© 2022 Nitin Gupta, IMT-Hyderabad

Tata Motors: Betting Big on EV

India’s biggest manufacturer of electric cars, Tata Motors’ (TM) Chairman N Chandrasekaran
(Chandrasekaran) was very confident of his firm selling half a million cars, including 50,000
electric vehicles (EVs) in the fiscal year 2022-23. Speaking at the 77th annual general meeting
(AGM) of TM, Chandrasekaran expressed “We are on an aggressive growth path. In FY21, we
sold about 5,000 electric vehicles; in FY22, it was about 19,500 units; this year, we plan to sell
50,000 electric vehicles; and we plan to double it to one lakh EVs by next year,”.

Acquiring Ford’s Sanand Facility

Tata Passenger Electric Mobility (TPEML), the EV subsidiary of TM that was incorporated in
December 2021, had signed an memorandum of understanding (MoU) with the Gujarat
Government for acquiring Ford’s Sanand facility. The plant would primarily make EVs, and the
excess capacity was likely to be used for making other passenger vehicles. The acquisition was
expected to be a good deal for TM as it would help the automaker enhance its EV and
passenger-vehicle (PV) capacity. Ford’s Sanand facility was modern and would cost its buyer
less than what it takes to build a greenfield project, as existing buildings and machinery would
be available at a depreciated cost.

TM already had a plant at Sanand where the Nano used to be produced. While the Nano was
discontinued, other models like the Tiago, Tigor petrol and CNG as well as the Tigor electric
and the Xpres-T electric were currently being manufactured there. Globally, most traditional
automakers manufactured EVs and internal combustion engine (ICE) vehicles side by side or
even on the same assembly lines, which helped in retaining the flexibility to adjust output.
Even TM could capitalise on the existing assembly-line infrastructure to manufacture EVs.

TPEML was targeting an annual production of 200,000 EVs from Ford’s Sanand facility.
Production would commence by 2023-24. Volumes were expected to steadily grow as the EV
market matured. It was expected that the additional investments by TM would help develop

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Sanand as an EV hub. While Ford’s vehicle-assembly facility at Sanand had a production

capacity of 240,000 units annually, TPEML had indicated that it would be investing in new
machinery and equipment and, within a few months, would be ramping up the installed
capacity to an annual 300,000 vehicles, which could be further scaled up to 400,000 units in
future.

The MoU also involved transferring the 1,400 employees at the facility to TPEML’s rolls. “This
means that TPEML does not have to hire new manpower and train them in manufacturing
skill sets. It gets an existing trained workforce, which is again more cost-effective and involves
a smoother transition,” according to Ravi Damodaran, an auto-industry expert, who also felt
that the existing supply chain created by Ford in its suppliers’ park could be used by TM.

Other EV Related Initiatives

With plans to invest $2 billion, or about ₹15,600 crore, in the passenger EVs business, TM had
raised about ₹3,750 crore from TPG Group last financial year. The second tranche of the same
amount from the US private equity major was expected to come in the third quarter of FY23.
This would give TPG 11-15% stake in the EV arm of TM.

To derisk its future business, TM had got into chip manufacturing with Japanese major
Renesas. It had formed a strategic partnership to design, develop and make semiconductor
solutions. Renesas would collaborate with TM on developing “next-generation automotive
electronics” to accelerate the growth of electric and connected vehicles.

TM had plans to expand its product portfolio to 10 EVs by 2025 and Chandrasekaran expected
that the share of EVs in total sales would rise to 25% in the next five years. The Tata group
(Tata), via Tata Power (TP) was working on a large charging infrastructure network around the
country to support the proposed shift towards electrification. TP had kicked off an ambitious
nation-wide plan of setting up EV charging stations from North to South, connecting Kashmir
to Kanyakumari and from East to West, from Guwahati to Dwarka and Bikaner over next the

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next 3-5 years. TP has tied up with TM under which home charger solution was provided to
each of the vehicle owner, as part of the vehicle purchase and nearly 15,000 home chargers
had been provided. In addition to this, nearly 2,000 plus public chargers were provided in
nearly 170 cities including highways between cities so as to provide flexibility to users to top
up their charging, as and when required.

Concerns for TM

Chandrasekaran was very concerned about the recent incident of a Nexon EV catching fire.
He considered it to be a one-off incident and the company had formed a dedicated team to
study the entire technology to see why the incident occurred. “We want to get to the root of
the problem…are determined to ensure that such incidents don’t happen, and we are
absolutely safety proof on our products.” Chandrasekaran had asserted.

TM stated that this was the first instance where an EV made by it had caught fire. It had sold
more than 30,000 EVs so far, which had cumulatively covered over 100 million kilometres
across the country over the past four years. A senior TM executive had said that it was
premature to comment on the reasons behind the fire and that the company could only share
more details post a “root cause analysis”. The vehicle involved in the incident was a newer
model bought recently by the customer, the executive added.

India’s EV makers were bracing for a major hike in prices across models on the back of rising
input and component costs of EVs. The EV manufacturers were under severe pressure to
increase prices in the range of 6-8% across the board. “There is a sharp increase in upstream
raw material prices. The affordability gains realised in the past few years, and rising prices of
nickel, lithium and other materials have been impacted by the Russia-Ukraine situation. It is
expected that average EV battery prices will be higher by 5% compared to last year,” said Ravi
Bhatia, president of Jato Dynamics, a global supplier of automotive business intelligence.

The demand for passenger cars that ran on compressed natural gas (CNG) was picking up in
India as skyrocketing petrol and diesel prices and teething troubles in the EV segment made

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them a good option for buyers of entry-level cars. Domestic sales of CNG personal PVs in April
2022 was more than doubled to 27,000 units from a year earlier, according to data from auto
intelligence firm Jato Dynamics. One of the reasons for the demand was the low operating
cost. TM expected CNG cars to account for up to 20% of its total sales over the next three to
five years. It had launched CNG-powered cars in January 2022 and was planning to focus on
the hatchback and compact sedan segments for expansion of its CNG model range. However,
by focusing on CNG, TM could face the risk of having created excess capacity for EVs if the
overall EV market does not grow as quickly as it had anticipated.

TM’s EV endeavour suffered another setback. In February 2022, Brihan Mumbai Electric
Supply & Transport Undertaking (BEST) had invited bids for operating 1,400 electric buses for
a contract worth around ₹ 2,450 crore to operate in the city of Mumbai and its extended
suburbs on a gross cost contract model for 12 years. TM too had bid for this contract.
However, on May 2022, BEST disqualified TMs’ bid on technical grounds. TM claimed that it
had met all the technical specifications required and moved the Bombay High Court,
challenging this decision.

Had TM over-stretched its EV bet? How could TM plan its brand building journey in the current
situation?

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