Tata is India’s sixth-biggest company, and one of few emerging-market automakers to have established a truly global presence, achieved through the $2.3bn acquisition of Jaguar Land Rover in 2008.
While the acquisition of Jaguar Land Rover (JLR) has turned out to be a major success for Tata Motors, the company finds itself at a crossroads. At the end of the year, Ratan Tata, the 75 year old grandson of the company’s founder, steps down as chairman of both Tata Motors and Tata Group. He has no children, so his successor, Cyrus Mistry, comes from outside the family.
Mistry is spending this year working alongside Ratan Tata, learning his way around a business in which his family owns an 18% shareholding. When he takes command, he will take on the outgoing chairman’s stated goal of building group revenues to a staggering US$500bn by 2022.
Automotive activities are the single biggest division of Tata’s empire – bigger even than its substantial Tata Steel business – Tata Motors will have to deliver some substantial growth. And not just JLR. The Tata brand is going to have to provide some of the global growth too. But business has been far from smooth for Tata’s own car company.
Nano gamble falls short
The big gamble on the Nano microcar has fallen well short of targets, and has been fraught with problems, including a damaging dispute over the original site of the new plant to build the car, which had to be abandoned. A plan to enter the European market with electric cars also seems to have been scrapped, setting back plans to expand the Tata brand beyond India and neighbouring Asian markets. And a joint venture with Fiat seems to be unravelling as Fiat looks elsewhere for partners.
On top of that, Tata’s core Indian market products, including the latest versions of the Indica, India’s first completely self-developed car, have not been selling well in the fast-growing domestic market. Tata is number three automaker in the Indian market, a long way behind market-leader Maruti and second-placed Hyundai Motor India, which exports vast numbers of small cars worldwide from its base in Chennai.
Indeed, Tata’s own-brand car company only contributes around 10% of Tata Motors’ profits, the bulk comes from JLR. Effectively, JLR’s more profitable luxury car and sports utility vehicle (SUV) sales are propping up Tata Motors.
Just look at the numbers. Total Tata Motors global sales in the 2011-12 Indian Fiscal year (to March 31, 2012) were 1,252,173 units, up 16% on the same 2010-11 period. Within this total, JLR sales almost matched Tata-brand passenger car sales. Full-year sales of Jaguar Land Rover cars for the year reached 314,433, up by 29% on the previous year. But Tata-brand cumulative car sales for the fiscal were 337,813, up just 3% over 2010-11, a figure that includes some Fiat cars that are distributed by Tata.
Tata had had more success with commercial vehicle (CV) sales – sold under Tata, Tata Daewoo, Tata Hispano Carrocera brands – they reached 599,927, up 17%. The CV range includes everything from small microvans to heavy trucks and buses, and for the moment, it is CV sales that give Tata Motors its global scale.
JLR a growth engine
JLR remains the principal engine for growth. Tata is showing big ambitions for the two brands, pouring in investment both in the UK and elsewhere. Of the two brands, Land Rover (and Range Rover) contributes by far the biggest volume. In Fiscal 2011-12, cumulative sales of 4×4 vehicles rose 37% to 260,394, while Jaguar sales remained relatively static at 54,039, higher by just 2%.
Tata has combined much of the back-office functions of JLR, effectively running them as one business unit. This allows JLR to set a bolder ambition than either brand could manage on its own – that of becoming a genuine competitor to BMW and Audi, offering a large range of vehicles including saloons, sports cars and SUVs.
This will require a substantial investment in new models and investment in production facilities in other markets, especially emerging markets, as JLR would effectively need to be around three times its current size to be truly competitive against its German rivals.
Nevertheless, Tata does appear to be splashing the cash. A GBP5bn investment plan was announced by JLR at the Geneva motor show in March 2012, which would see the launch of 40 “significant new products” over the next five years.
JLR recently broke ground on a new GBP355m engine plant in Wolverhampton, central England, and has begun recruiting workers – 1,000 workers for its plant in Halewood, near Liverpool, and 1,000 at its Solihull plant near Birmingham, both of which build Land Rover models.
