How TATA Motors dealt with their downfall.

TATA MOTORS

Curious case of India’s biggest heavy vehicle giant.

Introduction

Tata Motors Group or Tata Motors is one of the most famous Indian industries in the world, worth $45 billion out of the $100 billion groups of industries founded by Jamsetji Tata in 1869. Along with its own range of commercial and passenger vehicles, it also owns prestigious brands such as Jaguar Land Rover and Tata Daewoo. Incorporated on September 1, 1945, as Tata Locomotive and Engineering Company Limited, a public limited company under the Indian Companies Act, 1913, it went through several different names before being called Tata Motors.

Along with being a leading global automobile manufacturer and the first Indian automotive company to be listed on NYSE in September 2004, Tata Motors also holds the title of being India’s only Original Equipment Manufacturer (OEM) and offers integrated, smart and e-mobility solutions. It has a varied portfolio including a wide array of cars, SUVs, trucks, buses, and defence equipment.

Tata Motors has gone through a lot of changes in the products it manufactures. It originally started business as a steam locomotive manufacturer, doing this till 1971. On the other hand, Tata has also been manufacturing automotive vehicles since 1954. This was done with a financial and technical collaboration with Daimler AG (then Daimler–Benz AG), a German brand. However, this collaboration ended in 1969. After the continued production in the field of commercial vehicles, in 1991 Tata Motors started manufacturing passenger vehicles as well.

As a result of various deals, joint ventures, mergers, and acquisitions, Tata Motors has expanded its operations and market to Europe, Africa, the majority of Asia, South America, and Australia. It is a leading manufacturer of vehicles, commercial and passenger, with over 9 million vehicles in India alone.

1999 FORD INTERACTION

The launch of Tata Indica in 1998, Tata Motor’s maiden hatchback passenger car, led to a bitter encounter for Tata and his team as they were having trouble shifting units. Ultimately, the division had to be sold to Ford Motors in 1999, who had shown interest in it. However, the meeting in Detroit was full of humiliation for Tata and the team, including having to hear that Ford was doing them a favour by buying their passenger car division.

NANO

Tata Nano, undoubtedly one of the cheapest cars the world has ever had, was ironically built to combat unsafe travel by Indian families. It was, and still is, not uncommon to see entire families of 4 or 5 travelling on a single scooter, a sight that actually prompted Ratan Tata to build the ultimate family car- safe and affordable.

In 2003, Tata finally started on the journey for the car model that would later be called ‘Nano’. Originally meaning to set up a factory in Singur, West Bengal in 2006 with ₹2,000 worth of capital infusion to turn it into an ‘auto city’, the production was ultimately shifted to Sanand, Gujarat in October 2008 due to political turbulence in West Bengal.

Tata in 2000s

In 2004, a South Korea-based company named Daewoo was acquired by Tata Motors which was later named Tata Daewoo. Tata Daewoo later worked with Afzal Motors to transport trucks assembled in Pakistan to the Middle East and Central Asia. Later in 2004 Tata motors had their first chance to get Tata motors listed at NYSE (New York Stock Exchange) and they did not miss it.

In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a Spanish bus, and coach manufacturing company. This decision resulted to be very good for Tata motors as good products like the Starbus&Golbus developed from there.

The year 2006 was responsible for the famous Tata Marcopolo Buses, Tata Motors formed a joint venture with Marcopolo, a Brazil-based bus and coach making company. Tata Motors currently is looking to set the world’s biggest fully built bus making plant

In 2008 Tata Motor acquiring Jaguar Land Rover was the topic in the business world that stole all the thunder. While the spotlights were on the fact that Tata Motors acquired Jaguar and Land Rover from Ford in 2008 for $2.3billion (Rs. Approx. 12,000 Cr), merging the two marques into a single company in 2013. The deal included a clause where Ford motors had to contribute $600 million towards the pension fund, this meant that Ford motors received a net of only $1.7billion. As part of the transaction, Ford promised to continue to supply Jaguar Land Rover for differing periods with powertrains, stampings, and other vehicle components, in addition to a variety of technology, and providing other services. Tata as per the deal also acquired the following:

• 100% stake

• 3 plants in the U.K

• 2 advanced design and engineering centers

• Intellectual property rights

• Capital allowances – A guarantee of $1.1 billion

• Ford to support credit sales for JLR for the next 112 months

This deal received mixed reactions from the industry experts and journalists.

Many were skeptical if Tata would be able to run a company like JLR or not. They were not sure if TATA would be able to make huge investments that were necessary to run the company and to take it to the next level. Some bankers like Jeremie Papin, of Lehman Brothers, believed that the price paid by TATA was too high.

On the other hand, a lot were happy about this deal and praised it. A lot of people in the industry believed that there could not have been a better company than TATA Motors to run JLR. Big names like the CEO of BMW North America of that time praised this deal by saying that TATA is possibly the best owner for JLR.

