In a surprising market reversal, Mahindra's feature-rich pickups and focused strategy have ended Tata Motors' long-held dominance in small commercial vehicles.
29 Oct 2024 | 19350 Views | By Ketan Thakkar and Shahkar Abidi
"The only race worth winning is the one you race against yourself, against your own aspirations. We have always seen Tata Motors as a respected elder brother that spurs us to keep improving ourselves. We hope that we, too, motivate them to reach greater heights. The journey will always have ...
This is an Autocar Pro Plus article. Subscribe to continue reading.
"The only race worth winning is the one you race against yourself, against your own aspirations. We have always seen Tata Motors as a respected elder brother that spurs us to keep improving ourselves. We hope that we, too, motivate them to reach greater heights. The journey will always have twists and turns, but we continue to travel together."
This was Anand Mahindra's response on X to Autocar Professional's story about M&M surpassing Tata Motors for the third position in the passenger vehicle space in September.
While both homegrown auto majors have achieved a remarkable recovery in sales and market share in the car space dominated by Japanese and Korean manufacturers post-COVID, the situation differs in the highly price-sensitive and cyclical mini truck and pickup truck segments. Here, Mahindra & Mahindra has emerged as the clear leader, significantly outperforming its larger rival.
The manufacturer of the Bolero pickup truck has gained six percentage points of market share in the sub-3.5 tonne CV market over the last three years, primarily at Tata Motors' expense.
The Ace Era
Tata Motors, which played a transformative role in developing the hub-and-spoke model, has begun experiencing a market shift toward electric three-wheelers in the entry-level segment and higher-payload pickup trucks positioned above. This shift enables fleet operators to use vehicles efficiently for both inter- and intra-city applications.
India's sub-3.5 tonne mini truck and pickup truck market, excluding three-wheelers, grew from 360,000 units annually in FY-14 to nearly half a million units by the end of the last financial year.
Tata Motors pioneered the mini-truck segment in India and has maintained dominance in the 0-2 tonne space with Ace, affectionately called Chota Haathi by its users.
Girish Wagh, the current head of commercial vehicles, led the project two decades ago to create a product that offered efficient goods transportation in congested areas and would serve small businesses and urban transport needs.
Its compact size made it ideal for maneuvering in tight spaces and city driving. The vehicle provided a payload capacity of 600 to 700 kg, suitable for various cargo types. The Ace's fuel efficiency helped operators reduce operating costs. It represented an ideal solution when launched in 2005, as urbanisation was accelerating, and it quickly gained popularity.
Throughout its history, Tata Motors has sold over 1.5 million Ace mini trucks, offering various models—the Ace Zip, Ace Gold, and Ace Mega—to address different customer needs and tonnage requirements.
During its first decade from 2005, the Ace dominated the Indian commercial vehicle market. Small businesses widely adopted it for last-mile delivery and transportation. However, in the subsequent decade—2013-14 to 2023-24—the market began shifting toward larger pickup trucks in the 2-3.5 tonne range.
In FY-12, mini trucks comprised 70% of the Indian small commercial vehicle market, with pickup trucks accounting for the remainder.
A decade later, this ratio has nearly reversed in favor of pickup trucks—a segment where Mahindra & Mahindra excels. In the first six months of FY-25, mini trucks represented one-third of the market, while pickup trucks claimed two-thirds.
The situation has worsened for Tata Motors. Not only has the mini truck segment's share decreased in the growing small commercial vehicle market, but the total segment size (0-2 tonnes) has also declined from 250,000 units in FY-12 to 175,000 units in FY-24.
During the same period, the pickup truck industry has expanded almost threefold, from 110,000 units to over 330,000 units.
Industry sources indicate that price increases, particularly after BS VI implementation, diminishing operational cost advantages, and a wider service gap have hindered Ace's ability to attract entry-level customers.
"This is also seen in the burgeoning of ICE and EV 3-wheelers, representing a missed opportunity for Ace. Tata Motors has been unable to deliver the value and earning potential it once did. It is visible in numbers," said one of eight industry executives interviewed by Autocar Professional, speaking on the condition of anonymity.
The core business proposition—Ace as a viable option for aspiring cargo entrepreneurs—lost appeal due to price increases, which led to reduced earnings for drivers. This is also deemed to be risky for financiers.
