR too has always been 4th in sales behind Mercedes, BMW and Audi respectively.
For Q1 FY20 JLR reported sales of 128,615 units, down 11.6% y-o-y. Land Rover contributed to 69% of the sales in Q1 FY20 on account of the launch of a refreshed Range Rover Evoque as well as the newly launched Range Rover Velar. For Jaguar the newly introduced all electric SUV the Jaguar I-Pace, has been a success. The I-Pace won the coveted ‘World Car of the Year’ as well as the ‘World Green Car of the Year’ award. The model accounts for almost 12.5% of all Jaguar sales in the US market.
In the near term, both JLR and Tata Motors are looking to make new products in line with the current tastes of the market. JLR plans to launch the Land Rover Defender SUV as well as the Jaguar E-Pace SUV globally to satiate the rising SUV culture in the global market. Tata Motors too recently introduced the Tata Harrier an SUV which has been well received by the domestic market and sold 740 units in the month of July 2019 ahead of its competitor the Jeep Compass which sold 590 units. Tata also plans to launch a new premium hatchback called the Altroz as well as an electric version of its popular hatch the Tiago. Tata Motors will meet with stiff competition from its Korean rivals Hyundai as well as new entrant Kia who already have electric vehicles being sold globally. Mahindra which currently ranks above Tata Motors in terms of sales has been a pioneer in the electric vehicle segment in India. Mahindra already has electric vehicles on offer. MG Motor too has entered the Indian market and will compete in the same space as Tata Motors.
Electric seems to be the way forward for JLR and Tata Motors.
JLR was the first European car maker to come up with an all-electric SUV, the I-Pace which has been a success. This showcased that JLR has the required technology and capability to produce premium electric cars which can compete with the likes of Tesla, the leader in the premium electric vehicle segment. JLR’s main competitors i.e. Mercerdes, BMW and Audi have all begun producing electric vehicles.
JLR now plans to offer electric options on all models from 2020. With the global incentivization by governments to promote the adoption of electric vehicles, the move should benefit JLR. In July 2019, JLR announced that the new generation model of its now discontinued flagship, the Jaguar XJ will be all electric.
Strategic tie ups with BMW (a front runner in the EV segment with its initial EV line up of the BMW i3 & i8 in 2013) and Google’s Waymo should further JLRs electric cause.
JLR’s main focus should remain on increasing its product line-up to compete with its German rivals as well electrification of its Land Rover portfolio. Reliability too has been an issue for JLR in the recent past and should be improved with the newer models.
On the domestic front ,the Tata Group should have a longer term view for Tata Motors. The government of India has long been pushing for reducing pollution in urban cities. In 2017, the government announced a plan for 100% electric vehicle adoption by 2030, but reduced that figure to 30% in 2018. In 2019, the government has again focused aggrisevely on adoption of electric vehicles and as a show of interest has reduced the GST on electric vehicles from 12% to 5% and on electric chargers from 18% to 5%. The government has also cleared a Rs.10,000 crore scheme titled FAME-II (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles) for promoting electric vehicles and its supporting infrastructure.
Being a part of the vast Tata Group gives Tata Motors the advantage of leveraging its presence in other sectors to create a complete electric vehicle ecosystem. Technology sharing from JLR will aid the production of high quality electric vehicles, which can compete with the likes of Hyundai and Maruti. Tata Power recently announced its plans to install 500 Electric Vehicle (EV) charging outlets across five cities over the next one year and Tata Chemicals will soon be entering the lithium-ion battery business, where the company plans to manufacture cell manufacturing, battery recycling, and battery production. Tata Chemical has already signed agreements with CSIR-CECRI, Karaikudi, the ISRO and C-MET.
If Tata Motors can achieve creating the EV ecosystem, it can capture the urban electric vehicle market in India. If anyone can afford to ride this storm of the slowdown in the industry, it is Tata Motors backed by the Tata Group.
Keeping with the above, Tata Motors and JLR are taking effective steps to broaden their consumer base with new product offerings.
EV will remain key for both Tata Motors and JLR and how this space develops for the two companies will play a key role in driving Tata Motors stock price in future. Tata Motors stock is available at a deeply discounted price and seems a steal for a Company which offers so much value as a global powerhouse in the automobile industry.