The Jaw-Dropping Secrets Behind Tata Motors' Success
If you want to walk fast, walk alone. If you want to walk far, walk together.This famous quote by Ratan Tata emphasises the importance of partnerships and collaborations and perfectly fits Tata Motors, who acquired Jaguar Land Rover in 2008. From its humble beginnings to becoming India's third largest car manufacturer after Hyundai and Maruti Suzuki, Tata Motors is the inspiration for all automobile manufacturers.
In this blog post, inspired by Ratan Tata and Tata Motors, I discussed how Tata Motors succeeded, the strategies they used, what it takes to survive in the automobile industry, their history and more.
How Tata Motors Started
Founded in 1945, Tata Motors which was earlier known as Tata Engineering and Locomotive Company(TELCO), was a locomotive (rail transport vehicle) manufacturer.In 1954, Tata launched the first Mercedes-Benz Truck by forming a Joint Venture with Daimler Benz(Known for Mercedes-Benz).
It was in 1961 that Tata Motors entered the international market by exporting its first truck to Sri Lanka.
In 1991, Tata made its debut in the passenger vehicles sector by rolling out the first SUV wholly developed in India, Tata Sierra.
And then from iconic Tata Sumo and Safari to Indica, from Nano to acquisition of Jaguar Land Rover, Tata Motors continued to innovate and also started exporting cars to South Africa by 2004, which solidified its global presence.
Big Dreams And Harsh Realities: Tata Nano
The low disposable income of India was around ₹38,084 when Tata Motors launched (heralded as the cheapest car) Nano in 2008, to make car ownership accessible at low cost and make it people's car. We all know how Nano lost its value just because of the perception that it is meant for the poor as described cheapest car instead of "an affordable car". In an interview, Ratan Tata addressed the mistake that was made while promoting Nano- " Greatest mistake we made, was the salesperson in Tata Motors, What might be the softest option of getting the car branded as the cheapest car rather than the most affordable car, and that caused the car to have a negative impact on the market." Ratan Tata even posted on Instagram and mentioned that the intention behind launching Nano was to provide an affordable car to Indians.
The projected production of Nano was around 250000 annually but this was not achieved, the sales volume started decreasing as there was also a delay in factory relocation from Singur to Sanand. There were many factors which played a role in Nano's failure like-
- Perception of low-quality
- Safety concerns as there was news in the market about Nano catching fires. Nano also failed the R94 test and got 0 stars for adult and child occupant protection in Global NCAP's test.
- Competition with Maruti 800 (Even though Maruti 800 sales went down by 20% just after the launch of Tata Nano)
- West Bengal Dilemma- The government forcibly took 1000 acres of land from farmers which made the farmers protest against Tata with the slogan "Atta, not Tata". This step of the West Bengal Government made Tata shift from Bengal to Gujarat and abandon the factory that was 85% done.
And there are more factors which affected it's sales.
But the efforts by Ratan Tata(Like arriving at TAJ in Nano without security) and the team were greatly impressive despite the failures.
TATA's Big Bet on Jaguar Land Rover
The remarkable acquisition of JLR by Tata Motors made sensational headlines globally. Ford and Tata are both well-known companies. In 2008, when Ford sold Jaguar and Land Rover, both brands to Tata for $2.3 Billion, most people thought it was a bad move. Many people criticised Tata for entering into the luxury car segment when their key segments were Commercial Vehicles and Passenger Vehicles, believing that Tata is known for inexpensive cars and trucks and this can be a disappointing investment. Jaguar before the acquisition had losses of $10 Billion(Cumulative), Ford in 2008 was suffering from financial woes and Tata brought the brand at 2.3 Billion which was less than half of the price at which Ford bought them, so it was obvious to believe that this could be a failed acquisition attempt. But right after the acquisition, JLR became profitable with a Net Profit of 55 Million Pounds in December 2009. Ratan Tata saw what others couldn't. Reflecting on the success JLR made and the criticism it faced, Ratan Tata in an interview with The Financial Express said- "When we bought Jaguar Land Rover, we were criticized. Today, it is the trophy of our acquisitions, and it’s doing very well."