Expert View
Kinjal Shah, Senior VP & Co-Group Head - Corporate Ratings, ICRA Limited, attributes this shift to government infrastructure initiatives, which have increased demand for long-haul pickup trucks and last-mile connectivity, along with some market share loss to the electric three-wheeler segment.
"Rising ownership costs within the LCV segment have affected small-fleet operators' purchasing power, creating varying impacts across LCV sub-segments in the domestic market," Shah explained.
Growing Competition
The market shift coincided with increased competition, as Suzuki Carry entered the mini truck space in 2016 and Ashok Leyland strengthened its Dost presence in the small pickup truck segment, intensifying challenges for Tata Motors in the small commercial vehicle market.
Its primary competitor, Mahindra & Mahindra, continues to tighten the screws by deploying dedicated teams to expand market share across sub-segments.
The company established a Last Mile Mobility (LMM) division in 2023, focusing specifically on the sub-2 tonne space, with Suman Mishra as CEO. Through the LMM division, Mahindra targets entry-level buyers with both three-wheelers and four-wheelers in cargo and passenger segments.
In the 2-3.5 tonne segment, the company's automotive division, which oversees the passenger vehicle business, leverages vehicle architectures to deliver value-rich, feature-packed products that provide superior value to customers compared to rivals.
M&M launched the Veero pickup truck on its new Urban Prosperity modular platform to expand its offering in the entry-level pickup segment. This latest generation architecture, developed with an investment exceeding Rs 900 crore, can support over 15 applications, helping M&M expand its addressable market.
Veejay Ram Nakra, president of the automotive division, told Autocar Professional that the small commercial vehicle segment divides into three main categories: the sub-1 tonne space with 2 tonnes GVW addressed by the company's last mile mobility division, the 1 to 1.5-tonne payload segment served by small pickup trucks, and the 1.5 to 2-tonne payload segment covered by large pickup trucks. Each segment represents approximately one-third of the market.
According to him, M&M commands over 80% market share in the large pickup truck space and 40% in the small pickup truck segment. The company aims to significantly increase its share with Veero and multiple offerings from the UPP platform, challenging Tata Intra and Ashok Leyland Dost.
Furthermore, Mahindra plans to expand its portfolio under the UPP platform to serve the growing pickup truck segment while its LMM division will rely on E-Zeo for mini truck customers.
Other competitors including Ashok Leyland and VE Commercial Vehicle have announced plans to expand into the sub-3.5 tonne segment, further intensifying competition.
M&M's Strategy Against Tata Motors' SCV Business
As indicated above, M&M relies on focused teams handling mini trucks up to 2 tonnes and dedicated platforms for small and large pickup trucks, enabling the company to meet specific customer needs in the sub-3.5 tonne category.
M&M established the pickup truck segment with NC640 in the 1970s and has consistently evolved as its leader. The company introduced models like Maxx in the 1990s, Campers, and Bolero Pickups in the 2000s, and now reinforces its position with Veero and other product lines.
With new-generation models on the UPP platform, M&M aims to enhance its value proposition further. The Urban Prosperity Platform-based products feature car-like amenities including touch screens, audio control buttons, power windows, and driver-side airbags. A Veero user can service their vehicle at 20,000-kilometer intervals, improving total ownership costs.
While most competitors adapt ICE platforms for EVs, UPP represents a ground-up architecture designed for multiple powertrains, including electric vehicles.
Nakra emphasises the company's commitment to offering ESP (Every Selling Proposition) to lead the segment. "Our brand positioning is Soch se Aage. We questioned why we couldn't offer our customers car-like features, comfort, design, and safety, similar to cars. As a market leader, we aim to disrupt the category through product innovation, which will help increase our market share," Nakra states.
He identifies three key customer priorities in this category: economics, as these vehicles serve as business tools; comfort and safety, with M&M historically introducing segment-first features like reclining seats, air conditioning, height adjusters, and start-stop functionality; and respect.
"These customers deserve equal rights and respect—they invest Rs 8 lakh to Rs 11 lakh, so why shouldn't they receive the same features as car buyers? Market leaders like us have driven this evolution by adding more features. Beyond economy and fuel efficiency, customers seek comfort, safety, and aesthetic appeal," Nakra explains, describing evolving segment needs and the company's swift response as a leader.
"We aim to lead the SUV segment in passenger vehicles. In commercial vehicles, we target leadership in the pickup segment, and we've established Last Mile Mobility as a dedicated business unit for focused attention. We are the leaders, we have the products, we are adding capacity, there is no reason why we will not grow our market share," says Nakra.
