India (Part 3): Tata rebuilding passenger car business

Mahindra launching compact SUVs, building full lineup of commercial vehicles

2016/02/09

Summary

ZICA
The new Tata hatchback, which it is hoped will trigger the rebuilding of Tata's passenger car business (Courtesy of Tata)

 This report focuses on the latest trends of the local OEMs Tata Motors Limited (Tata) and Mahindra & Mahindra Limited (M&M).

 Tata's unit sales in India decreased from 845,000 fiscal year (FY) 2011/12 (April 2011-March 2012), to 452,000 in FY2014/15. Sales of the company's passenger vehicles decreased over 50%. While it has maintained its top spot for commercial vehicles (CVs), the company's market share has declined by almost 40%.

 As Tata works to keep its lead in CV sales, it is seeking to radically strengthen its passenger-car business based on the Horizonext strategy. In February 2016, Tata is launching a new compact hatchback that is ostensibly the most important passenger car ever for the company.

 M&M is the market leader for Utility Vehicles (UVs), but its share is dropping due to rival models entering the market. In order to strengthen its competitiveness, the company launched three SUV models during FY2015/16. The KUV100, M&M's first gasoline-powered SUV, is particularly expected to create a new class of customers for the company.

 M&M overtook Tata to become the leader of the light commercial vehicle (LCV) sector in April-December 2015. Moreover, in August 2015 M&M announced that it is developing CVs in the GVW 9-16t class, which had been missing from its lineup, and that within two-years it will expand to a full lineup that includes GVW 3.5 - 49 ton CVs.


(Note: USD figures are based on INR 1=USD 0.015)

(Additional note: The new Tata compact hatchback was to be called the Zica, but the company has announced that the name will be changed.)

Related Reports:
India (Part 1): Auto industry envisions quadrupling in next ten years (January 2016)
India (part 2): Suzuki builds new plant and set up premium car sales channel (January 2016)



Indian market overall: recovery in CV demand following on the heels of recovery in passenger-car demand

Unit sales in India by segment The overall Indian automotive market saw unit sales shrink 9.9% (passenger vehicles fell by 6.8%, and commercial vehicles by 20.2%) year-on-year (y/y) in FY2013/14 (April 2013-March 2014). The passenger-car market has been recovering since FY2014/15. Among sales of commercial vehicles, the Mid & Heavy Commercial Vehicle sector (M&HCVs, GVW of 7.5t and over) started recovering from FY2014/15. Sales of LCVs are still lower than previous years, but the decline is slowing, with a drop of only 3.5% between April and December 2015.


Unit sales in India by segment

Segment FY2011-12 FY2012-13 FY2013-14 FY2014-15 Apr.-Dec.
2014
APR.-Dec.
2015
Passenger Cars 2,031,306 1,895,471 1,786,826 1,876,017 1,360,048 1,516,977
Utility Vehicles 363,772 553,660 525,839 553,699 405,353 418,201
Vans 234,761 237,298 190,844 171,395 129,691 131,388
Total Passenger Vehicles 2,629,839 2,686,429 2,503,509 2,601,111 1,895,092 2,066,566
M&HCVs 349,216 268,263 200,618 232,755 160,060 207,668
LCVs 460,283 524,887 432,233 382,206 284,119 274,129
Total Commercial Vehicles 809,499 793,150 632,851 614,961 444,179 481,797
Total 3,439,338 3,479,579 3,136,360 3,216,072 2,339,271 2,548,363
Source: SIAM (Society of Indian Automobile Manufacturers)
Notes: 1. Commercial Vehicles are categorized as follows: M&HCVs=GVW of 7.5t or more; LCVs=GVW of less than 7.5t. Both include passenger carriers.
2. Motorcycles (two wheelers) and auto-rickshaws (three wheelers) are excluded.

 

 



Tata Motors: share of domestic market falls from 24.6% in FY2011/12 to 14.1% in FY2014/15

Tata's unit sales by segment Tata's sales during FY2014/15 were 452,000 units, a 46.5% decrease compared to the 845,000 units that the company sold in FY2011/12. The company's passenger-car sales fell, severely lowering its market share. The Nano, an ultra-low-cost micro-car, lost momentum, and Tata's compact segment car sales declined 44.3% due to competition from non-Indian OEMs aggressively launching new vehicles.

