Where Will Tata Motors Share Price be in 3 Years?

Tata Motors has come a long way. From being just a domestic automaker, it has become a global force to reckon with.

The company's offerings, ranging from passenger vehicles (PV) to commercial vehicles (CV) and electric mobility, reflect its adaptability and ambition.

With the evolving automotive landscape, the company has made strategic moves to remain ahead of the curve. Where does this trajectory lead over the next three years?

In Q2 FY25, Tata Motors was in the spotlight with several noteworthy developments. The company posted a total of 235,599 units in sales, a slight uptick compared to the same period last year.

December 2024 saw a 2% increase in sales, driven largely by robust demand for SUVs and year-end discounts. However, it's grappling with rising input costs and has raised prices again.

PVs, including electric vehicles (EVs), will see a price hike of up to 3%, while CVs will see a 2% increase starting January 2025.

Tata Motors has also doubled down on its commitment to EVs. The company recently rolled out electric buses for workforce transportation in Pantnagar.

On top of that, Tata Motors stands to benefit from the government's Production Linked Incentive (PLI) scheme for EVs, which will provide financial incentives for models like the Tiago EV and Ace EV.

Meanwhile, Tata Motors' subsidiary, Jaguar Land Rover (JLR), is undergoing a rebranding under its "Project Roar" initiative. The goal is to position Jaguar as a luxury all-electric brand.

While the move has been met with mixed reactions, it aligns with JLR's broader goal of electrifying its offerings and securing a future in the luxury EV space.

Stock Price Performance

Tata Motors stock has seen a remarkable transformation over the past five years.

From Rs 180 in January 2020, it faced setbacks due to weak demand and challenges at JLR, plunging to Rs 65 in March 2020 amid the pandemic.

However, by late 2021, the stock rebounded to Rs 500, driven by JLR's recovery, strong domestic demand and excitement around EVs.

By 2025, it reached Rs 764.95, delivering a 325% return over five years, a 32% CAGR.

This stellar performance mirrored the company's improved financial health over the same period, with key metrics like revenue and profitability showing consistent growth.

Financial Health: A Turnaround Story

Tata Motors' financial turnaround has been nothing short of impressive. After wrestling with losses, the company swung back to profitability in FY23 on the back of robust demand, better cost management and a streamlined portfolio.

Tata Motors Financial Snapshot (2020-24)

	2019-2020	2020-2021	2021-2022	2022-2023	2023-2024
Revenue Growth (%)	-13.55%	-3.47%	10.69%	23.98%	26.57%
Operating Margin (%)	8.03%	13.98%	9.97%	10.57%	14.95%
Net Profit Margin (%)	-4.20%	-5.21%	-4.03%	0.78%	7.26%
Return on Capital Employed(%)	-1.92%	-1.27%	1.23%	7.67%	21.41%
Return on Equity (%)	-17.94%	-22.17%	-22.53%	5.99%	48.90%

Source: Equitymaster

The turnaround is most evident in JLR, which had once been a significant source of concern but is now a key growth driver.

In FY24, JLR saw strong demand in key markets like China and the US, which significantly contributed to Tata Motors' consolidated revenue growth of over 20%.

The company's focus on cost optimisation, debt reduction and operational efficiency allowed it to weather the storm, even as rising costs and global supply chain disruptions, present challenges.

Challenges Ahead: A Rocky Road in the Short-Term

Despite its good financial performance in FY24, Tata Motors faced some bumps along the road.

The company hit a rough patch in 2QFY25, with consolidated margins shrinking year-on-year (YoY) to 11.6%, falling short of the expected 13.2%.

The culprit was JLR, which saw weak volumes and continued cost pressures. While Tata Motors' India business held steady, demand for certain models was more muted.

China and Global Markets: Battling Macro Weakness

One of the biggest challenges for Tata Motors, particularly JLR, lies in China. The Chinese auto market is facing significant strain, with demand plummeting across various segments.

The internal combustion engine (ICE) segment has declined by 22% YoY in the first half of FY25, while the premium auto market dropped 12%.

JLR, which has a significant presence in China, managed to fare relatively well in 2QFY25 but management has warned the macroeconomic slowdown in the region will likely affect performance in the second half of FY25.

