Markets
Tata Motors cannot shake off rivals with Nexon facelift alone
Summary
The bigger worry for Tata Motors is the falling market share in the commercial vehicle business. In Q1, this measure was 39.1% down by 260 basis points from the level seen in FY23.
The competitive intensity in India’s sport utility vehicle (SUV) segment is rising. Amid this, the facelift of the Nexon model—internal combustion engine and electric vehicle variants—by Tata Motors Ltd is a step in the right direction. “Our dealer survey indicates both these models appear feature-loaded with many segment first features and exudes a more sophisticated and colourful experience," said analysts at Nomura Financial Advisory and Securities (India) in a report on 14 September.
Having said that, Tata Motors’ peers—Mahindra & Mahindra Ltd and Maruti Suzuki India Ltd—have a strong footing in the SUV segment with their offerings such as XUV300 and Brezza, respectively. In this backdrop, “The new Nexon models may not add to Tata Motors’ market share in a significant way, but it would help the automaker maintain the current levels," said an analyst on condition of anonymity. In June quarter (Q1FY24), Tata Motors’ domestic market share in the passenger vehicle segment was 14.2% versus 13.5% in FY23.
To be sure, the bigger worry for Tata Motors is the falling market share in the commercial vehicle business. In Q1, this measure was 39.1% down by 260 basis points from the level seen in FY23. Thus, a positive surprise here would aid sentiments of investors in Tata Motors’ stock.
Sure, investors are sitting on handsome gains with the stock having risen by nearly 64% so far in 2023, way ahead of the 30% gain in the Nifty Auto index. A turnaround in the performance of its British subsidiary, Jaguar Land Rover Automotive Plc (JLR) has boosted sentiments for the stock. The momentum needs to be maintained ahead. In Q2, JLR’s volume and profitability is expected to be in line with the recent quarters. In Q1, it clocked wholesale volume of 93,300 units. Although Q2 production and cashflow is expected to be lower sequentially reflecting the annual summer plant shutdown.
While JLR is likely to meet its Ebit margin target of over 6% in FY24, the lever of favourable mix may not be available for long as supply chain constraints gradually ease. Also, JLR is currently on the backfoot when compared with its peers on electrification. Its transition to electric vehicles might weigh on profitability as the business could be margin dilutive initially.
For now, it appears that Tata Motors’ investors have factored in the optimism adequately.
Further meaningful upsides would depend on the volume trajectory across its three major businesses and the margin performance. The incremental volume addition from the new models holds the key.
