Tata Motors consolidated net profit falls in Q2 FY25 as softer sales decelerate the luxury car business, Jaguar Land Rover (JLR), and domestic passenger as well as commercial vehicle markets. “Challenges varied, from supply-side constraints to people’s changing demands, compelling the company to review its near-term outlook.”
Tata Motors: Performance Review Q2
Tata Motors’ net profit slips 11% for quarter ended September 30. Revenue from operations for the company fell to ₹1.02 trillion, down 3.7% year-on-year. This is the first revenue fall in ten quarters. Both JLR and the domestic passenger vehicle segment, which have reported lower wholesales, saw this outcome, Group CFO P.B. Balaji said. During the quarter, the auto giant faced several headwinds that made profitability and operational performance across segments decline.
Tata Motors: JLR Segment Faces Supply
Jaguar Land Rover, which aggregates to about two thirds of the revenue of Tata Motors, takes the biggest hit from a supply constraint, largely in the form of aluminum. JLR’s sales declined 5.6% to £6.5 billion, while its EBIT margin came down by 5.1%, or 220 basis points, year-on-year. The company was not able to manufacture its luxury cars to their desired volume and suffered losses on both the top and bottom lines.
The sale of domestic passenger vehicles has been affected by the setback.
Tata Motors also reported lower sales in its domestic PV segment in the Indian market. The EBITDA margin of the company declined 230 basis points to 11.4% for the quarter. Year-over-year, EBITDA fell by 14.2% to ₹11,736 crore. Balaji still has confidence in the resilience of the home market, and a part of revenue decline, according to him, was on account of temporary reasons that would ease in the forthcoming quarters.
Impact of subsidy removal on EV sales
Has had its electric vehicle (EV) business, which, until recently, was a high-growth business, in quite a tizzy as the Indian government announced the scrapping of subsidies on electric cars being used by commercial taxi fleets. This resulted in a 16% year-on-year decline in EV sales, which currently constitute around 12% of Tata Motors’ overall sales. Balaji pointed out that the company is adapting to the changing policy environment but that certainly did not bolster its sales of electric vehicles in the short term.
Tata Motors: Hybrid Strategy of Tata
In the wake of the fast-changing market dynamics, Tata Motors does seem to be taking an even more open stance towards a hybrid vehicle. The electric vehicle mission, as Balaji said, is very mature, and “if our customers want it, we will think about it.” It goes without saying that customer demand plays a very big role in the vehicle strategy, and so, Tata Motors may consider a diversified approach with hybrid vehicles alongside the EV lineup.
Prospects of Commercial Vehicles and Infrastructure Demand
He is positive regarding the CV segment, which will see an increase in demand because of infrastructure spending by India. From September onwards, infrastructure spending has been picking up, and Balaji expects that this will give a boost to the demand for commercial vehicles in the near future. Balaji mentioned that the availability of freight and increased truck utilization in October are pointers to growth in the CV segment as the infrastructure sector expands.
Will look to begin enjoying the fruits of the PLI scheme of the Indian government for the manufacturing within India of advanced automotive components during Q3. The first cab off the rank of PLI, says Balaji, is expected in Q3 and should be the beginning of the long-term accruals.
Watching What’s Trending in China’s Luxury Market
Tata Motors is closely observing the performance of JLR in China, which has announced economic stimulus measures to increase consumer spending. Among the core markets, Balaji said the company is “keeping an eye on demand in China”. It might so happen that this phase of next quarters of JLR performance changes substantially by the outcome of stimulus measures in China.
Conclusion
Tata Motors is going through a tough phase with de-growth in both profitability and sales of major products. The company, however, remains committed to adaptability. Near-term challenges stemming from supply constraints at JLR and softening demand for EVs are weighed against potential benefits from PLI schemes and demand for commercial vehicles on account of infrastructure development. It seems cautiously positive and plans to write through the near term while keeping its focus on long-term growth drivers.
FAQs
1. What are the factors responsible for a fall in Tata Motor Q2 profit?
Profit decline in both domestic vehicle segments of Tata and Jaguar Land Rover (JLR) was one reason, besides supply chain issues and subsidy cuts for electric vehicles.
2. How is the performance of JLR impacting the consolidated profitability of Tata?
Reduced sales and profitability, mainly due to aluminum supply problems at JLR, wherein Tata Motors draws more than two-thirds of its revenues, significantly impacted Tata Motors’ consolidated financial performance.
3. How did the scrapping of EV subsidies affect Tata Motors’ sales of electric vehicles?
Elimination of subsidy on the use of EVs as commercial taxis resulted in a 16% fall in Tata Motors sales for EVs year-over-year.
4. What are the prospects for Tata Motors’ commercial vehicle demand?
Tata Motors does seem to be positive on the overall commercial vehicles category as they expect the category to grow with the aid of infrastructure development work and freight movement across India.
5. How is Tata Motors responding to the trends with hybrids?
Tata Motors will look at hybrid vehicles as well, if the demand from customers is huge, and that would be a larger number of vehicles than what they will present in the EV categories.
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