Why Tata took such a big step?

Tata wanted to expand its passenger vehicle operations and this opportunity would have helped them expand in foreign markets also. It allowed Tata to enter into a new segment of passenger vehicles.

Bert Boeckmann, the owner of Galpin Jaguar in Los Angeles' San Fernando Valley, says he's encouraged by the sale and that Chairman Ratan Tata has shown enthusiasm for the product. "I think they see this as a unique opportunity to gain some real recognition in the auto industry. “Well, Tata took this step because of JLR’s goodwill in the automobile industry, the commitment of the dealers despite losses over the past four-five years, and the introduction of new models in the pipeline.

In 2006, reports said that losses at Jaguar stood at USD 715 million and Jaguar was not performing well. That was the main reason Ford was ready to sell the JLR at half of the price. Tata took this as an opportunity to enter into the premium class segment to take advantage and contribute to GDP growth during that period. The purchase price was more than the market expected but still about half what Ford originally paid for the brands several years ago. To finance the acquisition, Tata Motors raised a bridge loan of US$ 3 billion from a consortium of banks.

Tata Motors planned to raise Rs. 72 billion through three simultaneous but unlinked rights issues. However, the rights issue ran into problems as the share price of Tata Motors continued to slide down after the issue opened. Through all the fund-raising efforts, the company was able to repay only US$ 1 billion by the end of 2008. Tata Motors was required to repay the

entire amount of bridge loan by June 2009. Due to adverse financial conditions and credit freeze, Tata Motors announced that it was planning to roll over the bridge loan, which was estimated to further add to the debt burden of the company.

Why did TATA Motors fail?

A decade ago, Mr. Ratan Tata, a great visionary man and the Interim Chairman of Tata Group saw a dream of producing the world’s cheapest car without compromising safety, quality, and environment. He wanted that every Indian should be able to afford a car. To make this dream come true Tata Motors introduced the world’s cheapest car, Tata Nano a five-seater family car. It was a car that was priced a little higher than an iPhone. The car was having an attention-seeking possibility. The hype of the car increased so much that Tata Motors saw an overbooking of the car. Everyone started talking about Nano. It was given the title of “World’s Cheapest Car”. Then why Tata Nano failed?

Number of cars sold

Year Cars Sold

2009-2010 30000

2010-2011 70432

2011-2012 74527

2012-2013 53848

2013-2014 21129

2014-2015 16903

2016-2017 7591

2017-2018 1502

The marketing team of Tata Motors played a vital role in the failure of Tata Nano. Unlike other countries where a car is a utility, in India, a car is seen as a luxury item. The success of a person is measured by the car he/she owns in India. The tag of “World’s Cheapest Car “which was playing a positive role in creating the hype, suddenly started having a negative impact on the car. The tag changed to “Lakhtakiya car”. This hesitated people to purchase the car. Moreover, some car met with an accident and some car caught fire. This raised the questions on the safety of Tata Nano in the mind of customers. Also, the shape of the car was more like an auto turned into a car. But the Marketing team didn’t perform their duty of regaining the confidence of customers and changing their perception about the car. Tata Nano witnessed an overbooking. The automaker got no less than 203,000 pre-bookings before the car was launched. Initially, Tata Motors wanted to set up a production unit at Singur, West Bengal but due to the protest of farmers, the Government company had to shift the production unit to Sanand, Gujarat. It took the company to provide 1 lakh cars in 2 months. Also, the car was never priced at 1 lakh rupees as it was said, the car was having an on-road price of 1.99 lakh. This delay in the production of the car and the actual price of the car decreased the hype of the car. Although the company tried to bring up different models of Nano but it was never able to capture the market.

Jaguar Land Rover

Another failure came for the Tata motors when the United Kingdom decided to leave the European Union after a UK-wide referendum in June 2016 which is known as the issue of BREXIT (Britain Exit). Having the principal manufacturing facilities of Jaguar Land Rover in the UK, the issue of BREXIT came as a nightmare for the Tata Groups.

Tata motors made huge investments in JLR over time and before BREXIT JLR like any another automotive company that took advantage of the free trade offered by Europe’s market, as the production of each car involved a lot of movement of thousands of parts across the continent but after BREXIT the JLR has to suffer from the huge increase in cost. It was believed that if Britain exits the European Union without a free trade agreement then it will add up a cost of 10% to the assembling of parts itself. JLR which outsourced work to countries like Germany, Italy, Scotland, and Poland was not prepared to suffer from the new tariff barriers. In the first six months of 2018-19, the company lost around 354 million pounds. With this the increased cost of manufacturing a car which imports 30% of its parts, the BREXIT shattered the growth prospects for Tata Group’s JLR in the Luxury cars industry.

