Can Tata Motors Retain Its EV Crown?

It is said that Babur — founder of the Mughal dynasty — looked towards the Indian subcontinent when he failed to recapture his lost Samarkand kingdom for the third time, for it was much more prudent for him to helm a conquest in India rather than repeatedly trying for a lost cause. The rest, as they say, is history. Babur not only toppled the Delhi Sultanate but also laid the foundation of one of the most influential dynasties in Indian history.

This vignette of the life of a medieval ruler may seem to have little relevance today, but the fortunes of one of India's largest carmakers have gone through a similar topsy turvy phase, before spurting an enviable turnaround.

For decades, Tata Motors has been No. 1 in the domestic commercial vehicle market, despite competition from both local and foreign brands. The company's aggressive foray into the electric passenger vehicle segment — on the back of Nexon and Tigor — led to an 85.4% market share in the segment in FY22. Its newly launched Tiago EV — the electric iteration of its Tiago hatchback, which was launched at an introductory price of ₹8.49 lakh — received more than 10,000 bookings in a single day.

"We have stopped tracking market share. Our focus is to ramp up production volumes," says Shailesh Chandra, MD, passenger and electric vehicles, Tata Motors. While Chandra does not delve into projections, chairman N. Chandrasekaran told shareholders at the company's 77th AGM in July that Tata Motors plans to sell half a million cars in FY23, with EV sales crossing 1 lakh units. "In FY21, we sold around 5,000 EVs; in FY22, it was around 19,500; this year we plan to sell 50,000, and double it to one lakh by next year," Chandrasekaran had said.

To say that Tata Motors has taken India's fledging electric passenger vehicle market by storm would be an understatement. At a time when the market has elicited a skewed response — with global automakers such as Volkswagen planning to float EVs only in limited pockets — Tata Motors, in Chandra's words, is "leapfrogging" into the inevitable future of electric mobility.

Giving India Its Many Firsts, But… Tata Motors has multiple claims to fame under its belt — the first indigenous passenger vehicle with Tata Sierra; the first SUV with the Tata Safari; and the country's first fully indigenous passenger car with the Tata Indica. There's also the Indigo CS, hailed as the first sub-4-metre sedan in the world. It launched its ambitious "people's car", the Tata Nano, at ₹1 lakh in January 2008, the brainchild of then chairman Ratan Tata.

However, by the time the Jaguar-Land Rover acquisition (June 2008) and the Nano launch came calling, Tata Motors was struggling to cover lost ground. According to industry insiders, the company tried to increase the product life cycle of the Indica and missed the bus on the changing dynamics of the product-market-fit for passenger vehicles in the country.

"When Tata Motors launched Indica, no other carmaker had an answer to it and were caught napping. However, by 2008, Tata Motors was caught napping and missed the bus," says a senior industry observer. Even when the Indigo-CS practically invented the sub-4-metre segment in India, Maruti's Swift Dzire decimated it completely. The Indica platform failed to hold ground against competition, and introducing it to taxi added fuel to fire. The much-hyped Nano project also failed to take off, creating ripple effects elsewhere. "Because Tata Motors wasn't able to get the volumes it needed to run the project, auto component companies ran into trouble," says another senior industry observer.

The acquisition and subsequent turnaround of the JLR brand, on the other hand, helped the company evolve into a premier automaker, with access to platforms of Jaguar Land Rover. Tata chose the D8 platform of the Land Rover Discovery SUV to metamorphose into the Omega platform.

The company executed its turnaround strategy in phases. Launched in 2016, "Turnaround 1.0" involved structurally overhauling the organisation and moving away from what Chandra calls the "conventionally designed" products to those that would bring in a lot more proposition to the millennial customer. "Turnaround 2.0" came two years later, and laid emphasis on operational efficiency using common platforms (the entire product line was shifted to two platforms — the Omega and the Alpha, with the latter developed entirely in-house) and by launching a new BS-VI portfolio. The company phased out some of the old models, including the Indica, Indigo, Safari (relaunched in a new avatar), Aria, Zest, and Bolt (the last two were the first to be launched under the turnaround strategy). Even the Hexa was axed within three years of its launch after it underperformed.

