12 March, 2018, Financial Times
As Jaguar Land Rover stalls, Indian carmaker’s sales accelerate in core home market
At the New Delhi Auto Expo in 2008 the star attraction was Tata Motors’ Nano, a tiny vehicle billed as the world’s cheapest car, with a planned selling price of just Rs100,000 the equivalent of $2,600 at the time.
The pet project of group chairman Ratan Tata, the car generated an international buzz over its potential to bring millions of lower middle-class Indian families into the automotive market.
But the Nano proved an expensive failure, and its launch kicked off a decade of decline for Tata Motors’ core domestic operation, cushioned only by the strong performance of its UK subsidiary Jaguar Land Rover.
It was a painful reversal for Tata Motors the biggest unit by revenue of India’s largest conglomerate, Tata Sons and it came as competition hotted up among global carmakers in a key growth market. The decline forced Tata to consider shuttering its domestic passenger car business and focusing on the larger truck making operation.
This year, however, Tata Motors unveiled its Auto Expo show two days after financial results that showed a striking about-face.
While the carmaker revealed lower than expected profits in the last quarter of 2017 for Jaguar Land Rover, because of slower sales in the US and the UK, there was bullish news from Tata Motors’ India-focused standalone business a longstanding drag on growth.
The division posted a profit of Rs2bn ($31m), turning round from a loss of Rs10bn a year before. It claimed passenger vehicle market share of 6.2 per cent for the period, ranking it fourth by volumes behind Maruti Suzuki, Hyundai Motor and local rival Mahindra & Mahindra. This was still just half the level of 2012, but a pick-up from a trough of 4.6 per cent two years ago.
Analysts attribute the improved performance largely to a new generation of passenger vehicles that has overhauled a dated line-up, but they warn that Tata Motors still faces a forbidding challenge to make up lost ground in the increasingly competitive market.
Clad in a white racing jacket, Tata Motors’ German chief executive Guenter Butschek at the New Delhi show unveiled a new set of vehicle designs including two racing cars and a bright orange sport utility vehicle whose slick presentation contrasted with the Nano’s utilitarian ethos.
“We had very few new launches for a long period of time… our answers to the changes in market demand were not fast enough,” Mr Butschek told the Financial Times. “But our new vehicles have done a great job in terms of brand-building all of a sudden, Tata Motors has a youthful image.”
Mr Butschek, a former chief operating officer at Airbus, took charge in February 2016 after a period of management upheaval. His predecessor, Karl Slym, died in January 2014 after falling from a Bangkok hotel room.
Tata Motors was without a full-time chief executive for two years thereafter, with Cyrus Mistry who became chairman of group holding company Tata Sons in 2012 handling the role’s responsibilities on a part-time basis.
“I cannot imagine how it was possible to run the company for two years without a managing director,” Mr Butschek said. “That was certainly one of the contributing factors to why we have not been sufficiently aggressive, why decision-making took too long, why we provided too much space in the market to the competition.”
The delay in appointing a new Tata Motors chief was a key complaint among Mr Mistry’s critics, who prevailed in spectacular fashion when he was abruptly dismissed in October 2016.
Mr Mistry hit back with a series of allegations against his former employer, including claims of poor governance at Tata Motors.
He claimed the Nano had been kept alive, even after a board decision that it should be abandoned, because of “emotional” factors around Mr Tata’s cherished project. Another reason, he alleged, was a plan to supply Nano bodies to be refitted as electric vehicles by Jayem Automotives, an Indian start-up in which Mr Tata has invested.
In November, Tata Motors confirmed the tie-up with Jayem, but it denies any conflict of interest. The new electric vehicle will be sold under the Jayem brand, and the future of the Nano itself remains unclear.
The Nano’s failure lies in marketing that betrayed a fundamental misunderstanding of the Indian car market, says Arya Sen, an analyst at Jefferies: “Cars in India are aspirational, but this was positioned as a cheap product.”
Despite the reluctance to pull the plug on the Nano, Tata Motors’ new management has shown improved strategic thinking and an ability to implement it by cutting costs and smartly marketing new products, says Anil Sharma, an analyst at IHS Automotive.
The company’s huge commercial vehicle business, which accounts for the bulk of domestic revenue, also appears to have turned a corner. From controlling nearly two-thirds of the Indian market in 2010, it had been beaten down by rival Ashok Leyland to just 42 per cent, before recovering to 48 per cent in the final quarter of 2017.
Meanwhile at Jaguar Land Rover, Tata Motors’ main breadwinner since its 2008 takeover, the focus is on equipping the business for the electric age. The company has committed to offering an electric version of every model by 2020.
Mr Sen says the key to JLR’s success has been its Indian parent’s willingness to “let them do their own thing… if Tata Motors had been handling the decisions, that would have been a disaster”.
In contrast, Mr Butschek vows an end to “complacent” stewardship of Tata Motors’ core business.
Nevertheless, it could take years to reverse the damage of the company’s years of drift, Mr Sen warns.
“The product is not always the most important thing in passenger vehicles there are many other factors, and it’s just not seen as a very high-end brand,” he says. “I think they’ll turn around from consistent losses to some amount of profitability, but I don’t have high hopes.”
Tata’s tiny Nano proves large distraction
A decade on from the high-profile launch of Tata Motors’ Nano, it sold just 94 units in December, compared with an original prediction that monthly sales would top 20,000 and eventually reach 500,000 annually. Sales of the vehicle once touted as the group’s new cash cow have been consistently dismal, sideswiped by small cars from rivals who took advantage of production snags that delayed the Nano’s rollout by a year. The Nano was also dented by Tata’s failure to establish a strong dealership network in rural areas home to the bulk of the car’s target customers. The abandonment of the Nano would “do a lot of good for [Tata Motors’] share price”, by proving management’s hard-nosed commitment to turning round the domestic business, says Jefferies analyst Arya Sen. He adds that the distraction of the Nano drive was a major reason for the stagnation of Tata Motors’ broader portfolio over the past decade. But Tata Motors’ chief executive Guenther Butschek says no decision has been taken on the vehicle’s fate, with the Indian group still keen to include in its product range a vehicle less than 12 feet long, which is favoured by some drivers for its practicality in India’s congested cities. “That’s a good piece of the market, and this is where we play the game today with the Nano,” says Mr Butschek. “The question is how are we going to play this segment in the future… we have intensive discussions and no decision has been made.”