Rating: hold; Tata Motors eyes breakeven in electric vehicles

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Here are the takeaways from Tata Motors’ investor day: Tata Group aims to establish itself as a prominent player in the global battery manufacturing industry, striving to become a leader in the market. The company is determined to achieve production costs comparable to those in China. The management of Tata Motors has set a target of 3% margin expansion in internal combustion engine (ICE) vehicles, indicating their commitment to improving profitability in this segment. Additionally, they aim to achieve Ebitda breakeven in electric vehicles (EV) in the near to medium term, highlighting their focus on the growing EV market. Our recommendation for Tata Motors remains ‘Hold,’ with a target price of Rs 560.

Passenger vehicle ICE business: The management aims to achieve a 3% increase in Ebitda margin in its ICE business in the near to medium term. This growth will be driven by several factors including a better product mix, cost-cutting measures, operating leverage, and revenue from non-vehicular sources. Based on our estimates, we anticipate that the Ebitda margin will expand by 200 bps by FY26e.

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EV business: Tata Motors has set a target to increase localisation from 70% to 85% by FY25, indicating its commitment to sourcing a higher percentage of components locally. This move aims to enhance operational efficiency and reduce dependency on imports. The company also plans to reduce component costs by 15-20% over the next 3-4 years, demonstrating its efforts to improve cost management and profitability. Tata Motors aims to achieve positive Ebitda in the near term, highlighting its focus on generating sustainable earnings and improving its financial performance. In line with its telematics data, which indicate that 90% of EV owners charge their vehicles at home, Tata Motors has increased its emphasis on community chargers at residential societies.

Battery cell manufacturing: Agratas Energy Storage Solutions (a Tata Group subsidiary) signed a deal with the Gujarat government on June 2 to manufacture lithium ion battery cells with an investment of Rs 130bn:

n Agratas will set up a 20GWh plant for lithium iron phosphate (LFP) and nickel manganese cobalt (NMC) battery cells for Tata Motors and its subsidiary Jaguar Land Rover (JLR), which will expand to 60GWh (20GWh in India and 40GWh for JLR). It will focus on cell design to validation while ensuring localisation of key elements of the supply chain.

n Management targets a lower cost of production, equivalent to China’s, driven by lower energy costs, cheap labour, state-of-the-art machinery and benefits from the Tata Group’s ecosystem.

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n Tata Motors plans to source 70% of its battery cell requirements from Agratas and the remaining 30% from the open market as a hedge against any major technological changes and/or supply chain disruptions.

Commercial vehicle (CV) business: Management was confident in its high value and low discount strategy to grow profitably in its CV business; however, we think that any further market share loss could trigger a rise in the discount. The company was optimistic about large truck demand in FY24 due to expected pre-election-year spending by the government and a demand recovery in the bus segment; we estimate mid-single digit growth in FY24e .


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