Halewood has benefitted from the success of the Range Rover Evoque compact SUV, a competitor for the BMW X1 and Audi Q3. Halewood is now running 24 hours a day to cope with demand for Evoque – it has taken more than 60,000 orders for the small SUV since it was launched in 2011. A convertible version was shown at the 2102 Geneva Show in March and this looks likely to become a production model.
Further growth is coming from India, where Tata has started CKD assembly of the Land Rover Freelander SUV at one of its plants in Pune. And Tata is considering also building the next generation Land Rover Defender in India, either in Pune or at its major new plant in Sanand, from 2015. Engines for Indian-built Land Rovers could also be built in India, which would help boost local content levels.
Indian volumes would be between 30,000 and 40,000 units a year, with the majority – between 60% and 80% – being exported to overseas markets, including Europe. It’s possible that the next Defender could be built only in India, freeing up more capacity in the UK for increased Range Rover production.
This plan would boost Land Rover production to more than 300,000. But Jaguar offers greater room for expansion. In 2011 around 54,000 Jaguars were built, with all three models – XF, XJ and XK, built at Castle Bromwich in Birmingham. To expand sales, Jaguar needs a broader range – especially in the vital European D segment, where BMW’s 3-Series and Audi’s A4 are major players.
Of course, Jaguar has been here before. Under Ford, it tried unsuccessfully to crack this sector with the X-Type, based on the Ford Mondeo platform but equipped with permanent four wheel drive. The car flopped and the Halewood plant, which had been configured to build it, was swiftly reconfigured as a Land Rover plant.
But everything now points to Jaguar having a second go at a smaller car, this time building a range of cars including sedan, hatchback and crossover, allowing it to compete with the likes of Audi’s A3 and A4 as well as the new Q3. Jaguar also needs smaller and more fuel efficient models in its range to help it meet more stringent US CAFE fuel economy rules due in 2016.
This all points to a 2015 production start for the new small Jag, likely to be called XD.
JLR would probably use the Evoque’s LR-MS platform as the basis for XD, though it might be difficult to squeeze it into Halewood given strong demand for the Evoque. Production in India is a possibility, as JLR has stated it would like to start Indian assembly within five years, but initial volumes are likely to come from a UK plant.
Due this year is an estate version of the XF, while a smaller sports car, codenamed XE and designed as a spiritual successor to the legendary E-Type of the 1960s, is in the pipeline. The C-X75 hybrid supercar will also be built, giving a top of the range “halo car”. The C-X75 combines supercar performance with 99 g/km CO2emissions. It will be built on a carbonfibre chassis in collaboration with the Williams Formula 1 team, and just 250 will be made, each priced at around US$1m.
Jaguar’s Chinese expansion
As well as range expansion, Jaguar’s geographical spread needs to be widened too. This is likely to be boosted by a new Chinese factory to be built in partnership with Chery Automobile. This is still awaiting regulatory approval from the Chinese government. The company is also exploring South America for a production base, though a plan to build a plant in Brazil appears to have been cancelled.
JLR already has a good base in China, where it sold 42,000 vehicles in 2011 (compared to fewer than 2,000 in India). JLR’s China sales rose 60% against 2010 and equate to 17% of the group’s global sales, up from just 1% in 2005. Indeed, China is the JLR’s third-largest market, after the UK and US.
Luxury car sales in China are booming, and Mercedes, Audi and BMW are all present with local production bases. Volvo, another key rival, is now owned by the Chinese Geely Corporation – Chery’s arch rival in the small car sector.
To compete in China, Jaguar will have to develop long-wheelbase versions of its XF and probably of the future D-segment car, as these vehicles are vital to compete in the Chinese market. Audi A4, BMW 3-series and even the VW Passat come as LWB models specifically for China.
The Chery JV will build both Jaguar and Land Rover vehicles, and the choice of Chery is an interesting one, as the company has very little experience of working with overseas partners. A deal to produce cars with Fiat fell through, while talks with Chrysler foundered when Chrysler hit financial trouble in 2008.
