How Tata Motors aced the passenger vehicle market (2024)

The car finally hit the market last year and Tilaknayak became the proud owner of a Punch on his birthday, in December. “It’s the best birthday gift I have ever given myself," he says.

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Tilaknayak’s experience underlines the excitement that Tata Motors has injected into India’s passenger vehicle (PV) market with its launches. Until very recently, the company’s new PVs never created ripples in the market. They were perceived to be old-school diesel cars that would saddle the owner with maintenance issues down the line.

Indeed, the company was just another contender in the PV market, with a market share of just 4.9% as recently as 2020, way behind market leader Maruti Suzuki, as well as the No. 2, Hyundai.

Today, Tata Motors is rewriting that script. While the PV market was growing at a modest 8-9% in the wake of covid-19, the company was able to more than double sales volumes. In December 2021, with a 13% share, Tata Motors surpassed its South Korean rival Hyundai to become the second-largest player in the domestic car market, at a time when the latter was grappling with a semiconductor shortage.

Tata Motors’ rise was fuelled by its sports utility vehicles (SUVs), which sold in record numbers during the December quarter to top the category. That growth was led by the Punch–starting at ₹5.65 lakh (ex-showroom), the small SUV is being touted as the country’s most affordable utility vehicle. Indeed, less than a year after its launch, the Punch has become Tata Motors’ second-largest selling passenger vehicle, after the Nexon.

The company sold the highest number of utility vehicles in January too, but M&M pulled ahead by a slim margin in February. Tata Motors is still a top-three player, selling more than 10,000 units of the Nexon and Punch each month on average, and close to 4,500 units on average of the Harrier and Safari.

How the turnaround began

So, what’s behind this stunning turnaround? And will Tata Motors be able to go the distance this time around? After all, it has been here before. In 2012, in the backdrop of the labour unrest at Maruti Suzuki’s Manesar factory, and thanks to models such as the Indica, the company was within touching distance of Hyundai for the No. 2 position in the PV market, with a 14.2% share (Hyundai was at 14.9%). And then it was eclipsed by the competition.

Between FY13 and FY18, Tata Motors saw its market share contract sharply. Things started to pick up only after the launch of the Tiago in April 2017. The hatchback was built on a new architecture to break away from the Indica-derivatives that the company had been unsuccessfully launching.

According to analysis by Elara Capital, 86% of new vehicles launched by non-Maruti Suzuki brands between 2010 and 2020 started to fizzle out 12-18 months after their launch. The notable exceptions were Tata Motors’ Nexon and Tiago, and the Hyundai Creta.

“You could say that Tata Motors 2.0 began FY18 onwards. After the Tiago was launched based on a new design language, it was followed by another very successful launch of the sub-4 metre SUV Nexon. With these products they started getting the retail customer back, fighting off the perception of poor service ratings, quality issues and a sentiment that Tata cars are primarily run as taxis," says Vivek Kumar, vice president, JM Financial Institutional Securities, told Mint.

Bengaluru-based Prem Shenoy, one of Tata Motors’ oldest dealers, says that the 5-star crash test rating from the UK-based Global New Car Assessment Programme (GNCAP) for the Nexon in December 2018, the first for any car in the country, transformed the perception of the brand. “It was a gamechanger for us. We would never make the consideration list for the customer even though our products were equal to or better than the competition. That started to change with the Nexon," he says.

Kumar adds: “Tata Motors built on the Nexon with the Harrier and the new Safari, quickly acted on feedback, improved their product and saw swift market share gains."

Speaking to Mint, Jay Kale, senior vice president, Elara Capital, says: “Tata Motors managed to do what global OEMs couldn’t—capture customers with the Tiago in the hatchback space, which is a Maruti Suzuki stronghold."

Today, the premium SUVs Harrier and Safari, and compact SUVs Punch and Nexon together enjoy more than 30% share in their respective sub-segments. Tata Motors has sold 42,190 units of the Punch from its launch till February 2022, while over 3 lakh units of the Nexon have been sold since September 2017.

The icing on the cake, however, was Tata Motors’ ability to leapfrog the electric vehicles (EVs) field and execute a well-timed launch at a disruptive price point. Four out of five EVs sold in the country in 2021 came from the Tata stable.

SUV push

Much of the credit for Tata Motors’ turnaround goes to Shailesh Chandra, managing director of the company’s Passenger Vehicles and Tata Passenger Electric Mobility divisions. And much of that success has been driven by the company’s focus on SUVs, a category it pioneered in India.