Beyond its diverse product range, M&M maintains 1,700 service points under its CV business, aiming to locate within 25-30 kilometers of potential customers.
Current Challenges
Ace faces market challenges, with perceptions suggesting suboptimal performance. The company works to establish favorable total ownership costs that can generate reliable earnings. However, this has proven challenging, making financiers cautious, particularly as smaller competitors like Jeeto Diesel and Suzuki Carry demonstrate competitive pricing and performance.
In the EV space, startups like Euler and AltiGreen also present strong competition for Ace EV. Despite initially receiving nearly 40,000 order intentions at launch, it has struggled to deliver promised operating economics.
Concerns persist about Tata's pickup trucks due to historical performance issues, though Intra has gained market presence. However, its recent market share decline indicates room for improvement.
The company is transitioning to a business-to-consumer model, but success requires effective training and dealer engagement. Many dealers prefer selling larger vehicles, affecting their commitment to the segment. Declining volumes challenge the viability of exclusive SCV outlets.
Additionally, internal processes can be complex, and improving work-life balance could help reduce attrition among junior sales staff, allowing for more effective lead generation.
With most buyers being first-time purchasers, a strong value proposition remains crucial for Tata Motors to regain lost market share.
Ace maintains a 60-70% market share in its segment, though Intra's share has declined from 30% to 25%. Success depends on improving customer satisfaction, including service quality and ownership costs. Industry stakeholders report that engineering, procurement, and manufacturing processes face significant complexity, causing operational delays.
Preference for a product involves more than just its specifications; it also calls for a comprehensive, obsessive focus on customer satisfaction concerning service, spare parts, and total cost of ownership.
Tata Motors SCV has suffered due to departmental isolation, frequent role changes (in service, sales, regions), and organizational restructuring within SCV.
On the other hand, its main competitor effectively utilizes its NBFC arm, Mahindra Finance, to provide better financing options to potential buyers. Tata Motors struggles to fill the void created by Tata Motors Finance's financial withdrawal across large parts of the country.
Tata Motors' Response
Girish Wagh, ED, Commercial Vehicles at Tata Motors, says the market for mini trucks is reducing due to a 30% increase in vehicle prices over the last five years. He believes the entry segment will give way to alternate segments of CNG and petrol.
"Gasoline is not seen as a fuel meant for CVs, so buyers are opting for CNG. The need for diesel exhaust fluid in mini trucks will make the vehicles more expensive; hence, we are focusing on multiple fuel options for Ace. The CNG version helped to a certain extent in specific markets where gas is available. Bi-fuel is also helping. In SCV, we have focused on creating a multi-powertrain portfolio – petrol, diesel, bi-fuel, and EV," added Wagh.
He recounted that the demand also decreased for two years when Covid struck. During that phase, many non-performing assets or NPAs were created, with EMI’s going up due to the initial acquisition price moving up, and this dip in demand created a huge challenge.
"The biggest bottleneck in this segment is financing. Many repossessed vehicles are sold at very low cost, which decreases their resale value. When resale value declines, it creates a problem for the initial vehicle funding. You start pulling back on LTVs. This created a difficult cycle for Ace," he said.
The financiers have lagged too. Even Tata Motors' finance, which used to be between 35% and 40% of its SCV portfolio, came down to 15% to 16%. They also had a massive NPA issue, which led to the shrinkage in Ace and the mini-truck segment.
"We are working on debottlenecking the first-time user financing issue. We are doing several things – dealer financing, mediatory financing, customer financing, etc.- to improve administrative control. For it to work, it has to be a win-win proposition for the customer and the dealer and a win for the financials," shared Wagh on the initiatives taken by the company to revive the segment.
On the pick-up front, Wagh admits Tata Motors has been found wanting, and prospective buyers are intensely loyal to rival brands.
For its part, Tata Motors did develop the Intra platform to address the market and bring in some incremental sales. Still, the overall market share in pickup trucks remains around 15-20%.
On the performance of Intra, which is positioned in the small pickup truck segment, Wagh stated, "Intra initially was seen as a product. With the launch of V70, we now have a platform that addresses all the usage segments. It is more cost-effective due to its smaller footprint, lowering overall costs. As a result, we have gained market share in the pickup segment, though mini trucks have declined in prominence. Intra now has strong awareness and positive feedback, with 95% customer satisfaction, but brand stickiness remains challenging."
