How Tata Motors plans to take on Maruti
9 min read 27 Mar 2023, 11:22 PM ISTThe EV race begins next fiscal. The Tata group company has to make its early-mover advantage count
PremiumIn 2017, India started taking baby steps towards electrification of cars. State-run Energy Efficiency Services Ltd (EESL), a joint venture of four public sector power companies, floated a tender to procure 10,000 electric cars. The idea? Electrify the fleet of cars the government uses. It had estimated that at least 80% of the 500,000 cars used by the government run less than 80 km a day, making them ripe for an electric replacement.
Initially, five automotive companies were interested but, eventually, only three—Mahindra & Mahindra Ltd, Tata Motors Ltd, and Nissan Motor India Pvt Ltd—bid for the tender.
Back then, Mahindra had a head start in electric vehicles (EVs). It already had two electric cars on the road, the Verito sedan and the e2o hatchback. Everyone saw the company as a front runner to bag the contract.
So, it came as a big surprise when Tata Motors pipped Mahindra with a bid of ₹11.2 lakh for its electric sedan, Tigor. The vehicle was yet to be launched and the bid was 15% less than Mahindra’s quote of ₹13.5 lakh for the e-Verito.
“It is difficult to comprehend the price quoted by the L1 bidder (Tata Motors), though we have been in the electric vehicle business for some time and we know the cost structure and subsystems very well," rued Pawan Goenka, the former managing director at Mahindra & Mahindra, in October 2017. He was speaking to journalists.
Mahindra had the option to supply some of the cars to EESL if it could match Tata’s price, which it said it would. “We will not make money on the cars we supply to EESL. We will lose money on every car. I do not know the specifications of the L1 car since it is not yet out in the market, unlike the Verito which has been in the market for some time," Goenka had further said.
At that time, Tata Motors had scoffed at Mahindra’s suggestions of below cost pricing of its car. Eventually, though, it did not matter as EESL’s plan was ahead of its time and soon fizzled out. Instead of 10,000 cars, the company ended up buying less than 2,000 before calling off the tender.
The episode, however, was the first indicator of how serious Tata Motors was about electric mobility. This seriousness would play out over the next few years. Today, the company is the front runner when it comes to electric cars. In 2022-23, its electric vehicle sales are set to top 45,000 units, which gives it a commanding share in the segment—of over 70%. So much so, the company is no longer looking over its shoulder at Mahindra, which is far behind. It has its gaze firmly fixed ahead at Maruti Suzuki India Ltd, which is the undisputed leader when it comes to the overall passenger vehicle share. Maruti doesn’t have an electric play yet. Can Tata Motors translate its early lead into a decisive advantage in the future when the scale starts tipping towards EVs?
EVs only make up 1.5% of the passenger market today but that tipping point—when EVs account for a majority of sales—is expected in about a decade.
Survival to revival
The low bid at the 2017 EESL tender was even more remarkable because Tata Motors was not in the best of shape at that time. It was burdened with an ageing portfolio and riddled with quality and reliability issues. In 2017-18, it sold less than 200,000 units for the fifth year in a row and had a market share of only 5.7% (see chart). A lot of people had given up hope on the company.
“We were at the rock bottom where it was a matter of survival. In the first 12 to 18 months from then, we got ourselves into a position where we had the right to survive," said Shailesh Chandra, managing director, Tata Motors (PV and EV business).
Since 2020, the company hit a purple patch with a completely refreshed line up, which included both EVs and cars running on fossil fuels. It did away with legacy brands like Indica, Indigo and Nano, and had a string of successes beginning with the entry level small car, Tiago. The company followed this with an even bigger hit in the Nexon SUV and further stretched the envelope with the premium hatchback, Altroz, and big SUVs like the Harrier and the seven-seater Safari. The Safari carries a price tag of over ₹25 lakh—a price nobody thought a Tata Motors car could command a few years back. Tiago, Nexon and Tigor have electric versions.
“They (Tata Motors) reinvented themselves. They worked on all aspects of the value chain (suppliers, dealer networks, employees) and invested in new products," said Puneet Gupta, director, S&P Global Mobility. “It is also among the few brands that picked the SUV trend early. Nexon is an excellent example that helped them strengthen their market share followed by the Harrier, Safari and, Punch," he added.
The Punch, launched in 2021, was a ‘micro’ SUV. With this, Tata Motors created a new segment altogether which catapulted it to a higher growth trajectory. This fiscal, the company is set to top 500,000-unit sales in the domestic market for the first time ever, which will give it a market share of over 14% in the overall passenger vehicle market. Hyundai Motor India Ltd, No. 2 in the pecking order right now (see chart), could still be ahead but only marginally.
