Tata Motors is in Search of a Partners
Tata Motors is faced with an unprecedented situation. Luxury car sales have been poor and expected to remain under pressure for many quarters especially after the coronavirus (COVID-19) pandemic. Its other cash cow, the truck and bus division, is under a prolonged slowdown and car business will come under heightened competition very soon. Besides being the most vulnerable, the car business is also the smallest of the three division and perhaps the real reason why Tata Motors is keen to find a partner. Today’s automotive wrap takes a look at this strategic step by Tata Motors. But first, here is the complete look at all the major developments of the week.
SC allows sales of BS-IV vehicles after deadline
The Supreme Court on March 27 allowed the sale of BS-IV compliant vehicles for 10 days, barring in Delhi-NCR.
The apex court was hearing a pleas filed by the Federation of Automobile Dealers Association (FADA), last week. The body had sought an extension for sale inventory as it was facing problems due to the coronavirus-induced lockdown.
Ashok Leyland cuts down capex heavily
Chennai-based Ashok Leyland, India’s third largest commercial vehicle maker, is using the slowdown to go aggressively after cost cutting. It is also recalibrating its capital expenditure for FY21.
The maker of heavy duty trucks has already managed to reduce capital expenditure for the present financial year by 40 percent. This will help it to close the year with a capital expenditure of Rs 1,200 crore, as against the earlier Rs 2,000 crore announced at the start of the fiscal.
Auto industry to take Rs 20,000 crore hit this month
The automotive industry is expected to take a hit of more than Rs 20,000 crore during the first nine days of shutdown due to COVID-19.
Manufacturing activities ceased mostly from March 22 after the Maharashtra government decided to enforce work from home more strictly in the state. Companies with plants in Gujarat, Haryana, Karnataka and Tamil Nadu also followed suit and shut operations by March 23.
JK Tyre announces salary cuts
JK Tyre & Industries, one of India’s largest tyre makers, announced that salaries of senior management will be slashed voluntarily to battle the erosion in sales and profitability.
The chairman and whole-time directors of JK Tyre have taken a voluntary pay cut of 25 percent. Other senior management personnel have decided to take a salary cut of 15-20 percent
Bharat Forge will shut global plants
Forging giant Bharat Forge will shut all global operations by March 27, less than a week after it announced an India-wide factory shutdown following the outbreak of coronavirus.
The complete lockdown will hit revenues of the Pune-based company, 40 percent of which depends on domestic and export components for trucks.
Tata Motors looks for partnership
The passenger and electric vehicle (EV) divisions of Tata Motors will be clubbed together under one entity before any mutually beneficial strategic alliance with a company is agreed upon by its board, the company stated on March 27.
The board of Tata Motors, India’s fourth largest passenger vehicle maker, approved a plan to hive off the company’s passenger vehicles (PV) business, including the EV business, into a separate subsidiary through a scheme of arrangement.
While this is not the first time that Tata Motors is seeking outside help for products and technology, though it is the first time that the company has gone to the extent of separating an entire business unit from itself for the purpose.
In the past the company joined hands with Fiat and Volkswagen before announcing a mutual separation after working together for months and years. It also held talks with Peugeot behind closed doors before the French company decided to come solo to India.
Tata Motors and Mahindra & Mahindra are the only two companies in India to be present in heavy commercial vehicles (CV) and passenger vehicle (PV) segments under the same brand. The company’s truck and bus division generates 76 percent of the revenue while the car business generated 75 percent of the loss during the December quarter.
Maruti Suzuki, Hyundai, Renault have invested heavily over years in improving products that has helped defend and improve their market shares.
New companies like Kia, MG Motor alongside existing competitors like Volkswagen are chasing the same set of customers armed with a slew of new generation products. Chinese auto companies with deep pockets have also lined up entry in India.
Riding high on new style language and host of convenience features recent products of Tata Motors such as Nexon, Tiago, Harrier and Altroz have been received positively. However long-term survivability of Tata Motors’ passenger vehicle division depends on future technologies and not just products.
EVs, fuel cell, hybrids, connected car technology, driverless technology among other emerging technologies needs huge investments. Besides future emission and safety norms will become tougher than today entailing bigger financial commitments.
Tata Motors’ attempts at securing the future of its passenger vehicle unit is part of the efforts of making the company leaner and swifter in responding to challenges and market changes. In that attempt the company has been trying to get rid of non-core business units.
Stakes in IT engineering services subsidiary Tata Technologies, are explored to be divested construction equipment maker Tata Hitachi. Tata Motors is also positive in selling stake in Tata Motors Finance, the in-house vehicle finance company.
Businesses of Tata Hispano and Tata Precision Industries have already wound up. Its racecar project Racemo could not find any buyers after it was put up for sale two years ago. Tata Motors sold its defence and aerospace business two years ago.