How TATA motors' GENIUS STRATEGY is racing it past Hyundai & Suzuki in India? : Business Case study

Summary

Tata Motors has achieved remarkable success after years of struggle, growing its market share and becoming a leader in India's electric vehicle (EV) sector. The company doubled its market share to 12.14% by FY22, driven by strategies like platform sharing and leveraging synergies across Tata group companies. Tata's platform strategy reduced costs and increased efficiency, while their early entry into the EV space provided a first-mover advantage. Collaboration with other Tata companies enhanced their EV ecosystem, making Tata Motors a key player in the automotive industry. The video highlights Tata's turnaround and growth strategies.

Takeaways

• 🚗 Tata Motors reported its highest-ever annual sales, reaching 3.7 lakh units, marking a 67% increase from the previous fiscal year.
• 📈 Tata Motors' market share rose from 4.6% in FY16 to 12.14% in FY22, an extraordinary turnaround after 15 years of struggling in the Indian auto market.
• 💡 The company mastered the 'Platform Strategy' by reducing the number of platforms from six to two, which allowed them to scale efficiently by sharing parts across multiple models.
• 🔧 Platform sharing has significantly cut costs and minimized waste, leading to more profits per car and less risk in case of model failures.
• ⚡ Tata Motors became the leader in the electric vehicle (EV) space in India, with an 80% market share, leveraging a quick-to-market strategy by adapting existing models like the Nexon into EVs.
• 🔋 Tata Motors' entry into the EV market was supported by other Tata Group companies like Tata Power, Tata Chemicals, and Tata Autocom, creating a robust EV ecosystem.
• 🛠️ The platform-sharing strategy has increased operational efficiency, cutting down implementation time by one-third and lowering defect rates, resulting in reduced warranty costs.
• 🚙 Tata Motors achieved higher operating profit per car than market leader Maruti Suzuki for the first time in a decade, with further profitability expected as more cars are built on their new platforms.
• 🌍 External factors like currency fluctuations (post-Brexit) and pandemic effects posed significant challenges for the company, but Tata's efficiency helped them manage these risks.
• 📊 Tata Motors' successful strategies include leveraging economies of scale, minimizing unique parts, and repurposing existing facilities for EV production, which provided them with a first-mover advantage in India's EV market.

Q & A

What was the market share of Tata Motors in FY16, and how has it changed by FY22?

In FY16, Tata Motors had a market share of just 4.6%. By FY22, this had more than doubled to 12.14%.

What key strategy did Tata Motors use to achieve its rise in the Indian auto market?

Tata Motors implemented a platform-sharing strategy, reducing the number of platforms from six to two, which helped them optimize costs, reduce wastage, and increase profit margins by leveraging economies of scale.

How did the platform-sharing strategy help Tata Motors reduce costs?

By using fewer platforms and increasing the number of models per platform, Tata Motors could use common parts across different models, reducing the need for unique parts, lowering costs through bulk orders, and minimizing wastage in case of unsold inventory.

What are the two platforms used by Tata Motors, and what type of vehicles are built on them?

Tata Motors uses the Alpha platform for smaller cars and the Omega platform (derived from Land Rover’s D8 platform) for larger vehicles between 4.3 to 4.8 meters in size.

How did Tata Motors enter the electric vehicle (EV) market, and what was their initial approach?

Tata Motors entered the EV market by repurposing existing gasoline car bodies like the Nexon, fitting them with battery packs by hand instead of setting up an expensive assembly line. This allowed them to launch EVs quickly and cost-effectively.

What advantages did Tata Motors gain by having other Tata Group companies support their EV development?

Tata Motors received extensive support from other Tata Group companies, such as Tata Power for setting up EV charging stations, Tata Alexey for developing connected vehicle platforms, and Tata Chemicals for making lithium-ion cells, enabling an efficient EV ecosystem.

What impact did platform sharing have on Tata Motors' profit per car in 2021?

In 2021, Tata Motors’ operating profit per car rose to ₹45,810, which was nearly double that of the market leader Maruti Suzuki.

Why was the safety rating of Tata Motors' vehicles significant in their market rise?

Tata Motors’ vehicles, such as the Nexon, Ultros, Tiago, and Tigor, received high safety ratings from Global NCAP, with the Nexon and Ultros achieving 5-star ratings. This helped them gain a competitive edge, as safety became an important factor for consumers.

What role did economies of scale play in Tata Motors’ platform-sharing strategy?

Economies of scale allowed Tata Motors to reduce the cost of parts as they increased production volumes. For example, increasing the order quantity of a part from 2,000 to 10,000 units significantly lowered the price per unit.

