Tatas to explore global EV battery manufacturing options

No image 5paisa Research Team

Last Updated: 13th January 2023 - 05:55 pm

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The Tata group is exploring the possibility of setting up plants in India as well as in Europe to manufacture battery cells for electric vehicles (EV). Batteries are not only the most critical part but also one of the most expensive parts in an electrical vehicle. Currently, Tata Motors has sold about 50,000 electric cars to date. That may be small by global standards but it is a huge player in India and virtually dominates the EV space with its Tata Nexon. It also has very aggressive plans to launch 10 electric models by March 2026. In fact, Tata Motors is quite confident that electric models would make up close to a quarter of its total sales by the year 2025. Currently, EVs account for just about 8% of the total sales of Tata Motors.

There are several advantages of having localized battery cell manufacturing for electrical vehicles. Firstly, the advantage is that by localising cell manufacturing for EV batteries Tata Motors has much better control over the entire supply chain. Secondly, this also enables them to manufacture the EVs at much lower costs. Apart from developing a local supply chain, the company would drastically reduce its dependence on China since China remains a very important part of the global supply chain. These comments were made by the CFO of Tata Motors, PB Balaji, on the side lines of the Auto Expo car show in Greater Noida, in the state of Utter Pradesh.

In fact, the latest update is that the Tata group is currently evaluating two possible production bases. One is India and the other is in Europe. This will ensure that the battery cell needs of its luxury car unit Jaguar Land Rover are easily met through that facility. Such a facility could be set up in Eastern Europe, where the cost structures are relatively less intense as compared to Western Europe. As of now, the investments for the cell manufacturing unit would be made by the parent company, Tata Sons, which is the holding company for all the Tata group companies. However, there has not been any indication of the quantum of investment or the timelines.

The reasons for the enthusiasm of Tata Motors is not far to seek. India's car market is all set to become the third-largest in the world after the US and China. However, India’s car market is still very miniscule compared to its population. With electric models making up just about 1% of total car sales of about 3.8 million, the government wants to ensure that India is able to scale up this share to 30% by 2030. That may look ambitious but the experience of other countries is that growth does come at a very rapid pace, once the tipping point has bene crossed.

Tata expects its EV business to be cash flow positive by the year 2025 while the company is also focused on boosting profitability of the business overall. For Tata, which has dominated the EV space with the Nexon, the competition is coming in thick and fast. There are a plethora of new models coming from rival players like Mahindra & Mahindra, Warren Buffet-backed BYD and SAIC backed MG Motors. All these names have lined up exciting EV launches for the Indian market. The big challenge for Tata group is not only to have a very clear position and value proposition for the clients but also ensure that it offers a wider driving range and higher price points. Clearly, Tata Motors is looking to cement its lead at a time when rivals are catching up really fast. The market place is just getting hotter. The key to this leadership is how well they are able to control the supply chains.

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