Tata Motors to invest $1 billion into passenger vehicle business over three years

Tata Motors will invest $1 bln -- its biggest ever investment in the passenger vehicle business --- in the next three years as above average growth spurs demand for newer cars. Mumbai-based Tata will spend $1 bln after the board approved its mid-term business plan recently which includes investments, people in the know said.

The plans include a new manufacturing line in Pune, which is going through a complete overhaul and Sanand, Gujarat to house the new modular platforms Omega and Alfa to be built in the next five years. These platforms are likely to churn out as much as a dozen new models.

Tata Motors raced past Mahindra & Mahindra in local monthly sales in June, bringing cheer at a time when the UK-based Jaguar Land Rover luxury vehicle unit, the company’s money-spinner business for a long time, has warned of Brexit worries.

A manufacturing line is already being installed at J Block in Pune plant to designed for Omega architecture to manufacture the Q5 range of SUVs – H5X 5 seater SUV to rolled out by the end of the year, followed by a seven-seater version within a year after that. There will be Alfa or X4 architecture X451 hit the market in 2019 festive season.

Guenter Butschek, Tata Motors MD said the company doesn’t give independent investment plans for the passenger vehicle or commercial vehicle business. Tata had said in the past that it would invest Rs 4,000 crore every year in both passenger and commercial vehicles business. The new investment plan boosts the passenger side of the business significantly with over Rs 6,000 crore being spent on it in three years.

The investment is a part of Tata’s turnaround 2.0 strategy which focuses on winning sustainably in passenger vehicles, the MD said in response to ET’s questions. “We continue to fortify our capacity utilisation, sales numbers, and cost structures. We are headed towards a long-term objective of accelerated growth. This will be accomplished through product portfolio expansion, network expansion, enhanced quality operations and superlative customer service,” he added.

The reinforcement comes after two consecutive years of 15-20% growth in car sales, significantly outpacing the industry that expanded 8-9%. This growth has been on the back of bridge products — Tiago, Tigor and Nexon. With several new-generation models set to hit the roads in the coming year, company officials are very confident about the strategy. The Turnaround 2.0 mission emphasizes on turning around the passenger vehicle business with an aim towards self-sustenance, which is a significant departure from the past dependence on either the commercial vehicle business or dividend from Jaguar Land Rover.

For the first time ever, Tata Motors will be announcing segregated passenger vehicle and commercial vehicle earnings for the quarter ended June 30, laying threadbare the accountability of the passenger vehicle business.

“There is a strong tailwind for brand Tata in the car business and positive sentiment within the organisation with growing volumes,” said a person, speaking on the condition of anonymity. “Unlike the past, the company has managed to break into the consideration set of people. With a new range of products under two architectures, Tata Motors will cover over 95% of the Indian passenger vehicle market and will play a much serious role in the market.”

Already, Tata Motors has seen its market share improving more than one percentage point to 6.39% at the end of FY-18. Chairman N Chandrasekaran has now set a stiff target of a minimum 10% market share in the short to medium term.

The Mumbai-based company had stated that it was eyeing a top-three finish on local vehicle sales in the ongoing financial year. Though it nudged past Mahindra in June, it will be difficult to sustain the edge through the year, as the crosstown rival is coming out with two new offerings this year, which will offer incremental volumes to the maker of the Scorpio SUV.

In order to facilitate the turnaround and growth initiatives, Tata Motors has structured 24 vehicle module teams and four cross functional teams, each of which is empowered to generate potential and execute swift implementation, thereby ensuring nimbleness in operation.

As part of the new operational structure being put in place, there is focus on daily work management, cost reduction targets and holistic inclusion of employees, which collectively helps to accelerate efforts in maturing newly generated potential across the Generated, Evaluated, Approved, Realised (GEAR) milestones, the company said in a statement to ET.

Last fiscal year, the standalone operation reduced cost in excess of Rs 1,900 crore. This year’s target is to exceed Rs 1,000 crore, which will be largely led by the passenger vehicle division.

“Collectively, these initiatives and team structures will lead us towards sustainable profitability for our PV business in the future,” Mr Butschek said.