How did government regulations and Tata Motors’ domestic presence benefit their EV growth?

As an Indian company, Tata Motors received favorable treatment from government policies aimed at supporting domestic EV production. This provided them with a competitive advantage over foreign brands like MG and Hyundai.

Outlines

00:00

📈 Tata Motors Achieves Record Sales and Market Growth

Tata Motors has achieved its highest-ever annual sales, reaching 3.7 lakh units, a 67% increase from the previous year. N. Chandrasekaran, the chairperson of Tata Sons, highlighted the rising demand in the electric vehicle (EV) market and emphasized the company’s strong performance. Despite struggles in the past, Tata Motors has made a remarkable comeback by doubling its market share to 12.14% in FY22 and achieving a dominant 80% market share in the EV space. For the first time in a decade, Tata Motors made more profit per car than Maruti Suzuki.

05:01

🚗 The Complexities of the Automobile Industry

The automobile industry faces numerous challenges, such as high costs for new model production, global factors like geopolitics, currency fluctuations, pandemics, and ride-sharing apps. Companies must keep manufacturing costs low while maintaining profit margins. The shift to new formats, like hydrogen and EV, adds further financial and technological strain. Success in this industry requires low fixed costs and high efficiency. Tata Motors has mastered these elements, enabling them to grow profitably even in such a volatile business environment.

10:01

🛠️ Tata’s Platform Strategy for Cost Efficiency

Tata Motors has adopted a platform-sharing strategy to reduce costs and increase efficiency. Instead of having multiple platforms, they now operate with only two: the Alpha and Omega platforms, which allow them to use common parts across multiple models. This strategy results in economies of scale, reduces wastage, and enhances profit margins. For example, by using shared components, the company minimizes losses when a model underperforms. The shift from six platforms in 2017 to two for 10 products has significantly improved their operational and financial performance.

🔋 Tata Motors' Bold Move into the EV Market

Tata Motors' success in the EV space can be attributed to its swift and innovative approach. Instead of waiting for a dedicated EV platform, the company repurposed existing assembly lines to produce electric versions of their gasoline vehicles, such as the Nexon EV. This approach allowed Tata to quickly enter the market and gain a competitive advantage, producing 100 EVs per day. This first-mover advantage, paired with their ability to control costs, has enabled Tata to dominate the Indian EV market.

🌍 Tata’s Group Synergy Drives EV Growth

Tata Motors’ success in the EV space is bolstered by strong collaboration within the Tata Group. Tata companies such as TCS, Tata Power, Tata Chemicals, and Tata Autocom have supported Tata Motors in building a complete EV ecosystem, from setting up charging infrastructure to producing lithium-ion cells and battery packs. This integrated approach allows Tata Motors to produce high-quality, affordable EVs, giving them a competitive edge over foreign manufacturers. Additionally, Tata’s vehicles have received top safety ratings, further cementing their leadership in the Indian market.

Keywords

💡Platform Strategy

The platform strategy refers to the use of a common mechanical base (platform) to produce multiple car models. In the video, Tata Motors shifted from six platforms for 10 products to just two platforms for a wider range of models. This strategy helps reduce costs through economies of scale by using common parts across models, making manufacturing more efficient and profitable.

💡Economies of Scale

Economies of scale occur when a company reduces its costs per unit as it produces more units. The video explains how Tata Motors benefited from ordering common parts in large quantities, which led to significant cost savings per unit. For example, increasing an order from 2,000 to 10,000 units lowered the cost from $50 to $35 per unit.

💡EV (Electric Vehicle) Market

The EV market refers to the sector of the automotive industry focused on producing electric vehicles. The video highlights how Tata Motors captured 80% of India’s passenger EV market through strategic moves like quickly repurposing existing gasoline car platforms to produce EVs, giving them a first-mover advantage.

💡First-mover Advantage

First-mover advantage refers to the competitive edge gained by being the first to enter a market. Tata Motors capitalized on this in the EV space by repurposing gasoline car assembly lines to produce electric cars quickly, testing the market's acceptance before competitors could establish their own EV platforms.

💡Tata Group Synergy

Tata Group synergy describes how different Tata companies collaborated to support Tata Motors’ EV push. The video illustrates how companies like Tata Power, Tata Chemicals, and Tata Capital worked together to build an EV ecosystem, from charging infrastructure to financing and battery production, strengthening Tata Motors' market position.

💡Jugaad

Jugaad is a colloquial term from India that refers to innovative, low-cost solutions or workarounds. Tata Motors used a ‘jugaad’ by repurposing a gasoline car assembly line for electric vehicles, enabling them to enter the EV market faster and more affordably, without waiting for expensive, dedicated EV production facilities.