 Sales of CVs, which have been Tata's major area of market strength, fell by nearly 40%, and while the company maintained its number one market share, it fell from 58.5% to 47.2%. The rival companies M&M and Ashok Leyland increased their market share (sales diminished for both of these companies, but their decline was small in comparison with Tata).


 Tata's combined market share of domestic passenger-car and CV sales fell from 24.6% to 14.1%.

Tata's unit sales by segment

Segment FY2011-12
(A)
FY2012-13 FY2013-14 FY2014-15
(B)
B/A Apr.-Dec.
2014
Apr.-Dec.
2015
Passenger Cars 257,966 174,692 107,187 109,470 -57.6% 73,120 82,298
Utility Vehicles 48,475 44,439 28,100 23,850 -50.8% 18,597 13,681
Vans 64,909 95,333 63,525 28,471 -56.1% 22,586 16,051
Total Passenger Vehicles 371,350 314,464 198,812 161,791 -56.4% 114,303 112,030
M&HCVs 207,014 143,381 110,187 127,011 -38.6% 88,670 108,858
LCVs 266,164 301,410 207,700 163,419 -38.6% 123,338 103,157
Total Commercial Vehicles 473,178 444,791 317,887 290,430 -38.6% 212,008 212,015
Total 844,528 759,255 516,699 452,221 -46.5% 326,311 324,045
Tata's market share by segment
Passenger Vehicles 14.1% 11.7% 7.9% 6.2% 6.0% 5.4%
Commercial Vehicles 58.5% 56.1% 50.2% 47.2% 47.7% 44.0%
Total 24.6% 21.8% 16.5% 14.1% 13.9% 12.7%

Source: SIAM
(Note) For passenger cars, Micro segment (Nano) sales declined from 74,527 units in FY 2011/12 to 16,901 units in FY 2014/15. Unit sales in the Compact segment (Indica、Indigo eCS, and others ) decreased from 163,780 to 91,258.

 

 



Tata: rebuilding passenger-car business with the Horizonext strategy; aim to launch a compact hatchback soon

 Tata announced in June 2013 that it would strengthen its passenger-car business with the HorizoNext strategy. As competition in the Indian automotive market grows fiercer, the company is seeking to fundamentally strengthen its passenger-car business while reinforcing its CV market dominance. In the HorizoNext strategy, the company aims to, 1) concentrate on product development, 2) establish world-class production techniques, 3) provide an enriched purchase experience to customers, and 4) provide a consistent level of quality service. 

 In accordance with the HorizoNext strategy, the company launched compact segment Zest sedan in August 2014, and Bolt hatchback in January 2015, but sales have been sluggish. The new hatchback slated for launch in February 2016 was developed entirely under the HorizoNext strategy.

 

Exterior view of the Zica
Exterior view of the new hatchback slated for release in February 2016 (Courtesy of Tata)
Cabin interior of the Tata Zica
Cabin interior of the new Tata hatchback (Courtesy of Tata)

 

Rebuilding the passenger-car business with the HorizoNext strategy

 Tata's passenger-car business is at a crossroads, and it plans to fully redesign almost its entire product lineup. The company formulated a plan for products up to 2020, and a strategy to enter segments it has not currently launched vehicles into. Moreover, small cars will continue to be a key segment in Tata's passenger-car portfolio. (The Sanand Plant has an annual small car production capacity of 300,000 units.)
 Tata launched the Zest sedan in August 2014 and Bolt hatchback in January 2015 under the Horizonext Strategy. However, the Zest only sold 25,000 units in 2015, and the Bolt slumped to around half that number. These two models have a strong semblance of being successor models to the Indigo and Indica, and are thought to have lacked freshness. Moreover, even within the Compact segment, the two models were launched in a fiercely competitive price range, with the Zest starting from INR 488,000 and the Bolt from INR 455,000, and lost out to the competition.

