Business Today

An Eye For An Eye

Tata Motors and Mahindra & Mahindra, two home-grown auto firms, find themselves yet again in a pitched battle for the third position in domestic passenger vehicles. But the fight this time promises to be longer and more intense.
Sumant Banerji   New Delhi     Print Edition: March 10, 2019
An Eye For An Eye
Anand Mahindra, Chairman, Mahindra & Mahindra (Photograph by Bandeep Singh and Rachit Goswami)

In their respective journeys spanning over seven decades, Tata Motors and Mahindra & Mahindra - two of India's biggest and strongest home-grown automobile companies - have often found themselves staring at each other in the face.

Guenter Butschek, CEO and MD, Tata Motors

At the height of the craze for diesel vehicles in the domestic market in 2013/14, Mahindra outstripped Tata to become the third-largest player in the highly competitive passenger vehicle segment. The government's fuel pricing policies helped Mahindra - a Rs 24-per litre gap between diesel and petrol fuelled demand for diesel-powered SUVs, helping the company at the cost of Tata. It coincided with a period of prolonged slump for Tata and for some time, Mahindra remained head and shoulders ahead of its compatriot.

The tide has turned. The diesel bull run has ended - a litre of petrol today costs only about Rs  6 more than diesel, and the share of diesel vehicle sales has dropped from a high of 47 per cent in 2012/13 to 35 per cent in this fiscal so far. It is Mahindra facing the macro-economic headwinds now, made worse by its inability to counter competition on its own turf. At the same time, Tata Motors has got a second lease of life courtesy an overhaul of its portfolio and multiple launches in the last two years. As a result, while Mahindra has lost some ground - its market share has dropped from 11.57 per cent in FY13 to 6.98 per cent this fiscal (April-December 2018) - Tata has edged up from a low of 5.35 per cent in fiscal 2015 to 6.8 per cent.

The No.3 position is up for grabs once again; the first two being occupied by Maruti Suzuki and Hyundai, respectively. While it was easy for Mahindra to overtake a dispirited Tata Motors in 2014, this time it looks like the beginning of a long battle. Tata Motors has momentum on its side and the odds may be stacked against Mahindra. But the latter is no pushover. It has embarked on a product blitzkrieg to regain its position in SUVs. The signs are encouraging. In their own ways, both companies are firing on all cylinders with eerily similar strategies at times. There can, however, be only one winner.

Separated at Birth

Founded within a few months of each other in 1945, that Tata and Mahindra would turn out to be rivals was not part of the original script. Tata started out as a manufacturer of heavy trucks and buses, gradually venturing into 'ladder on frame' utility vehicles, and much later in 1998 into passenger cars. (In 'Ladder on Frame' the chassis and the vehicle's shell are separate.) Mahindra's prowess as an SUV maker is largely due to its genesis as a licensed importer and assembler of Ford's Willys Jeep.

With evolution of their portfolios, the two companies have increasingly crossed each other's paths in the last two decades. Tata first forayed into the passenger vehicle segment and with that straight into the Mahindra territory in 1991 when it started manufacturing Tata Sierra followed by Tata Estate, Tata Sumo and Tata Safari through the decade. The success of these products was modest at best and Mahindra had no reason to feel threatened. In 1998, Tata went into cars with the Indica hatchback and later Indigo and Nano. That put Tata comfortably ahead of Mahindra in the domestic passenger vehicle segment but the paths diverged. Mahindra wanted to be the pre-eminent utility vehicle maker and Tata was no competition.

In the last five years, the advent of new-age compact SUVs that have a monocoque body structure and are more car-like in road manners has blurred the line between a passenger car and an SUV. (In Monocoque body structure, the chassis and the shell are manufactured as one entity.) Once India's undisputed utility vehicle king, Mahindra has struggled due to its ill-preparedness in the compact SUV segment and increasing competition in other segments. Its last big success was XUV5OO in 2011. Since then, it has launched at least two significant products in the sub-four metre utility vehicle space - KUV1OO and TUV 3OO. Both have failed to live up to expectations.

