Tata Motors’ biggest problem is not the lack of chips: BQ Exclusive


The third largest car manufacturer in India, Tata Motors Ltd.., is concerned about the rising cost of raw materials.

“That (the price of raw materials) is getting very, very painful,” PB Balaji, chief financial officer of Tata Motors Group, said in an interview with BloombergQuint. “Prices are currently moving so fast that we can’t process them,” he said.

According to Balaji, vehicle costs by category have risen 14% in the past year due to engine upgrades to meet lower emission standards (BS-VI). Another price increase of 6-7% is due to higher steel costs.

So far, the company has had increased prices three times, but has yet to recoup the full cost increase. “We have already taken a price increase of 6%. I think we are still losing at least 350-400 basis points of the margin because we are not able to convey the increase in the price of steel, ”Balaji said. According to him, the carmaker must further increase prices by 5% to offset the increased price of steel.

The company is unsure whether a fragile demand recovery can bear the burden of higher fuel and car costs. Already the lack of chips has harmed production in India and the business of Jaguar Land Rover. Balaji said that in the July-September quarter, 50% of the amount of JLR, that is about 65,000 units, will be lost due to the lack of chips. In India, production will be lower by 3,000-6,000 units compared to an average quarterly production of 45,000-50,000 units.

Somehow the company has supplied dealers to meet demand in the upcoming festival season.

“Specific stocks [supply chain] in certain areas they have been raised so that we have the right things with us and we take over all the orders that are given to us, ”Balaji said. “It’s a careful planning process between us, level 1 [suppliers] and the semiconductor industry. ”

Dad Motors, he said, even bought such supplies during the quarantine imposed to suppress the second wave of Covid-19. That, according to Balaj, now gives a respite to the carmaker.

Balaji hopes for a strong recovery in the second half of fiscal policy and by then could spur further increases in product prices. “At this point, I’m starting to worry and we need to be careful not to overdo it with prices,” he said, adding that he hopes raw material prices will stabilize soon.

Meanwhile, cost management is also in focus, especially to reduce the steel content in cars.

“Various works are done to get the steel out completely, and then of course the product mix is ​​a very important lever. I may not be able to make money per vehicle, but if it’s a better combination of products, I can make money from it, ”he said, adding that the carmaker is working on every aspect to get operating leverage and find ways to make money.

Despite bad winds, Tata Motors is on track to reach almost zero net debt target by fiscal 2023-24. It depends on the creation of free cash flow which will represent the largest part of the return, the monetization of secondary assets and the replenishment of the remaining capital.

Balaji said the company wants to liquidate part or all of its ownership in Tata Technologies Ltd., Tata Hitachi Construction Machinery Co. and Tata Finance Ltd. It also intends to turn to financial investors to finance its electric vehicle portfolio.

Tata Motors is currently in the process of redirecting its passenger vehicle business to a wholly owned subsidiary. Domestic electric vehicle business will be located under that branch.

Other prominent details:

  • Keep talking to your passenger car business partners.

  • Electric vehicles will make up 25% of the amount by 2025.

  • Current book of electric vehicle orders: 4-5 months.

  • JLR and Tata Motors will be key customers for the supply of Tata Chemicals Ltd. cells.

  • To set up 15,000 charging nets in the next three to four years.


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