Tata brand faces challenges
While JLR seems set fair for growth, Tata brand has problems. The Nano, conceived by Ratan Tata as an affordable vehicle for Indian families – essentially a trade-up from a moped – has had a fraught start.
Initially, Tata wanted to build the Nano at a new plant at Singur in West Bengal state – but this plan was met with violent protests over the seizure of farm land. The farmers demanded more money – but Tata refused to cave in, and in October 2008 the company took the extraordinary step of abandoning the 95%-complete Singur plant and announced that the project would be relocated to a new site at Sanand in Gujarat state.
In order to get the Nano to market, Tata had to manufacture the car at its existing plants at Pantnagar and Pune. As a result, the project has fallen behind schedule, and has not hit the sort of volumes that Tata had expected. Tata needs to sell 15,000-20,000 Nanos a month to make the project successful – Sanand’s capacity is 240,000 Nanos a year.
Tata had hoped for sales of up to 500,000 of the US$2,500 cars a year, but it has not come close to this level. The monthly unit peak was 10,012 in April 2011, but sales have fallen since then. In May 2012, sales of the Nano were 8,507 units, up by 31% on the 6,515 units sold in May 2011, but still way off target.
As well as production delays, there have been quality issues, including a number of Nanos catching fire in 2010, which further damaged the brand. The bigger problem seems to be the perception of Nano as a “poor man’s car”, and Tata is expected to “reboot” the Nano in the next year or so, adding more upmarket and sporty models, as well as electric versions and even a version that runs on compressed air, using a system developed by MDI of Luxembourg. Prototypes are currently being tested.
Whether Nano will recoup its costs is another matter. The plant relocation added vastly to the project’s costs, and export sales to Western markets were delayed pending the construction of the Sanand plant, and a restyled Nano Euro version shown in 2009 at the Geneva Show has not reached production. Ratan Tata is on record as saying that Asia and Africa will be the main focus for Tata brand in the next few years.
A European relaunch of the Tata brand had been built around a battery-electric version of the Indica Vista, though this project, developed by Tata’s UK technology centre, has been cancelled. This has made any European relaunch look doubtful – the standard Indica Vista is sold in some markets, such as Spain, via independent importers, and Tata sells small UK-assembled electric vans in the UK, but the current state of the European economy is probably not ideal for the launch of an Indian budget brand. Export sales actually declined 24% in May 2012 to 4,219 vehicles from 5,534 vehicles in May 2011.
The problem is compounded by stagnant domestic sales in an increasingly competitive domestic market. Nano is the only model that is actually increasing sales year on year. Indica range sales fell 1% to 5,467 (against 5,497), while the Indigo four-door sedan fell 20% to 3,397 (4,268). Sales of Tata’s Sumo, Safari, Aria and Venture SUVs were flat at 3,132 units in this month.
And in a further blow for Tata’s Indian dealers, Fiat and Tata Motors are ending a distribution agreement under which Tata dealers have sold Fiat vehicles. Fiat is taking control of its distribution, though a joint venture Fiat and Tata car plant at Ranjangaon near Pune will continue.
Tata’s commercial vehicle operations remain strong. A new plant at Dharwad to make the Tata ACE Zip pick-up and the Tata Magic IRIS small minivan is now up and running. These low cost, utilitarian vehicles, launched in 2011, have been strong sellers in India, offering a better alternative to three-wheeler trucks and tuk-tuks.
It’s possible that light commercial vehicles (LCVs ) might offer a better start point for Tata as an exporter rather than cars, though margins are notoriously slim on such vehicles. And whatever niches exist for, say, cheap pick-ups or microvans in Western Europe are likely to be filled by Chinese automakers such as Great Wall or Dongfeng, both of which already sell such vehicles in the UK.
The focus is likely to remain on JLR, where a solid strategy seems to be in place and is clearly starting to deliver results – though a lot more investment is going to be needed if JLR is to become a “British BMW”. But the Tata brand runs the risk of becoming an also-ran, even in India, unless an equally strong strategy can be devised. Over to you, Mr Mistry.
Author: Mark Bursa (just-auto.com)