What is the Future of Tata Motors' Stock?

With a mammoth 73% share in the EV market, Tata Motors is currently the largest player in the Indian electric vehicle (EV) industry.

The carmaker has the widest portfolio of EVs, with products available across body styles and price points.

The company plans to leverage its EV business to focus on vehicle penetration through multiple product launches, charging network enhancements, and aspirational product features.

This is not the company's maiden attempt at enhancing vehicle penetration. It tried doing that with the Nano too. Then the unique selling proposition of the small car was affordability. This time the USP of the EVs is clean fuel.

Nano may have not been the best seller that Tata Motors hoped it to be. But the company has left no stone unturned to pursue growth in the EV segment.

Tata Motors increased its spending on research and development (R&D) by 45% YoY for the year ended March 2024. So, the R&D expenditure was nearly 6.5% of revenues.

This increased spending on R&D comes as Tata Motors focuses on extending its electric vehicle (EV) product range, developing flex-fuel powertrain, fuel cell EV and Hydrogen ICE with necessary strategic investments for supporting infrastructure.

Tata Motors' product strategy is based on a complete shift towards zero and low-carbon vehicles like EVs, hydrogen vehicles, and flex-fuel vehicles.

Some other areas in which R&D is being carried out include wireless battery management system, wireless charging of high voltage battery etc.

Tata Motors is also focusing on development of light and heavy commercial trucks on the battery electric vehicle platform with various voltage architecture. The management claims that it is working towards achieving net zero emissions by 2045.

More importantly, the management believes that Tata Motors has an important role to play in improving vehicle penetration in India.

Despite being the second largest automotive market in the world, India is well behind China. The latter is 6x India's automobile market size. India's vehicle penetration, at about 30 vehicles per 1,000 people, is well below global norms.

So, Tata Motors is hoping to further strengthen its market position and tap into this growth opportunity. The company sold over 74,000 EVs during FY24, registering a growth of 48% YoY. It plans to retain the volume growth with new launches.

Also, Tata Motors' India automotive business is now debt-free, and the company is on track to make JLR debtfree in 2025.

So, one would assume that the stock is ripe for peak valuations given the optimistic outlook.

However, it turns out that thanks to the recent market correction, the stock is once again flirting with the valuation lows last seen during the market crash of 2009.

It was during the financial crisis led market crash of 2009 that the stock of Tata Motors crashed almost 80%! The stock was then trading at book value.

While the near-term risks to the business were evident, the stock of Tata Motors was dumped by institutional investors, despite long term upside.

Of course, as they say, what happened after than is well documented history.

The stock of Tata Motors made history by gaining 15 times in the next six years.

The post 2016 market crash was a similar story wherein the stock crashed by almost 80% by 2020 and went on to gain 15x by 2024.

Therefore, some investors think the stock of Tata Motors will once again rise 15x.

On the other hand, there could be investors who pinpoint to challenges in the EV business, especially in EV battery making etc.

Or some may wonder if it will be a lost decade for Tata Motors' stock, like it had been between 2014 and 2023.

So do keep a close watch on the stock. Remember auto is a cyclical business. Therefore such peaks and troughs are the norm rather than exception.

Warm regards,


Tanushree Banerjee
Editor, StockSelect
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)