💡Geopolitical Risks

Geopolitical risks refer to the impact of political events on business operations. In the video, Tata Motors faced financial challenges due to currency fluctuations caused by Brexit, which cost them ₹2,300 crores. These risks highlight how external global factors can heavily affect profitability in the automobile industry.

💡Product Failure Mitigation

Product failure mitigation is the strategy of minimizing financial loss when a product doesn’t perform well. Tata Motors’ platform strategy mitigates failure by using common parts for multiple models. If one model, like the Tiago, fails to sell, they can reuse parts for other models, reducing the potential financial hit.

💡Cost Efficiency

Cost efficiency in the video refers to Tata Motors' ability to reduce production costs while maintaining profitability. By implementing platform sharing and utilizing fewer suppliers, Tata Motors cut down on waste, reduced the cost of defective parts, and improved margins, helping them outperform competitors like Maruti Suzuki.

💡Government Regulations

Government regulations play a significant role in the automotive industry, shaping both market dynamics and competitive advantages. Tata Motors benefited from Indian government support for local companies, especially in the EV space, where government policies favored domestic manufacturers like Tata over foreign competitors.

Highlights

Tata Motors reported its highest-ever annual sales at 3.7 lakh units, marking a 67% increase from the last fiscal.

The demand in the overall passenger EV market has risen, with Tata Motors seeing strong demand across its businesses.

Tata Motors' market share doubled from 4.6% in FY16 to 12.14% in FY22, with an 80% market share in the EV space.

For the first time in a decade, Tata Motors made more money per car than Maruti Suzuki in FY22.

Tata Motors implemented a platform-sharing strategy to reduce manufacturing costs, moving from 6 platforms for 10 products to 2 platforms for 8-10 cars.

The Alpha and Omega platforms allow Tata to share up to 70% of parts between models, improving efficiency and reducing wastage.

Tata Motors’ platform strategy reduced implementation time by one-third and cut warranty costs from 1.14% of revenue in FY16 to 0.9% in FY21.

The EV strategy involved repurposing gasoline car assembly lines for EV production, giving Tata Motors a first-mover advantage in the EV market.

Tata Motors increased EV production from 8 units per day to more than 100 per day.

Tata Motors benefits from support from group companies like TCS, Tata Power, Tata Alexey, and Tata Chemicals for an integrated EV ecosystem.

Tata Nexon EV has been a best-seller in the electric vehicle space in India, benefiting from government regulations supporting local manufacturers.

Tata cars have received high safety ratings, with Nexon, Altroz, Tiago, and Tigor achieving 4 and 5-star ratings from GNCAP.

By using common parts across models, Tata Motors minimized losses in case of product failures and increased profits on successful models.

Tata Motors’ profits per car surpassed Maruti Suzuki in FY21, with operating profit per car at Rs 45,810.

Tata’s EV growth strategy is supported by government regulations, safety ratings, and economies of scale, positioning them as a leader in India's auto market.