 

Tata Motors:Planned launch of a new compact hatchback in February 2016 (formerly called the ZICA)

 A new Tata compact hatchback is slated to be launched sometime after Auto Expo 2016 in February. It is the first mass-market model to be developed entirely under Tata's HorizoNext strategy. It will come equipped with either a 1.2L gasoline engine or a 1.0L diesel engine. It is a small-size hatchback, and is 3746mm long, 1647mm wide, and 1535mm high.
 The hatchback is the first completely new model that Tata has developed since the launch of the Indica (in 1998) and Nano (in 2008). More than 200 engineers developed it over a three year period. Even in the Compact segment, the hatchback will have fewer competitors than the more premium Tata Zest and Bolt. The company is seeking to restore its passenger-car market share with this vehicle.
 Among its less numerous competitors, such as the Maruti Suzuki Celerio (base price of INR 390,000) and the Hyundai Grand i10 (base price of INR 470,000), the base price of the new hatchback is expected to be between those two models. The main target will be first time car buyers.

 

The fully redesigned Tata Ace Mega pickup truck
The new Tata Ace Mega pickup truck
(Courtesy of Tata)
(Tata Motors refers to it as a pickup truck.)

 In the CV segment, Tata launched the new Ace Mega pickup truck in August 2015.


 

Launch of new Ace Mega small-size pickup truck

 In August 2015, Tata launched a new Ace Mega pickup designed to respond to transport needs for hauling goods between and within cities. It can carry loads weighing up to one ton. It comes with a 2-cyclinder 800cc diesel engine and gets 18.5 km/L, the top level in its class.
 The ACE series has sold 1.5 million units since launching in 2005, and hold 80% of the market share for small trucks under GVW 2t. Moreover, 20% of all commercial vehicles sold in India are from the ACE series.

 

 



Tata: Jaguar Land Rover supporting consolidated results

 Tata acquired Jaguar Land Rover (JLR) in 2008 from Ford Motor Company. JLR's revenues and current net profit in FY 2014/15 was double that of FY2011/12 (a two-fold increase over four years), which supported Tata's consolidated results.

 Tata's consolidated revenues in FY 2014/15 were INR 2.67 trillion (roughly USD 40 billion), and it is hailed as the largest Indian automaker. However, the ratio of Tata's standalone sales have recently fallen from 40% of total consolidated sales in FY2011/2012 to 15-17%, and its structure is one where it is supported by subsidiaries, with JLR making the largest contribution.

 In FY2014/15, Tata's standalone revenues actually decreased 20% from FY2010-11, and the company posted loss after tax. Tata's standalone profits for FY2014-2015 declined 20% from FY2011-2012, and its bottom line was in the red. In the April-September 2015 period, there were signs of recovery, such as Tata's final deficit shrinking from INR 14.5 billion to INR 300 million due to increased sales of large commercial vehicles.

Tata Motors' consolidated and standalone results

(INR in millions) (JLR results in GBP millions)
FY2010-11 FY2011-12 FY2012-13 FY2013-14 FY2014-15 Apr.-Sep.
2014
Apr.-Sep.
2015
Net Revenue Consolidated (A) 1,268,437 1,713,394 1,945,141 2,374,550 2,672,440 1,251,693 1,226,203
Standalone (B) 516,069 597,950 514,079 415,910 414,058 164,555 197,994
JLR 9,871 13,512 15,784 19,386 21,866 10,161 9,833
B/A 40.7% 34.9% 26.4% 17.5% 15.5% 13.1% 16.1%
Profit (loss)
after tax
Consolidated 92,736 135,165 98,926 139,910 139,863 86,891 23,392
Standalone 18,118 12,422 3,018 3,345 (47,390) (14,520) (299)
JLR 1,036 1,460 1,214 1,879 2,038 1,143 400
Source: Tata Motors
Notes 1. Major consolidated subsidiaries are JLR, Tata Daewoo Commercial Vehicles、Tata Motors Finance, and others.
2. As of the beginning of 2016: 1 GBP= INR 98; 1 INR=USD 0.015
3. Minority shareholder portions have been deducted from the current profit after tax

 

 



Mahindra & Mahindra: highest market share in UV and LCV sectors

M&M's unit sales by segment M&M is a division focused on automotive and agricultural-machinery and the core business of the Mahindra Group, which has 113 subsidiaries and annual sales of USD 17 billion as of March 2015.