What was the transformation plan that made JLR so profitable? There were various factors which played a key role in making JLR profitable. It was Ratan Tata who was personally involved in the business, taking feedback and attending meetings as reported by ET. He could have changed the headquarters but he didn't which was a great move and entrusted the daily management in the hands of managers in England. The foremost step was to ensure strong leadership so they appointed Carl-Peter Forster as Group CEO of Tata Motors and Ralf Speth as CEO of JLR. Tata turned their attention to cash flows, cost reduction and new production. JLR had no cash management system of its own, so Tata enlisted the expertise of KPMG. Tata Motors took the help of group companies like selling its stake in group companies to raise cash. ET reported in an article that Ralf Speth, CEO of JLR also talked about Ratan Tata's leadership and how he focused on liquidity- “He gave us the opportunity to survive. He has given us a long leash to deliver the future strategy. He has given us a mid-and long-term perspective. I don’t have to pay a lot of dividends (to the parent company). He really just kept the money in the business.” Tata Motors also offered 4,187 Crore as right shares. They also trimmed the workforce. The focus on R&D and the successful launch of new products like Range Rover Evoque, Jaguar F-Pace, and the all-electric Jaguar I-PACE revolutionised the brand image. They spent 14% of annual revenue on R&D. The preference shift from luxury cars to luxury SUVs was also fundamental. Demands in the UK, US and Europe led to the expansion of JLR's presence.
The impact of strategic initiatives was evident in JLR's financial performance. As described above within one year of acquisition, JLR turned profitable and their sales went up because of strategies and improved market sentiments. 
Source: Tata Motors Annual Report
You can see in the above chart how much JLR contributes to TATA Motors' growth. It's more than half. They further mentioned in the annual report -"The revenue of our Jaguar Land Rover business increased by 35.9% to ₹3,02,825 Crores in FY 24 from ₹2,22,860 Crores in FY 23... The increase in revenue is driven by increased volumes and product mix improvement."
Indeed, A MASTERPIECE example of a successful turnaround strategy.
Jaguar Land Rover accounts for more than one-half of TATA Motors' business now.
Tata saved the Jaguar/Land Rover business from job layoffs and becoming bankrupt during the recession in 2008, whereas Ford once humiliated Tata when they went to sell a group car business to Ford, which was in fact seen as a comeback or revenge and Indians gave immense respect to Ratan Tata. The biggest lesson I learnt - "Take the stones people throw at you, and use them to build a monument."
The Bumpy Ride
Like any other company, Tata Motors' road to success was not as flat as a pancake. They went through nano setbacks, semiconductor shortages and many other issues. After discussing about nano and JLR struggles, let's further explore semiconductor shortages, competition etc.
Semiconductor Shortages & COVID-19-
The Hindu Business Line in May 2022 reported that Tata Motors lost 15% production in April due to chip shortage. The sales went down to 41,587 units in April from 42,293 units in March. Global supply chain disruptions particularly the shortage of semiconductors had a detrimental effect on the automobile industry. The electronics suppliers started withdrawing their orders because of semiconductor crises. Tata Motors faced production delays, increased costs and problems in meeting market demands. According to S&P Global Mobility Report, in 2021, more than 9.5 million units of vehicle production were lost due to semiconductor shortages.
The industry was struggling with the impacts of Covid 19, and semiconductor shortage compounded the difficulties, exacerbating supply chain disruptions. Lockdowns led to a steep decline in automobile sales globally. Tata Motors had to halt production, manage the supply chain and adapt to market conditions. The losses incurred during that period were extreme. Because of lockdowns, the consumer demand for vehicles decreased, which eventually led to low sales. Many dealerships were forced to close which added one more layer of convolution. As lockdowns eased, Tata Motors started seeing a gradual recovery in sales.
Tata Motors adopted various measures which helped them navigate the impact. They formed a multidisciplinary cross-functional task force to mitigate risk. Forums like the Supplier Collaboration Forum helped in early alerts and scheduling. Jaykumar and Hemant, Vice Presidents of Purchase and Supply chain, wrote in an article describing how strategic initiatives like semiconductor mapping helped them confront the semiconductor crises, they further added-"We examined our vehicle designs to reduce chip usage wherever possible without compromising features and functionality, allowing us to maximise semiconductor resources."
Global Market Insights published OICA reports that vehicle production during 2023 globally was around 20.5% which was more than 2020.
Competition-
Automobile industry is highly competitive. Tata Motors not only faces competition from Indian Manufacturers but also from global players like Tesla. Tesla, by Indian automobile manufacturer's fate, does not operate in India. Although Tata Motors is the third largest manufacturer in India, after Maruti Suzuki and Hyundai, yet faces stiff competition from players like M&M, and Toyota. According to the research conducted by EDP Sciences, Tata Motors sales were continuously decreasing as compared to M&M. In contrast, Sales of M&M started increasing after 2019.
Source:e3sconferences.org
Labour Shortage-
Workforce management poses a significant challenge. I remember when I was in school, I heard a lot about how Ratan Tata used to sit with the employees and workforce to meet their demands and come to a settlement, peacefully. ET reported that over 4,000 temporary workers started an agitation at Tata Motors' Jamshedpur plant against alleged non-payment of revised wages. These headlines may give a wrong idea about the management of the company.
Tata Motors and the Automotive Landscape
The company has made some big moves to capture the market share and expand its market presence. In India, Tata Motors is a big competitor among Mahindra, Ashok Leyland and Maruti Suzuki. As you can see in the graph below, that how the market share of Tata Motors had a steep fall in 2016, which then started increasing and was 8.2% in 2021.