In the first half of FY25, JLR sold around 28,000 units in China, accounting for about 28% of total sales. Given the weak demand in the country, JLR's outlook in China remains under pressure.

The company has revised its free cash flow (FCF) guidance for FY25 downward from GBP 1.8 bn to GBP 1.3 bn, following a cash outflow in the first half of the financial year.

It has also maintained its EBIT margin guidance for FY25 at 8.5% but acknowledged the pressure on margins as global market conditions remain challenging.

India Commercial Vehicles: Early Signs of Recovery

Tata Motors' CV business is showing signs of recovery, unlike JLR's struggles.

Increased infrastructure spending and strong festive demand are expected to support CV sales in FY25. Passenger buses are poised for the strongest recovery, followed by intermediate and light commercial vehicles (ILCVs).

However, demand for small commercial vehicles (SCVs) and heavy commercial vehicles (HCVs) remains weak after poor 2QFY25 performance.

Management expects FY25 CV volumes to be flat or slightly improved. While challenges such as competitive intensity persist, Tata Motors' focus on operational efficiencies and new product launches could support growth in the coming months.

Passenger Vehicles: A Record-Breaking October

Tata Motors finished 2024 with a strong performance, achieving its highest-ever retail sales of 68,500 units in October. This pushed its Vahan market share to 13.7%, up from 13.3% in the first half of FY25.

The company has improved its supply chain and inventory management, reducing channel inventory. It had a string of new launches in recent years, but its market share in the PV segment has largely remained unchanged, holding steady at 13.8% for FY24 and slipping to 13.3% at the end of 2024.

Despite rolling out multiple EV variants across key product categories, the company's EV sales have plateaued at around 5,000 units per month. The outlook for the PV industry remains tepid, with the Currv EV still struggling to gain traction, leaving its potential uncertain.

The acceptance of the internal combustion engine (ICE) version in the Indian market is also something to watch.

Looking Ahead: EV Ambitions and Growth Strategies

Despite near-term challenges, Tata Motors' long-term prospects remain promising, driven by its aggressive push into the EV market. With the Nexon EV already gaining popularity, the company plans to launch 10 new EV models by 2027.

The company is also focused on cleaner technologies for CVs, including hydrogen fuel cells and LNG-trucks, aligning with global sustainability trends and positioning itself for international growth.

TATA Motors - Key Priorities

Apart from this, it is also expanding its global footprint, investing £4 billion in a UK-based electric car battery factory set to begin production in 2026. This facility will supply batteries for Jaguar Land Rover's upcoming electric models.

The company is targeting 30% EV penetration in its total sales by 2030, with future models expected to offer a 500 km range per charge to enhance market leadership.

Financially, Tata Motors aims for 22% margins over the next 3-4 years, reflecting its focus on profitability through initiatives like expanding its EV portfolio and adopting clean technologies.

Moreover, it plans to separate its PV and CV businesses into two independent listed entities. This move, expected to occur within the next 12-15 months, is designed to unlock value, streamline operations, and enable more focused strategies for each business segment.

Shareholders will receive equal stakes in both companies and the demerger is expected to create significant synergies within the growing PV, EV, and JLR segments.

Stock Performance and Valuation

Coming to the stock performance, Tata Motors' stock has underperformed the Sensex in 2024, with a mere 1.8% rise since the start of the year, compared to the Sensex's 11.4% gain.

Presently, the stock is trading at Rs 795, down 32% from its 52-week high of Rs 1,179.

It's EV/EBIDTA ratio is 5.5, 27% below its 5-year median of 7. At its peak, the EV/EBITDA ratio was 10.5 (August 2022).

Conclusion

Tata Motors' leadership in EVs, improving financials and strategic focus on high-growth areas provide a compelling case for sustained growth.

However, challenges persist. JLR faces margin pressures amid weak global demand, rising costs and a normalising product mix.

In India, softer demand for CVs and PVs adds to uncertainties. With competition heating up and macroeconomic risks on the horizon, cautious optimism is key.

Investors should evaluate the company's fundamentals, corporate governance, and the valuations of the stock as key factors when conducting due diligence before making investment decisions.

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