Tata Motors launched its first EV in October 2019 - the model was Tigor EV. From 2019 to now, Electric Vehicle sales in India have been rather electrifying. They have quickly grown to become a trending choice.
In just 3 years, sales of electric passenger vehicles have grown by almost 35x. EV car sales have gone from just 1,200 in 2019 to 42,000 in 2022! The top two selling models are Tigor and Nexon - both Tata Motors brands.
If there’s anyone who has made the most of this EV wave in India, it is Tata Motors. With an 85% market share in the electric car space, it is currently ruling the largest and fastest-growing trend the Indian car market has ever seen.
Tata Motors was trading at Rs. 178 per share when the Tigor was launched. From there, within a span of three years, the stock is now (March 3, 2023) at Rs. 430 - almost 2.5x!
Will EVs continue charging the Tata Motors stock? We think yes!
There seems to be a perfect equation in place for the stock to continue doing well over the next few years: High-growth market + Market leadership + High Value business
1. It’s Still Early Days
Although EV car sales have gone up 35x in just the last three years, it is still early days. Both in 2019 and 2022, the total car sales in India stood at about 38 lakh. EVs out of these were just 0.05% of the sales in 2019 and 1.2% of total cars sold in 2022.
But even with these ballistic numbers, India is far behind its global peers, and there is a long runway ahead. In 2021,
EVs made up for 10% of total car sales globally
Out of the top 20 countries by EV sales as a percentage of overall car sales, 15 were European. Norway is a global leader in EV sales with them accounting for 86% of the total cars sold in 2021. Iceland at 72% is number 2, and Sweden at 42% is number 3
EVs as a percentage of total car sales in China stood at 16% and in the US at 5%
The high penetration in Europe has been boosted by (i) tax policies incentivising EV purchases, and (ii) targets for phasing out combustion engine cars.
Moreover, developed nations had the privilege of better roads and infrastructure, which supports easier adoption of charing, and the launch of cool features like autonomous driving, that EVs bring with them as added value propositions.
Although India started late in the race, there are several factors that work in India’s favour for continued acceleration in adoption of EVs.
Policy - The government seems serious about the future being electric. Several incentives have been announced that favour the sale of EVs in the future.
Source | Incentive |
|---|---|
GST | Cut from 12% to 5% on the purchase of an EV |
Customs Duty on Lithium Ion Battery | Cut from 21% to 13% |
Adoption and Affordability | Launched the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicle (FAME) scheme which provides subsidies of up to Rs. 1,50,000 on the purchase of an EV |
Income Tax | Deduction of up to Rs. 1,50,000 on interest paid on the loan taken to buy an EV |
State Incentive | 15% Discount on Showroom Cost of Hybrids and EVs (up to Rs. 3-5 lakh) |
Infrastructure - Charging infrastructure has been getting better. Take Tata Motors for example. They have increased their charging stations from just 450 in March 2021 to 4,297 in December 2022. That’s a near-10-fold increase in just 20 months.
Price - The Indian consumer is excessively price sensitive. Although EVs cost much higher than traditional petrol cars, the running costs are far lower. An electric charge costs around Rs. 1.2-1.4/km while petrol is almost 9-10x that. Overall, there has been parity in total cost ownership between internal combustion engine cars and electric ones.
These factors ensure that India will be on an accelerated path of EV adoption from its current mere 1.5% share, over the next decade, and perhaps even gain parity with other developed countries.
2. Tata Motors Is the Undisputed Champion so Far
Tata Motors grabbed almost the entire market for itself in a short span of 4 years, which is no small feat.
Nearly 9 out of the 10 EV cars sold in India are a Tata make, and the top two selling cars are both Tata brands as well.
While Nexon and Tigor have already been best-sellers, Tata Motors introduced the Tiago EV, which is one of its most affordable offerings.
On just the first day of launch, over 20,000 bookings were made for the Tiago which also promoted Tata to extend introductory pricing to an additional 10,000 bookings. Why is it a BIG deal? So far Tata Motors has sold 50,000 EVs - put that into perspective now!