Leveraging Tech Tools
Meanwhile, Tata Motors is using digitalisation to adopt simplified sales processes. Given its broad customer offering, it has reduced its dependence on sales skills and relied on tools to understand better customer needs through market-based usage. The company's inventory pipeline management has also been digitalised. According to Wagh, by asking three specific questions, a prospective buyer can easily understand the right product for his usage. Also, given the increasing use of electronics in engines post-BS VI era, mini truck users struggled to get their vehicles serviced at roadside mechanics. Tata Motors is trying to address this issue by training and equipping mechanics on the ground.
"Customers in this segment don't always want to visit workshops that also cater to heavy trucks, so we are building tailored service infrastructure. The pilot has begun in Maharashtra, and we will expand it to other parts of the country," he said.
The head of the largest truck maker in India believes that the measures taken during the last year or so have started delivering on the business and financials. The company has shifted from a Variable Marketing push to a demand-pull model, leading to more profitable growth.
"The challenge now is top-line growth, which will come with volume increases. We have also introduced more digital lead generation, with 28-30% of our leads converting digitally. This allows us to reach more people and use hyper-local strategies for different needs. These are essentially the key things we are doing, and you will see some of them gradually playing out."
Wagh hints that the progress will likely be gradual in the highly competitive truck segment - which takes years to see a critical change.
Another challenge faced by the company is bleeding dealers. The company is cognisant of this and has already started taking measures to give higher incentives and revised incentive targets that will help them earn more money. “Dealer profitability is of prime importance for us. We want to make all the existing dealers healthy and then think of any further network intervention,” he added.
To be sure, Tata Motors ranked fifth in FADA’s dealer satisfaction study for 2024 released earlier in the year. Tata Motors did rely on key suggestions from Boston Consulting Group to improve its SCV position, but the changes have been a case of too little too late.
Banking on New Products
Tata Motors is working on a critical project called Coral aimed at the new entry price point to reinvigorate its bastion of mini trucks. The Coral is likely to be positioned in a similar space as the Tata Zip, which had issues with wheel alignment, engine seizures, vibrations, and driveshaft failure.
A multi-fuel project likely to come with a payload of 500 kg, it is set to hit the roads by the first quarter of the calendar year 2025. The new micro truck will aim to be a strong alternative to the fast-growing electric three-wheeler space that gained acceptance with fleet operators post-COVID.
The electric vehicle will likely be priced around Rs 6.5 to 7 lakh and is expected to come with 13-14 kwh battery. The company is positioning Coral between existing electric three-wheelers and mini trucks. However, according to people in the know, its petrol and bi-fuel options may be around Rs 4-5 lakh.
Wagh confirmed the development to Autocar Professional and said Tata Motors is actively exploring the place below the Ace mini-truck. “Ace BS4 was at a particular price point, which we vacated. Although Ace petrol sells in that space, some customers say no to petrol because it’s a commercial vehicle. Gradually, this will also change. You also need a different vehicle in that space with electric vehicles coming in. Therefore, we are certainly exploring that platform.”
Sources add that the company is likely to offer a petrol and bi-fuel option. The company feels with high utilisation of the four-wheeler, a fleet operator will be able to secure better TCO than the prevalent three-wheelers.
Apart from protecting its mini truck space, Tata Motors would like to introduce a V70 version of Intra to expand the range and new variants under Yodha.
Looking at the future, ICRA expects the LCV (trucks) segment to see a flattish YoY volume growth in FY2025. While the weakening credit profile of small fleet operators and high cost of ownership along with cannibalisation from the e3W segment are a few of the headwinds for this segment, some recovery is anticipated in volume offtake in H2 FY2025.
“In the long run, the performance of the e-commerce sector, along with the need for last-mile connectivity in the logistics sector, is expected to play a pivotal role in the volume offtake for the domestic LCV (trucks) segment,” added Shah from ICRA.
In the end, it can be said that the SCV segment is at the crossroads from where Mahindra is effectively doubling-down to be a top player in small commercial vehicles. At the same time, it is a role reversal for Tata Motors as a distant challenger with an eye on holding onto the leadership in the big truck and bus segment. It is plausible but perhaps premature to come to this conclusion. But, one thing that Chairman Chandra, a seasoned runner will appreciate is that in this marathon, Mahindra has a very decisive lead.