Can Tata Motors, Maruti Suzuki Crash After India's EV Policy 2024?

The stock of Tata Motors tends to rise from ashes every time it is written off.

When the economic crisis of 2009 made it a penny stock, few thought the stock would recover. But the stock gained 1780% over next 6 years.

Covid 19-led lockdown, once again, took the stock to historic lows.

Between April 2020 and April 2024, the automaker's market capitalisation surged a staggering 1250%. Meanwhile, the benchmark Sensex went up 177%.

It is not just the rise in stock price that investors are pleased about this time around. The company's market share also grew from around 5% to 13.5%, with sales of nearly 40,000 vehicles a month.

With a renewed product portfolio, cost optimisation, better distribution network, and affordability, the automaker has once again caught the fancy of private car buyers.

Most importantly, the well-knit electric vehicle (EV) ecosystem of the Tata group has stood in good stead.

Tata UniEVerse, is an ecosystem that will leverage group synergies, from companies such as Tata Power, Tata Chemicals, Tata Autocomp, Tata Consultancy Services (TCS), Tata Digital, Tata Elxsi and Tata Motors Finance.

So, when it comes to growth and profit expectations in future, Tata Motors has a lot to lean on. The company has undoubtedly leveraged the EV ecosystem of its sister concerns to fetch steep valuations over past few months.

In addition, its EV capex outlay of Rs 150 bn over the next seven years is also being closely watched.

So, despite having its return ratios (return on equity) still in single digits, Tata Motors' EV/EBIDTA multiple has moved well beyond long term average in recent months.

At the same time, however, the stock of Maruti Suzuki has languished due its very slow and limited foray into EVs.

Maruti had always been the stronger entity when it came to passenger cars while Tata Motors' core domain was electric vehicles.

Maruti's low-cost manufacturing, coupled with a distinct advantage of product positioning, has helped it offer vehicles that are affordable, low on maintenance costs, and with superior fuel efficiency.

The company also boasts an impeccable sales and service network, apart from good resale value, all of which have contributed to the carmaker's success.Since 2001, Maruti's market share has hovered around 50%, barring a blip in 2012. Also, in 2023 its market share went up to 43%, from 39% in 2020.

Unlike Tata Motors, Maruti made a late entry into the EV race. A number of factors including little government support, subsidies for personal EV vehicles, lack of proper infrastructure such as parking and charging spaces among others were the reasons behind the decision. The automaker instead focused on other alternative technologies such as CNG and hybrid vehicles to reduce its carbon footprint.

However, Maruti is now expecting to fetch almost 20% of revenue from EVs by 2031.

Compared to Tata Motors, Maruti has sustained better return ratios in double digits. Moreover, its EV / EBIDTA multiple is currently close to the 10-year average.

So, what could significantly turn the tables for Tata Motors and Maruti Suzuki in terms of valuations?

Well, India has no restrictions on the import of electric vehicles from any country, including China, under a new EV policy.

In March 2024, the Indian government approved the new EV policy, under which import duty concessions will be given to companies setting up manufacturing units in the country with a minimum investment of US$ 500 m.

The companies that would set up manufacturing facilities for EV passenger cars will be allowed to import a limited number of cars at lower import duty. Duty of 15% would be levied on vehicles costing US$ 35,000 and above for five years.

At present, cars imported as completely built units attract customs duty ranging from 70-100% on cost above US$ 40,000.

So, the policy does aim to attract global automakers like Tesla into India. This would ensure sufficient technology transfer and create a robust supply-side ecosystem for EVs.

In February 2024, VinFast, Vietnam's leading electric vehicle manufacturer, began construction work for its first integrated EV manufacturing facility in Tamil Nadu. However, the key concern is that the new EV policy may lead to large-scale entry of Chinese auto firms like BYD in the local market.

The Chinese market has robust raw material processing capabilities and a strong density of local EV manufacturers, leading to a secure supply chain and significant product rollouts. On the other hand, India is heavily reliant on foreign markets to procure raw materials for batteries, which leads to a high total cost of ownership (TCO) for EVs, resulting in a relatively lower adoption than global peers.

Therefore, the new EV policy clearly puts stocks of overvalued EV makers like Tata Motors at the risk of a crash. More reasonably priced and well diversified entities, like Maruti, nevertheless, may remain unaffected.

However, the stocks in the EV ecosystem, which are to benefit from the localisation of EV manufacturing, are set to gain the most.

For instance, stocks of companies producing Lithium batteries for the EVs.

Check out my video on the safe stocks to rise India's Lithium megatrend.

Warm regards,


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