 M&M's market share in India is between 11-13%. It mainly sells UVs and LCVs.

 Total yearly demand for UVs is 530,000-550,000 units, but according to M&M, non-Indian OEMs are launching a large number of new, small-sized UV models into the small-sized UV segment, which have a favorable 12.5% excise-tax rate applied. As a result, M&M's market share is still number one, but it has declined, from 55.6% in FY2011/12, to around 37% in FY2014/15.

 In the CV segment, M&M has a market share of around 25%. Over the past three to four years, M&M's market share in the LCV market has grown, reaching 42.5% for the period between April and December 2015 and surpassing Tata. At the same time though, the company has no models with GVWs between 9 and 16t.

 M&M announced plans to launch three new UVs during FY2015/16 and strengthen its M&HCV lineup.


M&M's unit sales by segment

Segment FY2011-12
(A)
FY2012-13 FY2013-14 FY2014-15
(B)
B/A Apr.-Dec.
2014
Apr.-Dec.
2015
Passenger Cars 17,839 15,344 9,734 3,184 -82.2% 2,274 2,618
Utility Vehicle 202,217 263,926 219,421 206,837 2.3% 149,809 153,242
Vans 25,644 31,437 25,189 13,947 -45.6% 11,311 7,756
Total Passenger Vehicles 245,700 310,707 254,344 223,968 -8.8% 163,394 163,616
M&HCVs 3,885 3,806 3,243 4,402 13.3% 2,931 4,679
LCVs 136,962 150,892 157,316 149,520 9.2% 111,901 116,417
Total Commercial Vehicles 140,847 154,698 160,559 153,922 9.3% 114,832 121,096
Total 386,547 465,405 414,903 377,890 -2.2% 278,226 284,712
M&M's market share by Segment
Passenger Vehicles 9.3% 11.6% 10.2% 8.6% 8.6% 7.9%
Passenger vehicles: Utility Vehicles 55.6% 47.7% 41.7% 37.4% 37.0% 36.6%
Commercial Vehicles 15.7% 18.0% 25.4% 25.0% 25.9% 25.1%
Commercial Vehicles: LCVs 29.8% 28.7% 36.4% 39.1% 39.4% 42.5%
Total 11.2% 13.4% 13.2% 11.8% 11.9% 11.2%

Source: SIAM

 

 



M&M: launching three new SUV models in FY2015/16

 In the UV segment, M&M launched a restyled XUV500 in May 2015. This was followed by a new TUV300 compact SUV in September of the same year, and in January 2016, the company released the KUV100, which is positioned further below those models. The new TUV300 had a solid start, with monthly sales averaging 3,800 units between September and December.

 The KUV100, which is the first gasoline-powered SUV model from M&M, is an SUV-style hatchback, and was set at a low price starting from INR 442,000. M&M calls it a "young SUV", and hopes that the model will create a new customer base.

 

TUV 300
M&M's TUV 300 (Courtesy of M&M)
KUV 100
M&M's KUV100, its first gasoline-powered SUV model (Courtesy of M&M)

 

SUVs launches by M&M in FY2015/16

Launch date Model Engine Length Price
May 2015 XUV500 (restyled) 2179cc diesel 4585mm INR 1,150,209- (USD 17,250-)
September 2015 TUV300 1493cc diesel 3995mm INR 710,849- (USD 10,660-)
January 2016 KUV100 1200cc petrol 3675mm INR 442,000- (USD 6,600-)
1200cc diesel
Notes: 1. Prices shown for the XUV500 and KUV100 are the prices in Pune (Maharashtra State). The Delhi price is shown for the TUV300.
2. The TUV300 and KUV100 have a low excise-tax rate of 12.5% because they are under 4000mm in length and equipped with engines under 1.5L. The tax rates for vehicles with specs greater than these are 24% - 30%.