Source: Forbes
The company's focus on electric vehicles, cost reduction and acquisition of JLR has enabled it to capture the market share and drive growth. The global sales of vehicles have been fluctuating because of economic cycles, COVID 19 and supply chain disruptions. In India, we saw the automobile sector growing in the Passenger and Consumer Vehicle Sectors where Tata Motors aligned with global industry trends, with the growing demand in the EV segment. Tata Motors is leading in revenue growth outpacing some of the competitors due to expansion of product portfolio. Revenue growth in India has been supported by increased urbanization and government incentives for electric mobility.
Indian automakers face stiff competition from international brands. Tata Motors gained market share, particularly in the EV segment. Tata Motors is among the top 5 Passenger Vehicles brands in India and Tata Daewoo (Wholly Owned Subsidiary) is the second largest heavy Commercial Vehicle Manufacturer in South Korea. Tata Motors is India's largest EV maker with 80% of the market share.
Profit margins of the automobile industry globally have been under pressure due to R&D Investments and Price competition. The profitability of Tata Motors has been challenged but some strategies have helped them improve margins.
Accelerating Beyond Today
Tata Motors' journey is a blend of facing challenges and grabbing opportunities. The current scenario presents a balance between maintaining market position and efforts to reduce debt. The business of Tata Motors consists of four segments that are Passenger Vehicle, Commercial Vehicle, Jaguar Land Rover and Vehicle Financing. In March 2024, they announced a restructuring plan that insists on splitting two separate segments, listed entities i.e. Commercial and Passenger Vehicle. The demerger will enable the execution of differentiated strategies and empower each business. This will provide a superior experience, better growth and enhanced value for shareholders. Currently, Vehicle sales from the commercial vehicle segment were 4,05,471 units. Passenger Vehicles and EVs saw sales of 5,73,541 units, combined. JLR sales accounted for 4,01,303 units.
Source: Annual Reports
Recently Tata Motors became debt-free for the financial year 2024. This is a huge achievement for them as the debt was exorbitant, as compared to their competitors.
The company, as stated earlier, is the largest EV maker in India and hence, plans to introduce several new electric models. The launch of the Nexon EV has been beneficial for the company. They aims to increase its EV portfolio and have 25% of its sales come from EVs by 2025. Tata Motors is investing heavily in batteries and charging infrastructure.
Jaguar Land Rover (JLR) has announced a significant investment of over $18 billion over the next five years to accelerate its transition to an electric-first, modern luxury car manufacturer, by 2030. JLR aims to have all Jaguar models and 60% of Land Rover models be fully electric.
Tata Motors has shown its commitment to improving its financial performance despite global challenges.
According to the Indian Statistical Organisation, the per capita income is increasing and national income by 14.4% which shows potential to buy vehicles in the auto industry. Tata Motors is poised for a future characterized by technological advancement.
How they are conquering the market- The Success Formula
I read an interesting piece of news yesterday that said... "Tata Motors overtakes US-based General Motors as market valuation hits $50 Billion", which was due to a surge in shares by 50%. It marks a critical point in their journey to the forefront of the global automotive industry. So how did they do this? What drove their success?
They made a lot of plans. From turnaround plans 1 and 2 to demerger plans. From diversification to acquisitions. And the strategies effectively helped them combat the challenges, nano was an exception.
Cost Management -
Three weeks ago they cut the prices of Harrier and Safari. Nexon.ev price was also reduced by up to ₹1.2 Lakh, which will definitely boost demand. Tata Motors has maintained a competitive edge by focusing on cost efficiency which has allowed them to offer vehicles at competitive prices. The turnaround strategy of 2016 enabled them to stay focused on reducing costs.
Guenter Butschek, the former CEO of Tata Motors, had called the plan turnaround 2.O, which emphasized cost cutting, letting go of numerous platform architecture. The platform strategy also helped them cut costs. The platform is an architecture of automobiles. It is a mechanical base that includes major parts such as axles, suspension and steering. It's like the foundation of cars just like the ground base of a house. In 2017, they used to depend on 6 platforms for producing 10 types of cars which was a cost burden as the cost of making cars was exorbitant. But now they are looking forward to using 2 platforms to make 10 types of models.
Electric Vehicle and CNG adoption -
Tata Motors has overtaken Hyundai in CNG sales. The adoption of CNG and electric models gave an edge to Tata Motors over their rivals. Presently, 61 % of Tata Motors vehicle sales come from petrol powertrains, 13% from diesel, 14% from CNG and the rest of 12% are Electric Vehicle sales. Many car manufacturers still rely on petrol powertrains and have not adopted CNG, which is a strength for Tata Motors.
