Strong domestic EV play and JLR sales positives for Tata Motors stock

The launch of Tata Motors’ (TaMo) new Nexon facelift —in both petrol and electric vehicle (EV) variants — leads to a focus on the auto-major’s EV ambitions.

A few days ago, a chance remark by Nitn Gadkari set off rumours that there may be a punitive 10 per cent additional Goods and Services Tax on diesel vehicles. Although the minister later retracted from the statement, it’s clear that policy is geared to inducing a shift away from internal combustion to EVs and other greener options.

This is an interesting situation. TaMo sold 5.4 lakh passenger vehicles in the 2022-23 financial year (FY23) and only about 20 per cent were diesel. The company also sold over 50,000 EVs and by the fourth quarter (Q4) of FY23, EV sales were around 12 per cent of all PV sales. By 2030, the company hopes that around 50 per cent of PV sales will be EV.

Other companies are also planning EV launches but TaMo has dominant market share at the moment and it could hope to maintain a lead. Tata’s Nexon 2023 facelift EV is clearly a big play to consolidate its pole position – the Nexon (old model) is the most popular vehicle in the SUV space. The company is reportedly planning exclusive retail showrooms for EVs.

Automobile manufacturers (OEMs) take three to four years to plan model cycles. While there are several EV launches planned by OEMs, customer adoption will also depend on the build-up of charging infra­structure and falling co­sts. There are also challenges to setting up EV supply chains in India, which will take time. TaMo has a lead in this process. In other respects, automobile manufacturers are looking at better margins because the shortage of chip supplies and logistics challenges in managing supply chains are both easing. Other raw materials costs are also coming down due to price drops in industrial metals. At the same time, most auto-makers are guiding for imp­roved domestic sales. An economic revival in India could also boost demand for trucks.

A key factor is that JLR reported increased sales for Q1FY24, reflecting continuing improvement in chip and other supply constraints. Wholesale volumes were up 30 per cent year-on-year (Y-o-Y) though sequentially the sales were down 1 per cent. Retail sales were up 29 per cent Y-o-Y and down 1 per cent quarter-on-quarter (Q-o-Q). The order book remained strong with over 185,000 client orders at the end of the quarter.

Obviously, competition heating up in the EV segment and the generally muted global demand could be downside risks. However, the generally improving conditions on the supply side and TaMo’s aggressive push into EV, and its dominant share in that crucial segment, are positives. The share price, atRs 634.15 after Friday’s trade, at is up 2.8 per cent in the last month, and up 38.7 per cent in the last year.