While Tata Motors has been gobbling the market up, competitive dynamics are quite varied in the rest of the industry:
Market leaders Maruti Suzuki and Hyundai haven’t really made big moves in the space yet
New players like BYD and MG have managed to start getting visibility
Luxury car makers BMW, Mercedes and Audi have all launched their products
Early movers like Mahindra haven’t been able to make a dent in the market at all, thanks to inferior specs and an inability to add freshness to designs
There’s a good chance that Tata Motors continues maintaining its dominance. There are several steps it has been taking that look quite promising:
Tata Motors plans to expand its EV portfolio to 10 vehicles by 2026
It has been laying focus on both segments in EVs - Fleet and Personal. Its recent deal win of supplying 25,000 EVs to Uber shows success on this front
It has been chasing the development of charging infrastructure aggressively
It recognises the potential opportunities and risks in EVs and has been proactively making structural changes in order to set itself well for the long game. To facilitate this it has embarked on Project Helios, under which it has:
Created a pure-play EV company as a subsidiary
Chalked out an investment outlay of US$ 2 billion for products, platforms, drive trains, manufacturing, charging infrastructure and other technologies
Committed support from the established Passenger Vehicle business in terms of manufacturing, technology, branding and sales network
Planned onboarding external investors who would bring in capital, access to a global ecosystem and value
3. The EV Business Attracts High Value
With Project Helios in action, in 2021, Tata Motors announced that TPG Rise Climate and ADQ were investing US$ 1 billion in the EV business (Tata Passenger Electric Mobility Limited) at a valuation of up to US$ 9.1 billion, for an 11-15% stake.
Tata Motors now seeks further investment into the electric subsidiary, with sovereign wealth funds from the Middle East and private equity players from South-East Asia already lining up. The round is expected to take place at a 15-20% premium to the last round, according to news reports.
The EV business of Tata Motors has been attracting a valuation of nearly 1.8x EV/Sales on an FY24E basis. This has been in line with other global EV makers like BYD, NIO and Li Auto which are currently being valued at between 1.0-2.0x.
Why is this exciting?
A business that didn’t exist just 5 years ago now constitutes more than 20% of Tata Motor’s total valuation.
The business has been growing in multiples in terms of sales volume and revenue, with its trajectory expected to continue on this path.
After all, Tata Motors has an 85% market share in a market which has grown 35x over the last three years and is still only at a 1.5% penetration, versus a global average of 10%.
Given these dynamics, the share of Tata Motor’s EV business is likely to continue driving valuations higher over the coming years.
That’s Not It
Apart from its wildly famous electric division, Tata Motors has tailwinds in its other segments as well!
Segment | 3QFY23 Update | What's Up? | What's Next? |
|---|---|---|---|
ICE | Retail Sales: 1,26,404 units (+21% YoY) | Achieved a 14% market share in the Passenger Vehicle segment and is now the third largest seller after Maruti and Hyundai Market share has improved from its lowest 5% in 2016, thanks to new designs, platforms, models and focus on safety | Launched Harrier and Safari Red #Dark, Altroz Punch iCNG and Curvv Focused on the continued launch of new products, and demand generation initiatives across segments and micro-markets Completed the acquisition of Ford, Sanand unit to boost production |
CV | Revenue: Rs. 16,900 crore (+22.5% YoY) | Strong demand in M&HCVs (+50% YoY) and Passenger Carriers (+112% YoY) Launched 40 new products and 150 variants in FY23 so far | Electric bus segment has grown, with 730 buses (3x growth since FY22) on the road, and orders for more than 2,000 more buses in the pipeline Multiple tailwinds in the form of strong domestic industrial growth, softening commodity prices, improving product mix, and strong demand |
JLR | Revenue: GBP 6 billion (+28% YoY) | Struggling with chip shortage since 2019, leading to a 36% reduction in average wholesales/month from FY19 till 3QFY23 Intermittent lockdowns in China (makes up almost 1/3rd of JLR sales) led to orders not being delivered as of 3QFY23 | Chip supplies have been gradually improving over the last few months led by agreements with suppliers, and better management of supply chains Strong demand and record order book led by the success of New Range Rover, New Range Rover Sport and Defender Reopening of the Chinese economy resulting in a return of retailers and production employees Aggressively driving electrification at JLR to achieve EV option available on all models by 2030 |
What Is Tata Motors Worth?
We valued Tata Motors using a sum-of-the-parts (SOTP) approach:
Segment | Multiple (FY24E) | Rationale |
|---|---|---|
Passenger Vehicle (ICE) | 8x EV/EBITDA | Discount to industry average given market share, and lower profitability |
Commercial Vehicles | 14x EV/EBITDA | Premium to peers given industry-leading market share, and growth |
JLR | 2x EV/EBITDA | Discount to industry average because of ongoing chip issues, dependence on China, low profitability and high debt |
Combined with the Passenger Electric Vehicle segment valuation, we estimate the fair value of shares at Rs. 550, which is 30% higher than current levels (as of March 03, 2023)!
In Sum ➕
Despite what your cool friends who leave a smoke trail in their wake when they drive tell you, going electric is not just the nation’s direction, but the consumer’s as well.
With the goal to electrify 30% of the nation’s passenger vehicle fleet by 2030, the EV market will most definitely be “fuelled” towards accomplishing it, and Tata Motors seems to be at the helm of this!