Transcripts

tata motors reported highest ever annual

sales at 3.7 lakh units which is a 67

percent increase from the last fiscal

chairperson of tata sons and

chandrasekharan highlighted how the

demand in the overall passenger ev

market has risen the demand for our

vehicles in each of our businesses

remain strong we expect the performance

to progressively improve through the

year quarter by quarter and hoping that

the second half of the fi 23 will be

notably better than the first half of

the year

hi everybody tata motors had been a

struggling company in the indian auto

market for 15 long years in spite of

being in the market for so long in spite

of being backed by one of the richest

houses in the world and most importantly

in spite of having the brand name of the

most noble brand in the country

the company was in such a terrible

condition that they had a market share

of just 4.6 percent in fy 16 all their

projects like indica safari and sumo had

failed in the long run and the losses of

the company were piling up so fast that

their december 18 quarter loss stood at

26 961 crores this was back then the

highest quarterly loss reported by any

company on the dhanal street but within

the next six years the tata motors team

has achieved something absolutely

extraordinary they have more than

doubled their market share to 12.14 in

fy 22 they have an 80 market share in

the ev space and more importantly for

the first time in a decade tata motors

made more money per car than the giant

maruti suzuki itself

the question is how did the tata motors

team achieve such an extraordinary rise

what exactly is their business strategy

that is feeding them towards market

leadership and lastly what are the study

materials to help you understand the

automobile market of the 21st century

before we dive into this case study

there are some dark truths about the

automobile industry that you have to

know number one every time an automobile

company comes with a new car

the company spends hundreds if not

thousands of crores into setting up the

factory floor buying the machinery

ordering the parts and deploying labor

number two in spite of spending so much

money even if they build the best car in

the category there is absolutely no

guarantee that it will sell well why

because automobile companies are

affected not just by the competition but

also by geopolitics and government

regulations for example after the first

brexit vote as soon as pound dropped 10

percent of its value to euro jlr had to

cough up almost 2 300 crores on the

account of currency fluctuations alone

as a result their profits took a hit

similarly there are factors like the

pandemic and ride sharing apps like ola

and uber whose growth itself is based on

decreasing car ownership and if not for

all this even if your competition comes

out with an unsafe car with bad build

quality people would still buy that car

because in india people are more price

sensitive than they are life sensitive

and lastly after you spend a billion

dollars and 50 long years into research

and development to achieve extraordinary

levels of efficiency with petrol car

manufacturing suddenly the entire world

will push you to a hydrogen format or an

ev format which again needs a billion

dollars and needs 50 long years to

perfect so long story short if you're in

the automobile business bankruptcy is

always at your doorstep so if you want

to succeed you have to keep your

manufacturing and fixed cost extremely

low and at the same time keep your

margins high without making the car

unaffordable for the customers and only

automobile engineers can understand that

this basic statement can be said easily

but it is an insanely difficult process

in automobiles

and guess what this is exactly what the

tatas have mastered in the past five

years the question is how

well the first part of this answer lies

in something called the platform

strategy

for those who don't know if you look at

the architecture of an automobile a

platform is the mechanical base that a

car is based on it includes major parts

such as axles suspension steering column

pedal box engine mountings and in some

cases the floor pan on which all the

components are mounted onto

so if you look at vw they own multiple

brands like skoda audi and even mini

cooper and if you look at their latest

release vw virtues it's actually built

on the same platform as skoda slavia so

the number of common parts in both these

cars is a lot and each one of these

platforms requires millions of dollars

to be designed so when you make cars in

different platforms they would need

different parts so you need to order

multiple uncommon parts which incur a

lot of cost and if this were to be

represented pictorially on a graph this

graph will consist of four types of

parts the first are carrier parts as in

the parts that are common for this and

other platforms then we have minor

modified parts new common paths and new

unique parts and this segment of the

carry-over parts are the most economical

type of parts because you can order them

in large quantities and use them for

multiple models for example when the

tatas order 2 000 unit parts at 50

dollars per unit when it increases the

order value to 10 000 units it could get

it at 35 dollars per unit secondly this

also leads to very less wastage because

if they order parts for ten thousand

cars but they end up selling only eight

thousand

the common parts of those two thousand

units could be used for other models

whereas the unique parts will be wasted

this is nothing but the simple effect of

economies of scale now if you look at

tata motors in 2017 they had six

platforms for just 10 products which

meant that the number of carryover parts

were less therefore the cost of making

the car was high and the wastage was

also high eventually the profit were

less but now they've completely changed

their approach and turned to just two

platforms and just these two platforms

will be used to make eight to ten

different cards in the next three years

that is a drastic increase from 1.6

models per platform to four to five

models per platform

these two platforms are the alpha

platform which is meant for smaller cars

and omega platform which is derived from

land rovers d8 platform so omega is

meant for bigger vehicles of 4.3 to 4.8

meter size

and here's how ladies and gentlemen the

magic of the platform sharing strategy

plays out on the alpha platform if tata

ultros is the first vehicle to be made

it will then be followed by a small suv

like hanbill then by the next generation

of tiago followed by tigor and then by

nexon so when ultros is built on the

alpha platform it has around 30 carrier

parts but as the second product comes in

the number of carry overs will increase

and by the time the fourth product is

launched in the market the carryover

parts will be around 70 of the total

parts so these vehicles on the platform

are expected to have the same seat

position same steering wheel and pedal

box positions this means fewer parts for

the company to manage fewer design

changes to make for a new model launch