Another reason for JLR’s failure is its over-dependency in the Chinese market. The company sold the most number of cars in China till 2017 but since then the sales volume of the company in the Chinese market fell from 146.4k in 2017 to 99.37k in 2019. Despite investing so much into the brand, the decrease in consumer confidence in the quality and reliability of JLR cars lead to the fall in Jaguar Land Rover sales.

Present Scenario of TATA Motors

After suffering from the slowdown economy in 2019 and surviving in this COVID pandemic the automobile industry gets some relief in August 2020.

The Indian automotive industry as a whole had a good time in the month of August 2020 as continuous progress could be seen in the sales numbers. Total sales for the automaker (domestic + exports) in the month of August 2020 increased 13.3 percent at 36472 units as compared to 32,166 units during August 2019.

Tata Motors reported a 21.6 percent growth in its total domestic sales for August 2020 at 35,420 units as against 29,140 units sold in August 2019.

In the passenger vehicle segment (PV), the company recorded an increase of 154 percent at 18,583 units in the last month as compared to 7,316 units in August 2019, the highest for any brand last month.

Similarly, in the commercial vehicle segment (CV), it recorded a decline of 28 percent at 17,889 units in its total sales (domestic + exports) for August 2020 as against 24,850 units sold in August 2019.

In August 2019, Tata recorded only a 3.7 percent market share leading to an increase of 4.2 percent in August 2020. Tata had doubled the market share and the vocal for local campaign appears to be working in its favour.

Over the last few years, Tata is the highest spender in terms of developing cars and bringing in new products in quick succession. The reason can be simple that is they want customer attraction by giving a large no. of choices to them.

It will be interesting to see how Tata Motors performs in the coming months as the festive season could help in further boosting its sales prospects.

The arrival of the Tiago was a game-changer and it was followed up by Tigor, Nexon, and Harrier, these cars attracted the customers and performed well.

In the upcoming year, Tata Motors is expected to launch the three-four new products Nexon EV, Harrier, Gravitas while the HBX concept based micro SUV.

Future Projections of TATA Motors

Tata Motors is building a common Connected Vehicle Architecture, which will serve the entire portfolio across Commercial, Passenger, and Electric Vehicles, to enable the extended digital eco-system of its customers.

The company is ready with its great new product portfolio which provides a wide range of products in commercial and passenger vehicles. Tata Group is taking the lead in providing a transformative ecosystem solution in India. And working towards a clean and green environment. Tata Group has taken lead in driving the Government’s vision of electrifying India and building a comprehensive and sustainable ecosystem.

The recently launched Tata universe is relating to all aspects of e-mobility solutions, from infrastructure to charging network and phase-wise manufacturing plan, to provide consumers with a future-ready sustainable, and efficient e-mobility environment.Tata Motors will be providing innovative solutions in people and goods transport. In support of the Indian growth story, it will provide the safest range of vehicles to set new industry benchmarks.

Tata Motors has been working towards its better design concepts that offer the latest technology-rich features and deliver high performance, providing the latest technologies and great product quality for faster and better performance to improve the overall efficiency to its users.

The company decided to provide the best product and is working on improving the hardware and interior design by providing better displays, smart antenna, improved sensors, and electronic control unit. With connectivity technology in passenger cars, the cellular segment is likely to witness exponential growth in the near future. Also, gradual growth in such features in buses, trucks, and LCVs has further inflated the growth of this segment during the forecast period.

Tata Motors' collaboration with other companies may help them to improve the products. Such as MG Motor India signed an MoU with Tata Power to deploy superfast chargers at select MG dealerships. With that, it may help Tata Motors to develop its E-vehicles power station structures efficiently and help to make it convenient for all.

JLR and BMW collaborated for next-generation electrification technology. The Collaboration seeks to advance the development of electrification technology to support a transition to ACES. The company is jointly investing in R&D engineering and procurement which will provide the necessary economies of scale to support increased consumer adoption of electric vehicles.

The company’s vision is to diversify and produce new and latest E-vehicles and better versions of the previous products. Also, Natarajan Chandrasekaran said that they were planning to launch 4-5 new products in the upcoming 18-24 months.

As Tata Motors is eyeing to become near the ‘zero-debt’ free company in the next 3 years. We can assume that they are ready to significantly deleverage its business, reduce expenses, and also aiming towards non-core investments. The Mumbai-based company carries a net automotive debt of about Rs. 48,200 crores.

The company also plans to save costs to the tune of about £2.5 billion in British subsidiary Jaguar Land Rover and about Rs. 6,000 crores in the Indian business during FY21, which can help them to complete their initiative. Tata Motors also set a target of generating positive free cash flow from FY22 onwards

And this is also helping them to boost their market capitalization, the wealthiness of the company along with shares of the company may also move upwards.