The Tata Sierra, a three-door off-roader launched in 1991, was the first SUV conceived for and produced in the country. Subsequently, Tata Motors introduced more cars, including the Safari and Estate, targeted at the affluent, upwardly mobile Indian. The Safari came in 1998, unrivalled by any other vehicle of its kind. Mahindra’s Scorpio came on the scene much later, in 2002.

“We were leaders in SUVs right from the time we launched the Safari in 1998. But in between there was less intensity in launches from our side," Chandra says during an interview with Mint at his office in Bombay House. “But we saw the SUV trend coming and therefore we designed a portfolio that was focused around these cars, and at the same time had the right balance of all the other segments."

The company was clear that it had to top whichever SUV segment it entered. “We now have seven products in our portfolio, and all of them are among the top 3 in their respective segments," says Chandra. “We selected our products to cater to a wide range of different affordability points."

While noting that there has been a marked change in preference on the customer side, Chandra says there has also been a push by OEMs on the supply side. “SUVs as part of total industry volumes have surpassed all other segments (with a 42% share of the market). There is a high intensity of launches in this segment, whereas we see fewer launches now in traditional hatches and sedans," he notes.

There are several pillars to Tata Motors’ strategic vision: Timely recognition and introduction of products in high-traction sub-segments of the market, a focus on affordability, a comprehensive range of powertrain options (CNG, petrol, diesel, electric), reviving the health of its dealership network, aspirational styling, design and safety in its New Forever range of products, and targeting launches at segments with potential.

“We are not present in every SUV sub-segment yet, but wherever we are present we have more than 30% share," says Chandra. He asserted that the company would not leave any segments unaddressed, including the mid-sized SUV space, where rivals Hyundai and Kia are strong players.

What helped customers re-discover Tata Motors was also a strategy to target micro-markets where the brand had been struggling. “We went into 21 cities where we had poor market share and gave resourcing support to those markets," says Chandra.

Backing dealers

Tata Motors dealers Mint spoke to say that Chandra and his team worked to streamline the dealership network and built a strong connect with the brand within the dealer community. That also spills over to the customer, who gets better service from the dealer.

“Tata Motors dealers are a happy lot today," Vinkesh Gulati, president of automotive dealers’ association FADA told Mint. “If a customer goes into a Tata Motors showroom now, they’ll find a product from the base to the high-end of the market."

Tata Motors’ efficient handling of the global semiconductor crisis and its capacity expansion led the company to increase volumes when its peers were curtailing production sharply. This helped it to address the strong customer appetite for personal mobility with people avoiding public transport as the covid pandemic took a heavy toll.

The strategy bore fruit as customers started to drive in to the company’s showrooms. The company also benefited from Maruti Suzuki vacating the diesel segment after the implementation of BS-VI.

Leading the EV race

Accounting for 80% of total EV sales in the country in 2021, the EV division has played a key part in Tata Motors’ revival. The company has cumulatively sold close to 14,000 units of its flagship Nexon EV since its launch. Along with the newly launched Tigor EV, Tata Motors’ total EV sales grew 478% to 2,486 units in February 2022.

The Made-in-India Nexon EV, launched in 2020, was and continues to be India’s most affordable and largest-selling electric car. It is almost ₹10 lakh cheaper than any other EV in the market, including the Hyundai Kona and MG ZS EV. In fact, the Nexon EV also breathed new life into the IC-engine Nexon, as the electric car supported the brand’s visibility in newer markets.

All of these factors have given the company’s PV operations significant weight in the company’s stock, after private equity firm TPG Rise Climate ascribed a $9 billion valuation to Tata Motors’ EV business last year. Elara Capital says the PV business now accounts for 30% of the company’s target price, against an almost negligible value earlier.

Challenges ahead

The SUV wars, however, are only going to intensify and Tata Motors will have to do a lot to retain its edge in the market. M&M, which has decided to re-brand as a true SUV player, has a long booking pipeline for its new models Thar and XUV700. It is launching a new Scorpio soon, and a Born EV platform (a new EV platform for future SUVs) will also give Tata Motors fierce competition. Maruti Suzuki, too, is gearing up to launch a mid-sized SUV.

“Tata Motors is back in the game, but the competition too has upped the benchmark. Hyundai, Kia and M&M are all suddenly aggressive in the UV segment with eye-catching launches. With limited visibility on Tata’s future launches, it is worth pondering if their PV market share is at its peak," says Kumar of JM Financial.

Tata Motors says it will launch one or more SUVs in the next 4-5 years.

An executive at a leading OEM who didn’t want to be identified acknowledged that Tata Motors has refreshed its presence because of its new portfolio in segments that are growing.

“How the company will stack up against the competition will become clear when we are all (car manufacturers) back to normal production. The demand pipeline looks healthy for all leading brands," he says.