Tata’s Plans For India’s Electric Vehicle Revolution

As fuel reserves deplete at a rapid rate and the growing impact of climate change begins to pose a serious risk to our current and future generations, the world is waking up to the need for sustainable mobility solutions, and the electrification journey is at the centre of the discussion.

Electrification is finding a new evolved space in all discussions and debates in India. The Prime Minister’s initiative to hold the first-ever Global Mobility Summit (MOVE) in 2018 provided a unique platform for the industry and related stakeholders to begin the mandate of defining India’s electrification roadmap.

On our path to electrification, we face both challenges and opportunities. The main concerns are the availability of charging infrastructure, the readiness of battery manufacturing capacity, and customers’ range anxiety. However, we have seen a positive push from the government in the form of FAME incentives and tax and registration breaks.

The Tata Perspective

In one of the most ambitious plans for electric mobility and affordability, Tata Motors has stated that it intends to price its green cars at a “not more than 15 to 20% premium” over conventional petrol/diesel vehicles while offering a battery range of at least 200km on a single charge. As it is the Tata universe, we will find our own solutions by constructing a comprehensive ‘One Tata’ ecosystem. We believe that EVs have the potential to become commonplace.

The announcement comes as Tata Motors continues its resurgence in the Indian passenger vehicle market, gaining significant market share in less than a year. Riding high on healthy demand for products such as the Tiago mini, Nexon compact SUV, and Altroz hatch, the company expects overall monthly sales to be “at least in excess of 22,000 units,” keeping it firmly in third place behind Hyundai and market leader Maruti.

“It is not by chance that we have reclaimed third place in the Indian passenger vehicle market. During the last few months, we have had the highest sales volume in the last eight years. This has resulted in us gaining nearly 300 basis points (100bps = 1 percentage point) in market share, which has increased from around 4.7 percent last year to around 7.7 percent now,” Shailesh Chandra, president of Tata Motors’ passenger vehicle division.

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Outperformance continues across segments

Tata Motors (TML) reported a strong operational performance in Q4FY21. Consolidated sales increased 41.8 percent year on year to | 88,628 crores (JLR sales increased 20.5 percent, India sales increased 106 percent), driven by a 7.5 percent increase in JLR volume and a 90 percent increase in India volume. Consolidated margins were down 37 basis points (bps) year on year at 16.5 percent (JLR 15.3 percent, India 8.7 percent) due to operating leverage benefits and a softer-than-expected gross margin contraction. The company booked a net exceptional charge of 13,347 crore (9,606 crores for cancelled JLR models under ‘Reimagine’ and 5,388 crore for restructuring costs at JLR) on its consolidated loss after tax of 7,585 crores.

Tailwinds in place for medium-term volume recovery

JLR’s, India

CV’s, and India’s near-term performance outlook Although there are encouraging signs in the form of (a) a strong JLR order-book of 1 lakh units (including 22,000 units for Defender), and (b) 20 percent YoY volume growth in FY22E, the PV business is clouded by the confluence of Covid resurgence domestically and global semiconductor shortage. Defender, in particular, has performed well, helping JLR increase its market share in served segments to 6% in Q4FY21, up from 4.4 percent in Q1FY21. In India, we expect the PV business to build on its stellar FY21 performance, owing to the shift to personal mobility following Covid and the strong response to the New Forever range. Furthermore, as the market leader, the CV division is expected to benefit from the space’s impending cyclical recovery, which coincides with demand tailwinds in the form of the government’s infra push, a pickup in construction and mining activities, and resilience in the e-commerce segment. In FY21-23E, we expect a 16 percent increase in JLR volume and a 21.4 percent increase in India volume CAGR.

Cost, efficiency focus key to the uptick in margins

Project Charge+ met its £6 billion budget and saved money on time, while a similar India programme outperformed by | 3,300 crores. Project Refocus, under ‘Reimagine,’ aims to deliver up to £1 billion in value across business areas in FY22E. Focus on efficiencies (cash flow breakeven reduced to FY14 levels), sales quality (via lower variable marketing expenses and warranty costs), and better product mix (in favour of Land Rover) are seen leading to a structural shift in margins to a higher plane at JLR. The company is also aiming for tighter control over fixed costs in India, with operating leverage benefits set to mitigate some of the impacts of commodity cost inflation in the medium term. TML expects FY22E JLR and India EBIT margins to be above 4% and 2.5 percent, respectively.

The End

Given the current situation and rate of progress, we may not be able to achieve a 100 percent EV transition by 2030, as originally proposed. However, once we are able to overcome the herculean challenges that stand in the way of making India’s EV dream a reality, we will be able to make a significant shift toward clean energy mobility. If India is to benefit from the manufacturing opportunities associated with this transition, the time to make the transition is now.

India has a significant market potential for Electric Vehicles (EVs). Although we are still in the infancy of adoption of EVs, with the changes in the technology landscape as well as the clear vision set by the Indian government, IESA estimates that over 7 crore EVs should be sold in India by 2030. This transition of the transportation sector from petroleum-based internal combustion engines (ICEs) to EVs, would create a market of 750 GWh of advanced energy storage solutions over the next decade. The electrification of the transport sector presents a huge opportunity for cleaning up the air quality and also improve national energy security by reducing petroleum import dependence.

Sayon Bhattacharya

A student, Quant Dev, Finance & Capital Market Enthusiast, and now a blogger on The Indian Wire living in the Financial Capital of India, Mumbai. Sayon is a multi faceted individual with limitless enthusiasm to enlighten the uninitiated in the realm of Finance and Business. He enjoys sharing his knowledge and understanding of current and core happenings in these domains with startling simplicity and ease of understanding. Stay tuned to know more about the latest happenings and be up to date with the market.

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