"Whatever could go wrong has gone wrong in their business - adversity towards diesel, higher taxation on bigger vehicles, more competition in their bread and butter segments," says Jinesh Gandhi, Senior VP-Equity Research, Motilal Oswal Securities. "M&M had a very distinct positioning in rural markets because of road and infrastructure constraints. The roads have improved, so the relevance of their products has reduced. That market has shifted from high to low UV (utility vehicle) relevance. They have been found lacking in managing the structural change in the industry towards smaller UVs."

Mahindra's market share in small UVs between fiscal 2012 and 2018 more than halved from 55.6 per cent to 24.2 per cent. Mahindra has been caught napping in this new category of SUVs. "Market leadership is a crown of thorns. We are not focussed on market share but making sure our products are a hit," says Anand Mahindra, Chairman, Mahindra Group. "If we look at true blue 'ladder on frame' SUVs, we are still very strong there, but if you add every monocoque wannabe crossover vehicle in the mix, the segment really expands. So, we are not in that game anymore."

It is reminiscent of Tata's own struggles in the passenger car segment in the first half of this decade. Following the debacle of Nano - against a production capacity of 2,50,000 units, the most it ever sold in a year was under 75,000 units in 2012/13 - and a dry pipeline, Tata saw its market share erode from 14 per cent to 5.35 per cent between fiscal 2012 and 2016; it dropped from third to sixth in the pecking order. Like Mahindra, its first few products were aimed at a revival. Bolt hatchback and Zest compact sedan also did not succeed and it was still dependent on products like Indica and Indigo, which were way past their sell-by date. But in 2015, it struck gold with the Tiago small car and followed it with the Nexon compact SUV in 2017. As a result, the company has been able to outperform the industry for 35 months on the trot, growing its sales by 23.5 per cent in the January-November 2018 period, and gaining market share in the process.

The new-found confidence is reflected in the company's strategy for the future. On January 23, Tata launched a premium five-seater SUV, Harrier, which has been developed in collaboration with its UK subsidiary Jaguar Land Rover. A premium hatchback codenamed 45X to compete with the likes of Maruti Baleno and Hyundai Elite i20 would be next, plugging another gap in the company's portfolio in India. A seven-seater full-sized SUV based on the Harrier platform codenamed H7X as a mid-size sedan is also under development. The company hopes to regain its long- cherished ambition of becoming the No.3 player in the domestic market on the back of these launches.

"It is an important target for us. It is also part of our vision statement. We wanted to get there by the end of fiscal 2020, but when we achieved it for the first time in October 2017, followed by July and November 2018, it was a positive surprise," says Guenter Butschek, CEO and Managing Director, Tata Motors. "With Harrier, we think we will have a chance to become No.3 on a more sustainable basis."

Mahindra needs a similar transformation. With a diesel-heavy portfolio, the growing unpopularity of the fuel has put it at the receiving end. While Scorpio continues to bring in over 50,000 customers per annum, the Bolero is now well off its peak of more than 1,00,000-unit sales four years back. The need for technology is acute and Mahindra needs a new bestseller. For this, the company has accelerated joint development with its South Korean subsidiary, SsangYong, while roping in Italian design house Pininfarina, which it acquired in 2015, and its North American technical centre for design and engineering. The first product borne out of this conjunction, the seven-seater utility vehicle Marazzo, was launched in September 2018. It is beginning to make its presence felt in the domestic market.

In October, Mahindra launched the Alturas G4 premium SUV, a rebadged version of SsangYong Rexton. In mid-February, it will take another crack at the compact SUV segment with XUV3OO. Based on SsangYong's Tivoli platform, the company has again dipped into the South Korean company's reserves. A range of petrol engines is also being developed for each of its product before the transition to BS-VI fuel in 2020, which will make diesel vehicles even more expensive to own. These are important products for Mahindra. The company aims to sell 9,000 units of these models every month. It should be enough to keep it ahead of Tata.

"The compact SUV segment has gathered a lot of momentum over the last three-four years. The growth has been almost 44 per cent. The segment clocks sales of around 40,000 units a month. So, it is a very important segment to be in, because even if a product gets 10 per cent share, it's a good 4,000-5,000 units a month. It is a very healthy figure," says Pawan Goenka, Managing Director, M&M. "XUV3OO is also a very critical product for us. We have traditionally been a 'ladder on frame'-based manufacturer and our first monocoque product was XUV5OO. That was premium, but the 3OO is a more mass-market product with higher potential for volumes."