The EV Bandwagon

Having successfully implemented a turnaround in the larger passenger car market, the company started looking for areas where it could start with a blank canvas. "It made much more sense for Tata Motors to leverage capital to tap an unexplored market and have the first-mover advantage than vying to beat Maruti Suzuki, which frankly no automaker has been able to do," says Abhishek Kochar, senior director, Alvarez & Marsal.

The EV foray is a different story, though. "While there was a National Electric Mobility plan in 2013, and FAME-I in 2015 — with an outlay of less than ₹1,000 crore — we realised that it was not seriously targeting electric vehicles, but veering more towards hybrid drivetrains," rues Chandra. It was only after certain developments, like COP21, for instance, that things began to change, he adds. "When major cities in India were declared among the most polluted ones, the government started to look at EVs seriously." At the same time, battery prices were also falling down favourably. "All these trends were showing that the long-term future is electric," says Chandra.

This was enough impetus for Tata Motors to finally make the shift to passenger electric vehicles. In January 2020, the company broke ground with the launch of the Nexon EV. "The first phase of electrification was a low-investment, low-risk one, where we convert models from our existing ICE range into electric," says Chandra.

In July 2021, Tata Motors tapped the commercial electric vehicle fleet market with the launch of the XPRES brand. The XPRES-T EV was the first vehicle under the brand. The company already had over 1,700 electric sedans successfully operating in the fleet segment. In October 2021, it signed an MoU with BluSmart Mobility to supply 3,500 XPRES T EVs. In June this year, it signed another agreement with BluSmart for 10,000 XPRES T EVs, and the next month, one with EC Wheels India to deploy 1,000 XPRES T EVs for cab services in Kolkata.

Electric vehicles in the commercial fleet have seen a much larger level of adoption than the passenger vehicle segment because the subsidies under FAME–II, in tow with its heavy daily usage, gives it a lucrative total cost of ownership, making it easier to reach break-even. "Commercial fleets are seeing mass adoption of EVs," says Anirudh Arun, COO, BluSmart.

In August 2021, the National Company Law Tribunal approved Tata Motors' move to hive off the passenger vehicle division into a separate subsidiary, Tata Motors Passenger Vehicles Ltd., and further operationalise two subsidiaries — Tata Motors Passenger Vehicles Ltd. to focus on passenger vehicles powered by IC engines, and Tata Passenger Electric Mobility Ltd. for accelerating the passenger EV business and its enabling ecosystem. The company entered into an agreement with TPG Rise Climate for an investment of $1 billion (around ₹7,500 crore) in Tata's passenger EV business.

Why Tata Is Thriving

The domestic electric passenger vehicle market is at a nascent stage, with 35,000 electric cars currently plying on Indian roads, according to data from consultancy firm Praxis Global Alliance. One of the major reasons is a dearth of supporting infrastructure, especially an inadequate number of charging stations, according to a white paper by Alvarez & Marsal. Tata Motors, therefore, is building an ecosystem around zero-emission technologies, says Chandra.

"Companies with strong balance sheets will have to come into play to solve the charging puzzle," says Manish Saigal, MD, Alvarez and Marsal.

Foreign carmakers, adds Saigal, are sceptical of the return on investments. "Japanese companies, for instance, will not take the plunge until they are 100% sure. Indian OEMs have been able to work with the government effectively, which is why Tata and Mahindra are bullish on EV."

According to Chandra, certain manufacturers chose to go down the hybrid road because they had already invested in the technology, and wanted to leverage the same to meet the CAFE requirements, and then ultimately evolve into EVs. "There is no new investment for them to make. Manufacturers like us are moving directly to zero emissions, because we believe that hybrids, after a certain point, are going to lose relevance," he explains. If Tata Motors directly drives electrification, it will automatically meet the CAFE norms. "We have never invested in hybrids, and as a company, we're making the conscious choice of following what the automobile industry will eventually veer towards," adds Chandra.

