India's largest automaker Tata Motors on Friday decided to convert its passenger vehicle business unit including its new found electric vehicle business into a separate subsidiary. The move is aimed at facilitating any potential alliance partnership for the future.
The new subsidiary would be led by the current president of the EV business, Shailesh Chandra from April 1 while the current managing director of the PV business unit Mayank Pareek will retire from the company in February next year.
"TML Board has in-principle approved to subsidiarise TML's PV business (Including EV) by transferring relevant assets, IPs and employees directly relatable to the PV business for it to be fully functional on a standalone basis through a slump sale. However, certain shared services and central functions will be retained at TML to deliver cost efficiencies for the entire group," the company said in a statement.
"This shall help provide differentiated focus for the PV and CV businesses and help each of them realise their potential. This decision is a first step in our plans to secure mutually beneficial strategic alliances for the domestic PV business and help secure its long-term viability."
The passenger vehicle business unit is considered the weaker of Tata's standalone India businesses. Tata Motors had reported a revenue of Rs 3.02 lakh crore in 2018-19 with the India business accounting for Rs 72,607 crore while its UK based subsidiary Jaguar Land Rover accounted for Rs 223,514 crore. The passenger vehicle business accounted for nearly 20 per cent of the India standalone business and less than 5 per cent in the consolidated company. During the fiscal the PV business unit had incurred a loss of over Rs 1,500 crore as against a loss of over Rs 3,800 crore in fiscal 2018. The commercial vehicle business unit had returned a profit of over Rs 3,500 crore in fiscal 2019.
"The Passenger Vehicle business landscape is seeing rapid transformation in the form of tightening emission norms, push towards electrification, enhanced disruptions from autonomous and connected technologies. Additionally, India continues to remain an attractive market for global OEMs while the aspiration levels of the Indian consumer continue to rise requiring stepped up investments in contemporary products in a competitive market.
The passenger vehicle business had seen a turnaround in sales in fiscal 2018 but a protracted slowdown in the domestic market has reversed the trend this fiscal. The company's overall sales are down 29 per cent in this fiscal so far. Commercial vehicle sales are down 27 per cent while passenger vehicle sales have declined by 35 per cent.
"Over the last few years, TML's PV business has implemented a strong turnaround and has earned its right to grow by launching a slew of successful products like the Tiago, Tiger. Nexon. Hexa, Harrier and most recently the Altroz and Nexon EV. A fully refreshed BSVI ready product portfolio based on the Impact 2.0 design philosophy, consistently improving NPS scores, improved retail market shares and an exciting entry into the EV space coupled with improved profitability makes the business ready to realise its potential," the company said.
"However, the recent outbreak of COVID-19 virus increases the challenges faced by the business. In this situation our first priority is to secure the health and safety of our people while continuing to serve our customers and securing the viability of our ecosystem. Additionally, in sync with our strategy to "Win Sustainably" we will take decisive steps to strengthen our business over the long-term. A move towards subsidiarization of the PV business is the first step in securing mutually beneficial strategic alliances that provide access to products, architectures, powertrains, new age technologies and capital," it added.
The proposed transfer shall be implemented through a scheme of arrangement, which will be tabled for approval to the TML Board over the next few weeks. Implementation of the scheme is subject to regulatory and statutory approvals as applicable, including approval of shareholders and creditors. We expect the transfer process to be completed in the next one year.
The company has in the past made a few unsuccessful attempts at forming partnerships with global automakers. In 2015, it was in talks with French carmaker PSA Peugeot Citroen for a tie up that would have seen Tata manufacturing and producing the cars for the French company from its Sanand factory in Gujarat. The deal did not fructify. Then again in 2017, it signed an MoU with Skoda led Volkswagen Group to jointly develop a small car platform. It was called off after just four months.
With a clutch of Chinese carmakers looking to enter India, the new found subsidiary could become an easy target for a tie up. The other big Indian automaker Mahindra and Mahindra already has an alliance with US car major Ford.