Source: Forbes
The Turnaround 2 strategy focuses on relationships with supply chain partners for higher production. It has been noted from their annual reports that the risk management framework of JLR has improved its time to recover from events impacting its global value chains. Further, they added that JLR programmes ensure alignment for future semiconductor supplies. The timely supply of components to manufacturers is crucial for meeting production schedules and satisfying consumer demands.
Acquisitions like JLR and Partnerships-
Tata Motors believes in the "work together" philosophy. Collaborations, acquisitions and partnerships play a vital role in a company's management by entering new markets, enhancing market position, getting access to innovative technologies and can lead to cost savings. Recently, Tata Motors tied up with Bajaj Finserv which will help them in loan processing with good interest rates and minimum collateral. Acquisitions like JLR expanded the portfolio which enabled them to enter the luxury car segment. Partnerships with giants like Fiat and Cummins have been beneficial to them. JLR helped it strengthen its presence in global markets. Expanding globally has helped them mitigate risks associated with the single market.
The focus on EVs is helping them succeed in the automobile industry. In fact, they are the largest EV manufacturer in India. They have rolled out popular models like Nexon, and they're not stopping there.
Analysing Tata Motors through BCG Matrix
BCG Matrix was developed by Boston Consulting Group, which is a tool to evaluate the strategic position of a firm's portfolio. In simple words, it is used to analyse a company's product or business units based on two factors that are their market share and market growth.
Source: BCG
Cash Cows are products that have a high market share in a low-growing market. According to BCG, companies should milk these cash Cows for cash to reinvest. As the market growth rate is low, Cash Cows gains the maximum advantage by generating maximum revenue due to its high market share. The cash cow is the category of products that require minimal investment but give high returns.
The Commercial Vehicle Segment of Tata Motors proves to be a cash cow. But Tata Tiago and Tata Indigo are also considered as Cash Cows. Despite the overall slow growth in the compact car segment, the Tiago continues to perform well and generate revenue, making it a cash cow. Tata Tiago is well established in its passenger vehicle category and contributes significantly to Tata Motors' revenue. While the segment's growth has slowed, the Indigo provide consistent returns.
2. STARS-
The products falling in this category are the best in the product portfolio of the company. For such products, both market share and growth rate are high. Stars cannot be easygoing when they are on top because they can be immediately overtaken by another company. However, if the strategies are successful, a star can become a cash cow in the long run. Stars consume a huge amount of cash but also generate large cash flows.
Tata Nexon.ev is a significant player in the EV segment, which is growing rapidly. It has a substantial market share and is positioned to benefit from the growing demand for electric vehicles.
JLR models are also Stars for Tata Motors. They have a strong market position.
3. Question Marks-
A company may come up with an innovative product that gains a good growth rate but the market share of such a product is unknown. The product might lose customer interest and may lose market share because people will prefer not to buy the product. The growth rate may go down and it will become a dog or it may happen that the product might increase customer interest and more people start buying, making the product gain a high market share which can ultimately move to be a cash cow. According to BCG, companies should invest in or discard these question marks, depending on their chances of becoming stars.
Tata Altroz EV and Tata Hexa can come under this category, as they are still developing, its success will depend on market acceptance and competition. Although Tata Hexa was positioned as a premium SUV, it has struggled to gain substantial market share. The SUV segment is growing, but the Hexa's market performance has been inconsistent, making it a question mark product.
4. DOGS
Products are classified as dogs when they have low market share and low growth rates. These products neither generate a high amount of cash nor require higher investments. They are considered negative profitability products because the money already invested in the product can be used somewhere else. According to BCG, companies should liquidate or divest these pets. Products in the dog's quadrant are unable to sustain themselves and can never reach the star's quadrant.
Tata Nano is a nice example. Tata Nano was once known as the world's cheapest car. Despite its initial promise, it struggled with low sales and faced n number of challenges in the market. Tata Safari can also come under this category as it faces stiff competition in the SUV market and with declining sales and increasing competition, it places itself in the dog category.
At the Finish Line
"Ups and downs in life are very important to keep us going, because a straight line even in ECG means we are not alive." Tata Motors has experienced its share of ups and downs, from Tata Nano to supply chain and technology disruptions but what kept them going was, they were under the umbrella of good leadership and management. Tata Motors' ability to adapt to changes and rise like a phoenix shows the role of companies in the growth of the overall industry. Tata Motors faced skepticism when they acquired JLR but the company turned the challenge into a successful story. From high debt levels to focusing on becoming debt-free, they taught many companies how to turn their biggest weakness into their biggest strength.
References-
Tata Motors
Wikipedia
CNBC
The Hindu Business Line
Economic Times
BCG
e3s-conferences.org
Forbes
S&P Global
IndianJournals
GMInsights
ICSI
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