In order to accelerate the adoption of EVs in India, Tata Motors, right from the outset, started to work closely with other group companies — Tata Power, Tata Chemicals, Tata Autocomp, Tata Motors Finance and Croma — to create an e-mobility ecosystem, the Tata uniEVerse. Tata Power provides home charging installation support to support EV customers, and has installed around 2,200 public chargers based on solar power till now.

The support of a power discom for providing public charging networks in India is tantamount. According to Alvarez and Marsal, the country needs to install 46,000 chargers to comply with global benchmarks. The EV/public charger ratio is six both for China and the Netherlands; 19 for the U.S., and 135 for India. An adequate charging infrastructure is tantamount to giving car buyers the impetus to buy EVs, since it addresses the critical issue of not being able to find a charging station in the vicinity, or the battery running out before reaching the destination. But setting up charging stations in India requires huge investments and because of low utilisation, the unit economics is unfavourable.

Additionally, Tata Autocomp Systems has collaborated and completed localising EV powertrain components in-line with the phased manufacturing plan. "All our models have qualified for 50% domestic value addition requirement specified by the government in order to avail incentives going forward," says Tata Motors in its annual report. Tata Autocomp Systems is also leading the operation of the battery assembly plant for Nexon and Tigor. It has helped Tata Motors keep up with the demand, even as the automobile industry was thwarted by the semiconductor shortage. "After the Russia-Ukraine war, the world is once again facing the threat of Taiwan-China war. Due to this, the threat of semiconductor shortage is once again looming as chip-maker TSMC has raised red flags that if war hits, Taiwanese chip manufacturers would be rendered 'non-operable'," according to the Federation of Automobile Dealers Association.

Currently, the supply chain for EVs in India is heavily reliant on foreign imports, which will be unsustainable once volumes increase. The battery cell — which makes up for around 25% of the total cost of an EV — is largely imported because it is difficult to locally procure essential raw materials such as nickel, lithium and cobalt. Tata Motors currently imports battery cells and assembles battery packs locally. Even though battery prices are touted to fall below $100/kWh by 2024, importing battery cells and packs is still not a viable option since supply chains are vulnerable to geopolitical effects.

"Most automotive companies are likely to leverage existing ICE supply chains to cater to higher demand for EVs. Incumbent carmakers like Tata Motors have a slight edge since it has an extensive portfolio of ICE vehicles and well-established supply chains. Tata Motors is also looking to develop dedicated EV and ancillary assembly units in the near future," says Mohit Mittal, partner, Praxis Global Alliance.

Tata Motors Finance, on the other hand, provides structured solutions for fleet buyers to drive EV adoption, including subscription and leasing. It has partnered with Orix Auto to offer a subscription model for its flagship Nexon EV, including a comprehensive insurance cover, instant roadside assistance and end-to-end maintenance. It has also joined hands with Axis Bank and Bank of India for offering financing solutions to authorised passenger EV dealers. Tata Motors Finance's quarterly disbursals grew 11% year on year to ₹5,001 crore in Q3 FY22.

The Road Ahead

The Tata Group wants to build a global-scale battery plant, and has formed a company under Tata Sons. "Our aspiration is not only to make batteries for Tata companies, but also for the global market," says Chandrasekaran.

With India's largest carmakers either deferring their entry into a nascent market (Maruti Suzuki will launch its EV in India by 2025) or feebly dabbling in the EV market (the Kia EV6 is a full-import, CBU model and is limited to 100 units, with a roadmap to launch an India-centric EV by 2025; Hyundai's Kona Electric is retailing comparatively low volumes, with the Ioniq 5 set to be launched sometime in the first half of 2023), Tata Motors would be challenged by Mahindra — who unveiled five e-SUVs under two EV brands. The first four of these eSUVs will be launched between 2024 and 2026. Mahindra also unveiled the INGLO platform, which will underpin all Mahindra EVs going forward, and is capable of supporting level 2+ Advanced Driver Assistance Systems architecture. "Today, with government support, rapid lowering of the cost of ownership and increased consumer awareness of environmental issues, we believe the time is right for us to enter the four-wheeler markets with our range of battery electric vehicles," chairman Anand Mahindra had said.