more volumes per tool and less wastage

and most importantly more profit margins

and lastly if one of the products in the

platform fails then the losses increment

by the company decreases by a large

extent for example

if ultro sells 400 000 units and

hornbill sells 150 000 units but thiago

ends up selling only 20 000 units then

the tartars will lose less money because

they would not invest millions into a

special platform and since thiago will

be built on the same alpha platform

this model will have a lot of carrier

parts and very less unique parts

so even though the model fails the tatas

will save on both the initial platform

cost and the unique parts cost

and eventually the carrier parts could

be used for the next model this is how

sharing a platform helps you minimize

the losses in case of a product failure

in the market

apart from that the tatas have already

gained multiple advantages like the

implementation time has been reduced by

one third and since the number of

suppliers is very less the defective

parts per million have sharply reduced

so because of that the warranty cost

fell from one point one four percent of

the revenue in fy 16 to 0.9 percent in

fy 21. these are some of the many

efficiency changes because of which in

2021 for the first time in 10 years tata

made more money per car than the market

leader maruti suzuki itself while tata

motors operating profit per car rose to

45 810 rupees

it was nearly double that of maruti and

fun fact is that currently only three of

the six tata cars are built on the new

platform and they make up only forty

percent of the volumes as of now

so as time passes and the volume of cars

in the new platform increases the profit

margins are expected to increase further

this is the first reason for tata's

iconic rise in the indian auto market

and this brings me to the second pillar

of tata motors iconic rise which is

their entry into the electric vehicle

space now people we all know tata nexon

ev has been killing it in the av space

by becoming the best-selling eevee in

the country

but very few people know that the tatas

actually made their way into the eev

space through a jugaad the question is

how

well technically the platform that is

needed to build ev takes up a lot of

time to be made so while other brands

were and still are busy building and

designing their platform the tata motors

team just repurposed an unused shop

floor and according to print without

waiting for a fancy assembly line

nexon's gasoline suv bodies were wired

and fitted with battery packs by hand

this way they could have the first more

advantage in the market and could easily

test the acceptance of ev in the indian

market

and guess what

initially they made just 8 suvs per day

but now they are making more than 100

cars every single day

so they could very tactfully cut the

investments by a huge margin and were

able to make the initial headway into

the market by the way guys again saying

that they turned a gasoline car into ev

is very easy but it's an extremely

complex and critical task because had it

been so easy every other automaker would

have done it right because one thing

gone wrong one fire incident and the

entire segment will come crashing down

this is the first reason why the tatas

are able to have the first more

advantage in the ev space of india

and the second reason for their insane

growth is their beautiful support from

the group companies of the tatas and

when it comes to ev it almost looks like

their companies were just meant to be a

piece of the puzzle because if you look

at their operations you will see that

tcs aided tata power in setting up ev

charging stations with its charge core

platform because of which the project

actually saw 300 charging stations

joining the network within just 12 weeks

similarly tata alexey partnered with

tata motors in developing their unified

connected vehicle platform

then we have tata capital and tata

motors finance for vehicle finance and

insurance and when it comes to

infrastructure tata power is already

aiming to build 10 000 stations over the

next five years and lastly while tata

chemicals makes lithium-ion cells tata

autocom assembles battery packs so if

you see seven group companies have

actually come together to bring an ev

ecosystem in india as a result like we

learned from our adani episode when

companies of the same family come

together to share their resources they

can easily produce a high quality

product at an affordable price

and that is exactly what the tatas are

doing with nexon and tigor

cherry on the cake is that government

regulations by default support the tatas

than an mg or hyundai because tata

motors is an indian company apart from

that we have other factors like 5 star

rating from gn cap for nexon tata ultros

becoming the first premium hatchback to

get a 5 star safety rating and even

tiago and tigor who got 4 star rating

which is very rare in case of small car

segment

these are few of the many significant

reasons why tata motors has been rising

from the downfall in the past 6 years

and now what remains to be seen is how

do they compete with a giant like maruti

suzuki when they bring in fresh models

into the market

and this brings me to the last part of

the episode and that are the study

materials to help you understand the

indian automobile space better meanwhile

if you are someone wants to invest into

the growth story of the tatas you could

make your investments into the house of

tata small case small kiss is a

wonderful company that helps you make

the most strategic investments into the

stock market by picking a basket of

stocks in this case the house of tata

small case consists of hand-picked

stocks in the tata group that are

expected to have high growth in the next

5-10 years the best part is that each

one of these small cases are managed by

the small case manager himself so

according to the market condition the

small case manager himself will

rebalance your stocks to help you get

the best returns in any market

conditions and even if you don't want to

make any investments you can read their

newsletter and blog posts which will

give you the latest insights about the

indian stock market so if you want to

make the most strategic investments or

if you want to educate yourself about

making strategic investments into the

stock market download the small case app

from the link in the description moving

on the first thing i'm attaching is this

research gate article on the platform

sharing strategy secondly i am attaching

2020's fin shots article which throws

light on how brexit put tata motors into

trouble after their jlr acquisition and

lastly i am attaching a super detailed

kpmg report on the rise of av business

models and frameworks in india so do

read through them and let me know what

you think that's all from my side for

today guys if you learned something

available please make sure to hit the

like button in order to make youtuber

happy and for more such insightful

business and political case studies

please subscribe to our channel thank

you so much for watching i will see you

in the next one bye bye

[Music]