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Peer Comparison: How Tata Motors fares versus its global competitors

Peer Comparison: How Tata Motors fares versus its global competitors

Tata Motors is a major car and truck maker globally. It owns Jaguar Land Rover, Tata Daewoo and Tata Marcopolo brands.In India, it competes with Maruti Suzuki, Hyundai and Mahindra. Globally, automakers like GM, Volkswagen and Toyota are its competitors. Tesla, which has established dominance in the electric-vehicles space, is also a challenger.

Geographical presence

Tata Motors has three major units. Its India-based car and trucks business. Jaguar Land Rover (JLR), which it acquired in 2008. And Tata Daewoo in South Korea. The latter makes commercial vehicles.The company, by way of its subsidiaries and Joint Ventures, is present in India, the UK, South Korea, South Africa, China, Brazil, Austria and Slovakia. Besides, it sells its products in over 125 countries. Most of its global sales come from Jaguar Land Rover, which contributes 78% of the total revenue.JLR’s competitor Toyota, which also owns the Lexus brand, is a global leader in the auto business. It is virtually present in every major country in the world. Its cars are famous for their durability and utility.Volkswagen, another global leader, owns Audi, Skoda, Bugatti, Bentley, Porsche and Lamborghini brands. General Motors, though based in Detroit, is present in all habitable continents. The company sells its cars under Chevrolet, Buick, and Cadillac brands.

Financials

Tata Motors acquired JLR when the storied brand was struggling and produced a remarkable turnaround in its fortunes. From March 2009 to March 2015, the company's revenues grew from $5.77 billion to $42.5 billion. This happened as JLR won back market share in the US and got rapid success in China.But since then, the ride became tough. JLR's market share peaked out in the US and China. Its production facilities in the UK were hampered by strikes and uncertainty because of Brexit.JLR’s sales have fallen from 500,000 in FY19 to 350,000 in FY21. This does not include its sales in China, which comes under the joint venture with Chery. Tata Motors sales for FY21 stood at 840,000.In comparison, Volkswagen Group sold 9.16 million vehicles in the last fiscal. General Motors rolled out nearly 7 million new units on roads. Toyota said it has sold nearly 9 million vehicles across the globe.In terms of profits, Toyota clocked $21 billion on revenue of $257 billion. Volkswagen was the second most profitable auto company in the last fiscal year with a net at $10 billion on revenue of $254 billion. General Motors clocked $6 billion profit on sales of $122 billion. Tata Motors’ recorded a loss of $1.8 billion on sales of $34 billion.

Future readiness

When Elon Musk, Founder of Tesla, said he will make only electric cars, few took notice. But today, Tesla is the most valued auto company, even though it sells a fraction of cars sold by Toyota, the world's biggest company.Electric vehicle adoption is the biggest challenge, and opportunity for the auto industry today. Tata Motors and its competitors are dealing with this in their own way.Tata Motors already has a few electric models under its wings. Its Nexon EV in India is already gaining market share. The company said it will launch 10 fresh battery-powered models by 2025.Jaguar Land Rover also offers I-Pace as its all-electric model. Besides, the company offers many hybrid models. Jaguar Land Rover plans to achieve net-zero carbon emission by 2039. It is set to launch six new all-electric Land Rover models in the next five years. Jaguar will become a pure electric brand from 2025, its CEO said.Its competitors are also ramping up their electric plans. GM released Chevrolet Bolt EUV and revised Bolt EV earlier this year. Volkswagen has said it expects half of its car sales to come from EVs by 2030 and wants to become the leader in EVs. It has already prepared a platform on which its electric vehicles will be made, and unveiled an ambitious battery making plan. While Toyota has invested heavily in battery and charging technologies, acquiring a number of startups in the space.The big three firms have also invested heavily in computing technologies, hiring a large number of software engineers.A short term challenge is the ongoing global chip shortage. Jaguar Land Rover, Tata Motors' cash cow, said the issue will hit its production hard. But, this is something every automaker is dealing with. The industry believes the shortage will be over in the medium term.Change in environmental regulations in different countries can also derail its plans. A slowdown in commercial vehicles sales is another area that the company needs to negotiate well.

Stock performance and valuations

Tata Motors has been gaining market share in the Indian passenger vehicle segment. It is now the third-largest carmaker with 8.2% of the sales pie. This compares to 4.6% in 2016, and 4.8% in 2020.Consequently, Tata Motors shares have gone up by nearly 5 times since bottoming out in April 2020. Lately, there has been some selling due to chip shortage and related production cuts.In comparison, shares of Toyota, Volkswagen and General Motors have gained 50-100 per cent in the same period. Valuation wise, these stocks trade at 5-9 times their earnings. Tata Motors has a negative PE of 64 due to losses.

Conclusion

For Tata Motors, a lot depends on how Jaguar Land Rover performs. How the company addresses its production glitches, reduces debt and manages the transition to EVs will decide the stock's performance in the long term.Companies like Tata Motors remain investible opportunities for Indian investors. But the global investing landscape offers more opportunities. These include legacy and EV firms, auto ancillary players, battery manufacturers and software firms catering to auto companies.

By

Kristal Advisors

June 7, 2021

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