Tata Motors will not only have to fend for itself against competition in the BEV (battery electric vehicle) space, it is also touted to face competition from another powertrain — strong, self-charging hybrids. This segment has been brought back into contention by Honda Cars India Ltd. (HCIL) with the launch of the City e:HEV. The spark created by HCIL was further fanned by Toyota Kirloskar and Maruti Suzuki India Ltd. (MSIL) with the launch of the Urban Cruiser Hyryder and its cross-badged sibling, the Grand Vitara. MSIL has entered into a tie-up with Toyota, where the latter will supply Maruti with its hybrid technology, and the former will help realise Toyota's ambition to foray into the mid-size SUV and premium hatchback market.

The flurry of launches has made strong, self-charging hybrids a force to reckon with. "Grand Vitara has been proving to be a blockbuster from day one. The strong hybrid variant offers fuel efficiency of 27.97 km/litre, the most in its category, outstripping even the diesel offering in the segment by a wide margin," Hisashi Takeuchi, MD and CEO, MSIL, said in his message to shareholders in August. Grand Vitara sold 4,769 units in September, and 800 units were the strong-hybrid variants.

"Hybrids are estimated to deliver 30-35% higher fuel efficiency compared to a pure gasoline vehicle," says Rohan Kanwar Gupta, vice president & sector head, corporate ratings, ICRA. "Hybrids may see improved adoption over the next 3-4 years, with mass adoption of EVs likely to happen only over the medium-to-long term, as the EV ecosystem develops, and lower battery prices lead to pricing parity in ownership cost," he adds.

The challenges notwithstanding, Tata Motors is not worried about preserving market share. "The 90% market share we have means that there is a lack of competition," says Chandra. "But these levels of market share are not sustainable. When competition comes, it will benefit us as well. Once there are multiple options, the market will grow at a much faster rate," he adds. Tata's EV portfolio — comprising of the Nexon, Tigor, and Tiago — sold 3,655 vehicles in September, with a bulk of the sales led by the Nexon EV.

Industry observers feel that even though Tata Motors enjoys the synergies of other group companies, once the electric passenger market becomes a level-playing field, Tata Motors could lose its edge. "It is true that Tata Power has helped Tata Motors overcome the barriers pertaining to charging infrastructure, but they are not exclusively catering to Tata Motors," says Kochar of Alvarez & Marsal. "Their component companies do not have any proprietary technologies. What they have access to, even other manufacturers also have access."

Also, the governance structure and practices of each Tata Group company are different. "Even if they want, they can't integrate the relevant companies to give Tata Motors an edge. They can't just ask Tata Power to subsidise charging rates for Tata cars," says Saigal.

What Tata Motors has done, say experts, is to start early, and address the initial barriers the industry faces by leveraging the synergies of the companies which align with the EV ecosystem to their strengths, but ultimately, the Indian market has always been about getting the product-market fit. "It's a product business. It's almost like a phone. You love the phone and you love the variant, but you don't have to love the entire line-up," adds Kochar.

Tata Motors has unveiled its concept EVs of the future — the CURVV, followed by the AVINYA. "Our focus has been to enable customers with a product option that is the perfect amalgamation of modern functionality and design," says Chandra. The CURVV will be Tata Motors' second generation of EVs — touted to be advanced, flexible and capable of offering multi-powertrain options, both electric and ICE. On the other hand, AVINYA will be the third generation of electric vehicles, with a single powertrain. Tata Motors plans to offer 10 electric vehicles between 2025 and 2027.

Chandra also hinted that the company could introduce its bigger SUVs — the Harrier and the Safari — with an electric powertrain. "For the bigger EVs, the GST rate is the same — which is not the case for ICE vehicles, where it can go up to 50%," he says. Although a bigger electric vehicle would require a bigger battery to be installed, Chandra believes with the 45% leeway in GST, one can possibly workaround the costs.

By 2025, the landscape of green mobility in India is likely to evolve, with sales of self-charging hybrid vehicles gathering steam, and more OEMs entering the electric passenger vehicle market. How well Tata Motors fares will determine the road ahead.