Mar 30 2024, 07:59
Tata Motors boards Chennai express, reaches Hyundai's doorstep with an INR9,000 crore plant:
Tata Motors officials with Tamil Nadu Chief Minister MK Stalin after sigriing an Mou to set up a vehicle manufacturing facility at an investment of IN19,000 crore, on March 13 in Chennal:
Tata Motors' passenger vehicle operations have so far been clustered in West India. What takes the automaker to Ranipet near Chennai? Will this investment bring long-term benefit to the company?
While Tata Motors has been running neck and neck with Hyundai, the South Korean rival always manages to fight its way back. In that context, Tata Motors' recent announcement to invest INR9,000 crore to set up a vehicle manufacturing facility in Ranipet in Tamil Nadu can add more firepower to its ammo. Last May Hyundai said it would invest INR20,000 crore in Tamil Nadu over 10 years for growing its electric vehicle ecosystem including battery manufacturing.
While Tata Motors has not shared any details on what kind of vehicle it will be making in the new plant, sources aware of the development say that passenger vehicle manufacturing is almost certain. Some components of commercial vehicles could also be made there for which fine prints are still being worked out.
Tata Motors' passenger vehicle operations have so far been clustered in the western region. In Pimpri, Pune, it makes both passenger and commercial vehicles. It makes the Nexon and other engines at Ranjangaon in Maharashtra. In Gujarat's Sanand, it makes ICE (internal combustion engine) and electric vehicles. Tata Motors, through its subsidiary Tata Passenger Electric Mobility, completed the acquisition of its second facility in Sanand from Ford India in January 2023. The plant has an installed capacity of 300,000 vehicles per annum, scalable to an annual 420,000 units.
This means Tata Motors has sufficient passenger vehicle capacity between the three plants.
VG Ramakrishnan, managing partner at consulting firm Avanteum Advisors, points out that manufacturing investments are far too expensive to use for just taking on a competitor. "I don't see this investment from a market share perspective. Irrespective of manufacturing locations, companies have captured market share. Hyundaiis an example of that," he adds. Hyundai's operations had so far been limited to Chennai, but it has been successful in capturing market share pan India as a mass-market brand.
"Tata Motors' proposed investment in Tamil Nadu shows the confidence behind its strategy and sustainability of its turnaround in the passenger vehicles space," Ramakrishnan explains.
Tata Motors already has many of its vendors based out of Tamil Nadu who supply auto parts to its western factories, Vendors' proximity to the plant can be an added advantage down south.
BVR Subbu, an industry veteran and former president of Hyundai Motor India, sees savings of 1% to 3% for automakers in Tamil Nadu on account of freight costs for shipping components, compared to manufacturing in a location like, say, Hyderabad, which does not have such a well-defined auto-component ecosystem.
But the savings from transporting auto partswould be negligible, if any, when compared with Pune, or Sanand, or Gurugram, as they are on a par in terms of ecosystem.
Another benefit for Tata Motors could be via reduced logistics costs for finished products. Since the southern market accounts for 30% of all-India sales in passenger vehicles, the average lead could be below 300 km. Since cars are shipped in special containers and in volumes, this will lead to significant savings in freight cost which could improve the average profitability on products.
Depending on the kind of sweet deal that Tata may have struck with the state government, benefits like state GST deferral, power tariffs reduction, etc. could come around.
source: et
Mar 30 2024, 07:59
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