Inflation has impacted entry segment: Shailesh Chandra, Tata Motors

but other counterbalancing factors have been the strong GDP growth. More and more people getting uplifted economically to have discretionary income to buy cars. In a special chat with CNBC TV18, Shailesh Chandra, Managing Director of Tata Motors, Passenger Vehicles and Electric Vehicle Mobility is speaking about expectations from 2024, what challenges lie ahead, bifurcating the ICE and EV business and being the largest electric passenger vehicle manufacturer in the country what are their plans with the EV business. (Edited excerpts)

Chandra: There are have been two very strong years 2021-2022 for the auto industry. And the growth rates were upwards of 20%. And then this was moderated in 2023 to about 8 percent. It was quite obvious because generally, that's the secular growth rate of Indian (Passenger Vehicle) PV industry, which is about 7 to 8%. And it had to moderate because those two years (2021-22) were because of a high pent up demand and disruptions on the supply side because of semiconductor crisis, etc.

2023 also started with a certain level of pent up demand and also very low channel inventory and it was able to grow at 8%. The good thing is that, three years back the market was 2.7 million, and it grew to 4.1 million. And it has been able to sustain at that level. And I believe that this is the level at which it can easily sustain and also grow by another 5% or so. But yes, we are not going to see growth rates of 20-25% that we had seen earlier. That's what the expectation is in 2024. What I see for all the auto manufacturers is that launch activities in the past have really helped us. I see SUV segment, there were multiple launches in 2023. But, what really drove 2023 was the new powertrains which was CNG and Electric. 25% growth came from CNG and nearly 95% growth came from electric, I think this is one trend that is going to stay in 2024 also going forward.

So, from Tata Motors perspective, I would say that we are in the sweet spot. Because if CNG and EVs are going to grow I think our portfolio has grown very strong and we intend to bring more models this year. Also, SUVs are growing specially the midsize SUV which is the 4.3 meter category and there are products that we are going to launch this year, which is starting with Curve and next calendar year, we are also going to come with Sierra. So, these are in the 4.3 meter segments. So, I think hopefully, therefore, we should be going for an industry beating growth.

Chandra: Other counterbalancing factors have been the strong GDP growth. More and more people getting uplifted economically to have discretionary income to buy cars that is one big mitigating factor that is playing out. Post COVID the behaviour has changed in favour of cars. I must say people possibly rather than buying a house they are buying, they are buying the cars. Also, because most of the car buyers are less than 35 years age. So they prefer to buy cars they are wanting to go out with their families and friends. So, the trend is very positive for cars, inflation and interest rate has really impacted the entry segment. But it has been counterbalanced, I would say by very moderate price increases taken by the OEMs in this segment, but also you would have seen in 2023 it was also a lot of discounting which happened in the segment to support that segment.

Chandra: Price hike will now completely be dependent now on the commodity inflation. The last two quarters we have been seeing that commodity prices have been stable. But you do get hints of increases in certain areas as in when it happens, there will be two pronged strategy one that we go for cost reduction, which is a continuous process within the company through Value Engineering, commercial production, etc. But whatever we are not able to offset will have to pass it on to the customer.

Chandra: We are not compromising anywhere. Frankly, the statistics would also speak a lot about that. We started our journey in 2018. Even if you compare with 2020, our EV business has grown from nothing to not touching 75,000 this year, and hopefully we should be above one lakh next year. On the other hand, the ICE business has grown from about 130,000- 135,000 a year to more than 500,000. So which means that bringing focus by separating the teams and businesses really helps not only from a resource focus, but also it gives clarity to both the businesses because both businesses are going to co-exist for long.

And therefore, we have to thrive on ICE also even more as compared to EVs because this will be still the sizable part of the industry. So, it is now very clear in terms of resource, passenger vehicle business need not subsidise EV business, they have to earn themselves and invest aggressively for their growth. Whereas, for EV business, it needs a period of cash burn because there is an investment which will be done ahead of the revenue realization. So that phase will be taken care of with the external investment that we have got, which is through TPG. So there's absolute clarity in terms of the two businesses how they will be funded, and what will be the sustainable way of winning in passenger vehicle business and proactively winning in EV business.

Chandra: I think first they need the comfort of the brand. And when I say comfort of the brand, it means that the brand is stable. It's going to stay. A brand that they trust. For example, I would say that Tata has products that are synonymous with safety. The safest cars are associated with Tata. I think that is one space you have to occupy there has to be one very strong differentiation that your brand needs to have. They also look for the network presence across the country, how will be the after sales support beyond these are the factors which you know, play behind the brand creation. I think brand therefore, definitely as is at the top, unlike, you know earlier where cars were only seen as moving from point A to point B. Then it was more around whether this is cheap or not.

‘Sasta Hain ke nahi’ or ‘Kitna Deti Hain’. So, those things have changed, brand becomes important. And also remember that a lot of buyers are young, less than 35 years, majority is less than 35 years. For them, everything that they use is a part of their expression of personality. And therefore, car is also. How they live in home and how they live in a car is now a part of that.

So cars have to be stylish, it should be expressing their personality, they don't want to be seen in a car, which is not expressing their personality from a styling perspective. So design also is becoming important. Price is becoming less important, I might be giving a very contrarian view here. But the facts show that if you really see 60% of my Nexon buyers, which is a ₹10-11 lakh buyers are first time buyers. But there are cars which are much cheaper than that why a first time buyer is choosing to buy a ₹10 lakh car because they want a car to be an object of experience with their families’ friends. So if they buy a car, they don't want an experience with their families and friends in a cramped car. They want to have a slightly bigger car, spacious car. They are also going for feature rich cars.

So you are clearly seeing that price is becoming less important because it's okay to give that extra 1000 rupees or 2000 rupees, EMI, but they would go for a better car which fully expresses their personality brand that they trust in, and which has lots of new tech features.