 

KUV100 aimed at first-time buyers

Low price  The KUV100 is an SUV-style hatchback positioned in a class that competes with models like the Maruti Suzuki Swift and Ford Figo. It is set at a low price, with the gasoline engine model starting from INR 442,000 and the diesel-engine version from INR 522,000. It also has a six-seater version (3 + 3).
Gasoline engine  KUV100 models come equipped with a newly developed "mFalcon" 1.2L gasoline-engine or 1.2L diesel engine. The diesel vehicle comes equipped with a start-stop system. This is the first time an M&M SUV has been equipped with a gasoline engine (see note below.) This model is expected to contribute to creating an expanded customer base.
Registrable in Delhi NCR  In December 2015, the Supreme Court of India ruled that registering diesel-engine vehicles with engines that are over 2000cc is forbidden in the Delhi National Capital Region (NCR) until March 2016. Among automakers, the impact on M&M was the largest, since the majority of its models have diesel engines that are over 2000cc. The KUV100 is one of the few M&M models that can be registered in the Delhi NCR (see note below.)
Aimed at first-time car buyers  Mahindra sells the Vibe in the Compact segment and the Verito in the Super-compact segment, but relatively few of these two models, which are built on the Renault-Logan platform, have been sold. The KUV100 is the first model to be totally designed and built in-house at M&M. The company launched the model, aiming to selling it at first-time car buyers.

(Note) Mahindra has only one gasoline-powered vehicle, the Mahindra Verito, which is based on Renault Logan. Moreover, among the company's diesel-powered vehicles, only five, the Vibe and Verito (1461cc), the Quanto and TUV300 (1493cc), and the KUV100, have engines that are 2000cc or less.

 

 



M&M: developing CVs in the GVW 9-16t classes to furnish a full lineup

 In the CV segment, M&M has gained a high market share for LCVs (under GVW 7.5t), but Tata and Ashok Leyland maintain strength in the M&HCV sector (GVW 7.5t or more), and M&M's share is limited to 2 - 3%.

 M&M announced that it will invest INR 7.0 billion to develop GVW 9-16t CVs, which are missing from the current lineup, and that it will furnish a complete CV lineup within 2 years.

 In addition, it launched the Jeeto (truck) and the Supro (truck-van) in the LCV segment.

M&M: developing 9-16t class CVs to furnish a full lineup

 M&M announced in August 2015 that it will invest INR 7 billion (USD 100 million) in CV development. The company will develop GVW 9t - 16t models that are currently not a part of its lineup, and compete with the market leader, Tata Motors, by expanding to a full lineup that includes CVs with GVW from 3.5t to 49t.
 M&M already sells M&HCVs that exceed 20t, but their annual sales are in the thousands, and these are far outstripped by those of Tata Motors, the market leader.

 

M&M: launching new, small-sized CVs

Small truck
JEETO
 M&M launched sales of a new small truck called the Jeeto in June 2015. It is equipped with a single cylinder 625cc diesel engine and is 3281mm-3581mm long. Buyers can choose from eight versions, which are made from different combinations of engine (maximum output of 11 and 16HP), load capacity (600kg and 700kg), and truck-bed length (1630mm, 1780mm long, and 1930mm). Its fuel efficiency is a maximum of 37.6km/L. The ex-showroom price in Telangana State starts from INR 232,000.
Small truck & van
SUPRO
 M&M launched a small CV called the Supro in October 2015, which comes equipped with a 909cc diesel engine. The 8-seater Supro Van has a starting ex-showroom price of INR 438,000 in Maharashtra State. Its fuel efficiency is a maximum of 23.5km/L. The Supro Maxitruck has a load capacity of 1t and a maximum fuel efficiency of 22.4km/L. Its starting ex-showroom price is INR 425,000 in Maharashtra.

 

M&M:acquiring Pininfarina

 In December 2015 M&M agreed to acquire the Italian design company Pininfarina. M&M, along with Tech Mahindra, an IT company under the Mahindra Group, acquired 76.06% of Pininfarina's stock shares for USD 28 million. Acquisition procedures are scheduled to be completed by the end of 2016. It is estimated that the remaining shares can be acquired for the same price per share. With additional guarantees to other creditors and investment promises, M&M's total acquisition cost is purported to be USD 185 million.
 In addition to automobile designs for companies like Ferrari and Alfa Romeo, Pininfarina is involved in a wide range of fields, including aviation, electronic equipment, and interiors. M&M is expected to make extensive use of its acquisition for design work on the Mahindra Group's family of products (aircraft, motorcycles, and retail related areas and etc.)

 

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