Avik Chattopadhyay, co-founder of Expereal, a brand strategy consultancy firm, said that most encouragingly, the young Indian customer has taken to the brand. “The youth carry none of the burden of yesterday so will never be biased by what happened in the past."
Time to thrive
Meanwhile, after years of incurring heavy losses, the passenger vehicle division of Tata Motors is set to post a profit in 2022-23 (see chart).
“The transition from survival to revival has brought us to a phase where we were generating enough cash for investing in the future. That has happened mostly in the last one year. Before that, we were conserving cash," said Chandra. “Now on, we are moving from revival to thriving."
The company has chalked out a multi-pronged strategy that involves deepening its footprint in the market, expanding the product portfolio and efficiently managing the many transitions in technology.
With seven vehicles in its line-up currently, Tata Motors has a slimmer portfolio as compared to Hyundai and Maruti—the two companies have more than a dozen models each. Nonetheless, newer models are on the horizon. Tata Motors showcased a range of cars at this year’s Auto Expo in Greater Noida. These included Avinya (electric SUV), Curvv (SUV), and the EV versions of Harrier and Sierra.
“Even with all the growth we have seen recently, our portfolio still addresses only 55% of the addressable market. With the set of products that we have shown in the Auto Expo, we should start moving towards more than 75% of the addressable market," Chandra said.
Tata Motors, for instance, does not have a Maruti Alto equivalent, which forms about 7% of India’s passenger vehicle market. Alto, a ‘mini’ car, has a price tag ranging between ₹3.5 lakh and ₹4 lakh.
Unlike in the past, when Tata Motors sought growth at the bottom of the pyramid (remember Nano?), this time, the company is focused on premium products.
“Ten years back, the median price of cars used to be ₹3.5-4 lakh. Five years back, it was ₹6.5 lakh and today it is ₹9.5 lakh. Tomorrow, it could be ₹12.5 lakh," Chandra said. The entry level hatch segment, he added, will be under pressure because the prices are going up.
But competing with Maruti is no easy task. Many have tried in the past, only to fail. At times, Maruti’s share has fallen—38.3% in 2011-12—giving hope to its competitors. The carmaker bounced back. The entry level mini car segment is stagnating, but with Hyundai’s exit (it discontinued Santro last year), it is still a happy hunting ground for Maruti. In the foreseeable future, this segment will generate significant volumes. The largest selling car in the country today is still the over two-decade old Wagon R.
“Both Tata and Maruti have huge opportunities to grow. Maruti has the head start when it comes to the entry segment. That will be very difficult to match, let alone exceed," said Chattopadhyay of Expereal. “Maruti cars sell not because they are the best looking but offer the lowest cost of ownership. So, to challenge Maruti’s position in the next decade is an uphill task."
One way to bridge the gap is through dealerships. Tata Motors has been aggressive here, more than doubling its sales network in the market with 1,400 dealerships in 2023 compared to 589 in fiscal 2016. It has overtaken Hyundai, which has 1,333 dealerships, but Maruti is still ahead at 3,209.
Making the start count
What is Tata Motors’ strategy to capitalize on the head start it has on EVs?
In terms of investment, Tata Motors has lined up a corpus of over ₹16,000 crore by the end of this decade for EVs. This is far higher than the investments planned by Maruti ( ₹10,440 crore) and Hyundai ( ₹4,000 crore).
Both Maruti and Hyundai are yet to begin their mass market EV journeys—a start is expected in 2023-24. By then, Tata Motors could have five EVs on the road.
“We would definitely like to retain our hold in EVs because of the head start. We will keep expanding our portfolio and footprint, opening new segments for consumers," Chandra said.
“When others have not even started that journey, we already have products on the road. And there will be more by the time their first product comes around," he added.
The company believes that the 600 million km that its electric cars have already clocked on Indian roads gives it valuable insights—about the cars, how they cope with the rough and tumble of the roads, on consumers. The late movers will have to go through the same learning curve.
Nonetheless, the auto industry is replete with examples of companies creating segments only for others to join later and dominate. The premium hatch segment was created by Hyundai Getz (2004) but came to be dominated by Maruti Swift (2005 onwards). Tata introduced the first compact sedan segment with its Indigo CS (2008) but Maruti’s Dzire rules it. In more recent times, Renault Duster invented the hugely popular midsize SUV segment in 2012 only for Hyundai Creta to dominate it, 2015 onwards. Ford brought in the EcoSport to create the sub-four metre SUV segment that is dominated by Tata Nexon today.
“It is commendable what Tata has done with EVs but we are not too worried. We believe the inflection point is still a few years away," said a senior Maruti Suzuki executive who didn’t want to be identified. He brimmed with confidence. “Let them do the hard yards and create the infrastructure and awareness about EVs. When the time is right, we will come in and run away with the market."
We will perhaps know the winner in a decade’s time.
