Tata Motors, once a leader in the small commercial vehicle market with its popular ACE model, now faces a tougher landscape as competition heats up and demand in the pickup segment cools.
08 Nov 2024 | 8497 Views | By Shahkar Abidi, Ketan Thakkar and Kiran Murali
Tata Motors’ strategic pivot toward the electric segment, specifically through its ACE small commercial vehicle (SCV), is showing signs of progress despite shifting market dynamics and looming reductions in government subsidies. In the second quarter of FY25, sales of the ACE EV rose by 17%, and the company is optimistic ...
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Tata Motors’ strategic pivot toward the electric segment, specifically through its ACE small commercial vehicle (SCV), is showing signs of progress despite shifting market dynamics and looming reductions in government subsidies. In the second quarter of FY25, sales of the ACE EV rose by 17%, and the company is optimistic about sustaining similar growth going forward.
In May, Tata introduced a 1-tonne variant of the ACE electric SCV, priced 17% higher than its predecessor, a 600 kg model that benefited from government subsidies under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme. The new model offers around 30% improvement in Total Cost of Ownership (TCO), a factor, Tata Motors believes is likely to attract cost-conscious commercial buyers.
PB Balaji, Tata Motors’ Group CFO, remarked in a post-results conference call that the current growth trajectory for the ACE EV should continue.“The current growth rate should sustain, and as more people come onto it, it also accelerates the growth further,” Balaji said.
The development comes even as Tata Motors, once a strong leader in the small commercial vehicle (SCV) market with its popular ACE model, now faces a tougher landscape as competition heats up and demand in the pickup segment cools. This shifting market environment has made it challenging for Tata to maintain its dominant position and grow in a segment that was once its stronghold.
Broader market pressure affects volumes and revenues
However, Tata Motors, like other commercial vehicle (CV) makers, is facing headwinds. Domestic wholesale volumes in the CV segment dropped by 19.6% year-over-year, to 79,800 units. The decrease has been largely attributed to delayed infrastructure projects, a dip in mining activity, and reduced fleet utilization due to heavy a monsoon. Meanwhile, exports fell 11.1% year-over-year to 4,400 units.
Despite a 13.9% drop in revenue, down to Rs 17,300 crore, Tata Motors improved its EBITDA margin to 10.8% (up 40 bps Y-o-Y) in the quarter, aided by reductions in commodity costs. For the half-year, EBITDA margins of the CV division stood at 11.2%, up 120 basis points year-over-year, while profit before tax (PBT) reached Rs 2,800 crore.
Girish Wagh, Executive Director Tata Motors Ltd said, “Q2 FY25 moderated the positive momentum seen by the commercial vehicles industry at the start of the fiscal, due to slowdown in infrastructure project execution, reduction in mining activity and an overall drop in fleet utilization due to heavy rains. Tata Motors Commercial Vehicles domestic sales at 79.8K units were 19.6% lower than Q2 FY24 sales.”
“Our demand-pull strategy and vigilance on costs had the business deliver EBITDA margins of 11.2% in H1 FY25. Going forward, with the rains easing, increased infrastructure spending, and the arrival of the festive season boosting consumption, we anticipate demand to pick up" Wagh added.
Optimistic outlook for second half
Looking ahead, Tata Motors expects improving conditions as monsoon rains subside, infrastructure spending ramps up, and festive season supports consumption. Intermediate and Light Commercial Vehicles (ILMCV) and buses are anticipated to lead demand recovery, followed by medium and heavy commercial vehicles (M&HCV) and SCVPU segments.
In a media statement, the company emphasized its cautious optimism: “Overall, we expect a stronger H2, even though we remain watchful on near-term domestic demand,” reflecting an industry-wide sentiment of guarded confidence amid an evolving economic and regulatory landscape.
Balancing innovation with market realities
Tata Motors’ recalibrated approach with the ACE EV aligns with broader shifts in India’s commercial vehicle industry, where the rise of electric vehicles is advancing despite subsidy changes and infrastructure delays. By positioning its ACE EV as a cost-effective option for businesses, Tata Motors is setting the stage to capitalize on longer-term trends in electric commercial transport, potentially cementing its foothold in the evolving segment.