While Tata battled a perception issue as its products were viewed as unreliable and low on quality, Mahindra does not have any issue on that front. Even then, regaining its market leadership position in the utility vehicle segment may be a bridge too far.

"Thankfully for them their brand has not taken a beating. M&M customers are still not that dissatisfied with their products - an XUV or a Scorpio customer is still happy with his vehicle," says Gandhi of Motilal Oswal. "They (Mahindra) know where they went wrong with their product launches in the past and have completely overhauled their design and engineering functions for their new launches. I don't think they will ever be the market leader again. Their past glory was in a secluded environment of no competition. Now competition is strong and from mainstream players. They can recover a part of their lost market share with the new products they are launching. In some sub-segments like XUV (5OO) or Scorpio, they will have leadership, but in a broader SUV market - where they will also have to compete with Maruti and Hyundai - it will be very difficult for them to compete."

Electric Warriors

Both companies are early movers in India's electric car story and already have had a few skirmishes. Electric mobility in India is being spearheaded by government- owned Energy Efficiency Services (EESL) - a joint venture of four power public sector units. EESL aims to electrify nearly 80 per cent of the 5,00,000 vehicles being used by government agencies across the country that are used for less than 80 kms every day. It aggregates demand and gives out mega tenders to bring down prices.

When EESL first held discussions with the automobile industry in August 2017, five players - Mahindra, Tata, Hyundai, Renault and Nissan - showed interest. Eventually, only three bid for the first tender of 10,000 vehicles. Mahindra, which is a first mover in electric cars in India - it acquired Chetan Maini's 24-year-old Reva car company in 2010, and already has two brands in the open market - was expected to be the front-runner. But Tata pipped it with a bid of Rs  11.2 lakh for e-Tigor to Mahindra's Rs  13.5 lakh for e-Verito.

Tata's bid for annual maintenance contract (Rs  0.25/km) was substantially lower than M&M's (Rs  1.35/km). The prices are inclusive of GST and a five-year annual maintenance contract. In the first lot of 500 vehicles, Tata has supplied 350 vehicles while Mahindra has delivered the balance 150 cars. Mahindra had to match Tata's price to bag the contract, but it was not happy and openly questioned Tata's pricing.

"It is difficult to comprehend the price quoted by the L1 bidder (Tata Motors), though we have been in the electric vehicle business for some time and we know the cost structure and subsystems very well," Goenka of Mahindra had said after the tender was opened in October 2017. "We will not make money on the cars we supply to EESL. We will lose money on every car."

"I do not know the specifications of the L1 car since it is not yet out in the market, unlike the Verito, which has been in the market for some time. But Verito is a bigger car and has a 20.5 kwh electric motor, which can do 170-180 kilometres on full charge. We don't know what the battery size of the L1 car is," he added.

The not-so-subtle attack shattered the veneer of healthy rivalry that otherwise exists between the two firms. Tata Group Chairman N. Chandrasekaran emphatically countered Mahindra's claims, while Butschek said he would be happy to fill in if Mahindra wanted to opt out.

"We will be making enough money from each of the units that we sell to EESL. As of now, we will be selling 6,500-7,000 units. And if the other company opts out, we will lap up the rest of the order as well," Butschek said. "All I can tell you now is that we are capable of meeting all the order requirements."

The gloves are off. As the two companies face off yet again in a direct fight, expect some more fireworks.

Tata Harrier, 45X, H7X

The premium five-seater SUV Harrier is the first genuine joint effort between Tata and JLR and seeks to expand Tata's arc into the more premium category. A seven-seater version with H7X will take the story forward. With 45X, Tata will plug the premium hatchback gap in its portfolio.

Mahindra Marazzo, Alturas, XUV3OO

Much like Harrier for Tata, Marazzo is Mahindra's global seven-seater people mover developed by teams in India, North America and Italy. Mahindra is digging into its South Korean subsidiary SsangYong for premium SUV Alturas as well as another shot at the compact SUV segment with XUV3OO. The company hopes incremental volumes of 9,000 every month from the three models.

@sumantbanerji

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