Tata Motors CNG cars speed ahead, EVs shift to slow lane

New Delhi: Tata Motors, India's largest electric passenger vehicle (PV) maker, saw CNG vehicles pulling ahead of their electric peers at a faster pace as the leading alternative fuel of the company in the first quarter (April-June) of FY25.

This happened in the backdrop of the company reeling from the effects of a pull-back of government subsidies on electric four-wheelers sold to commercial fleets, with subdued electric passenger vehicle demand making things worse.

Electric vehicle (EV) sales for Tata Motors were down 14% year-on-year (y-o-y) to 16,579 units for the quarter ended June. In July, EV sales dropped even more, 21% y-o-y.

Further, conventional passenger vehicles (PVs) also saw a 6% y-o-y fall in sales in Q1, even as the company announced impressive revenue and profit growth for the quarter on the back of sales of its luxury car unit, Jaguar Land Rover.

Absence of incentives

“FAME-II incentives not being there in the first quarter and July does impact fleet sales and that amounts to a substantial portion of our portfolio, so it's quite logical there's been an impact of that,” group chief financial officer P.B. Balaji said in a post-earnings conference call on Thursday, in response to a question on why the company's EV sales were flagging.

Sales to fleet customers like Uber and BluSmart account for 20% of Tata Motors' total EV volumes, Balaji added.

While EVs accounted for 12% of the company's total PV sales in the April-June quarter, remaining stagnant at the levels seen in the previous quarter, CNG models have strengthened their position as the company's leading alternative fuel portfolio. Sales of CNG cars comprised 22% of Tata Motors' total sales in Q1, up from 16% in the March quarter.

The electric four-wheeler segment has been kept outside the demand-subsidy framework since 31 March, with the expiry of the FAME-II scheme, which offered incentives to fleet customers on the purchase of EVs.

Industry experts told Mint that retail demand for EVs remains a challenge. Jay Kale, senior vice president at equity research and brokerage firm Elara Capital, said EV volumes have been muted in recent months both in India and globally.

“Fleet sales would have also gotten impacted due to subsidy removal," said Kale. "We are getting into interesting times, as many other competitors are slated to launch their EV products in the next 8-12 months, and demand trends will be keenly monitored for the category.”

“We're signalling that we do expect (demand) to recover from here on, and particularly with the festive demand coming up, we should expect to see that back,” Balaji said. “There's enough launch activities also planned, so enough and more noise is there to get the buzz back in the market. We remain confident from the from here on for the overall demand, along with the FAME incentives likely to come in the coming months, we should expect fleet to build back as well”, he added.

Good results led by JLR

Tata Motors reported a 73.8% y-o-y surge in its net profit to ₹5,566 crore on a 5.7% y-o-y revenue growth to ₹1,08,048 crore in Q1FY25, the company said on Thursday.

Jaguar Land Rover, the automaker's British luxury car subsidiary, saw sales increase by 5.4% with improved EBIT (earnings before interest and taxes) margins, and the CV business saw revenue growth of 5.1%.

The passenger vehicle segment, on the other hand, faced challenges leading to a 7.7% revenue decline, even though its Ebitda (earnings before interest, tax, depreciation and amortization) margin improved to 5.8%. Overall, the company benefited from robust JLR sales, optimized product mix, and reduced raw material costs.

“JLR earnings were positive at the EBIT margin level as a superior mix of Range Rover and Range Rover Sport, and lower contribution from Jaguars (lowest contribution in the quarter at around 8%) resulted in a strong 4% quarter-on-quarter (q-o-q) jump in average selling price (ASP), along expected lines,” Kale said.

He added that the India CV margins also impressed as Tata Motors' q-o-q dip was lower than what was seen at Ashok Leyland. “India PV results were disappointing as weaker mix q-o-q led to lower than estimated margins and ASPs,” he added.

Distinct set of buyers for CNG and EVs

Balaji said buyers for its CNG and EV products don't often overlap and come with different segments with different needs.

“Still 12% of our portfolio is coming out of EVs, and our plan is to take that 12% to 20% in the foreseeable future and that's what we are driving towards," he said. "Here it is a market creation job, a consumer education job, a myth-busting job and a barrier-reduction job, which is what we are taking full accountability and responsibility for. And we will drive it and make it happen.”

For Tata Motors, its alternative fuel strategy will be informed by the imperatives of meeting CAFE (corporate average fuel efficiency) requirements, which will necessitate an aggressive EV portfolio along with other powertrains, he said.