Tata Motors Passenger Vehicles Limited analyst Q&A

It's a good mix of questions coming from across the board. Okay, first question coming from Raghu , Nuvama. Richard, this is coming your way. I think a lot of questions on tariffs and question is, how have you accounted for it? Number one. Second, in terms of is there any rollback possible to May 8? That's the second set of questions there. And how do yo u plan to mitigate it in terms of pricing? And while you're on it, could you also give clarity on the emissions compliance provisions related to the US. Can you pick up the entire US tariffs, emissions accounting, how do you intend to mitigate it all in one shot?

Okay, let me give it a go. Right. Tariffs in the US. So they have been 25% is the tariff that Trump announced in his Section 232 executive order became effective essentially the start of the quarter. That tariff is on top of the stand ard most favored nation tariff, which was 2.5%. So essentially through the entirety of Q1, we have been booking the P&L at 27.5% tariffs from cars exported from the UK and cars exported from Europe. There is absolutely a chance that we will get the tariff red uction to 10% in the UK backdated to 8 May. We are working with the relevant governments to make sure that that happens as that is what was included in the original deal. However, it has not yet been enacted and therefore we haven't got sufficient certainty of that to book it in the accounts. So these accounts in Q1 assumed 27.5% flat throughout the quarters in terms of P&L. I mentioned to you earlier on that in terms of cash payments you pay the US tariffs one month afterwards. So, we have paid two months in t he quarter of the much higher tariff level. The third one which we will have paid in July will come in cash in Q2. I saw another question around tariffs which is when do you pay them? You pay them when the vehicle lands on US soil. So it's not related to wholesale, it's not related to anything other than when the vehicle lands in US. So in terms of what we have done, we reacted as quickly as we could as you know, in terms of stopping shipments and making sure that we had a very strong dealer stock going into the quarter. The first thing we did was reduce some of the sales allowances of the VME levels because that is a quicker thing to do for us than changing price. We have subsequently changed prices a little bit on '25 mode l year Range Rover went up a couple of percent and we have announced increases on '26. So, we are taking some price, we are taking some variable marketing reductions as well as a partial offset to the tariff cost. In terms of emissions, so the so called one big beautiful bill that was passed se t federal CAFE levels to zero, that was passed on the 4th of July. Use the fact that that was substantially enacted in law at the time to release our balance sheet reserve for federal cafe fines that stood at a circa GBP120 million. There were other changes in terms of tariffs globally including introduction. Sorry, not tariffs in terms of emissions costs globally including the introduction of some costs in Canada for model year '26 changes in the UK, et cetera, et cetera. So the net effect for us that you'll see on the report of all of the emissions changes globally was GBP76 million better on a year -over-year basis. But the absolute balance sheet change that we recorded in this period was GBP120 million. I covered most of the questions.

Can you also cover the accounting piece. Richard.

Yes, sorry, the accounting piece, it's shown in cost of sales. So it's not shown as a revenue item. It's shown in cost of sales.

Yeah, thank you. Probably. I'll come to you Shailesh. I think a lot of things around launches also about your EBITDA margin guidance from here on as well as EV production, rare earths, particularly here in India. And how do you see the discounts playing out from here?

Sure. So as far as Sierra is concerned, it is very much on track. We had always mentioned that this is going to get launched in H2, whether it will be quarter three or quarter four. I think we will let you know when we are closer to the date of the launch. But it is on track. As far as profitability is concerned. I think Dhiman has covered this in greater detail. We are very committed to bringing it back to the double digit EBITDA level. The next one or two quarters will be challenged. But you know the operating leverage coming back, model mix improving from here on , the potential price increase that Dhiman mentioned in H2 of the year, I think all these are going to help us. And also, as you know, first quarter was also impacted because of IPL spends that is getting normalized , marketing spends that we'll be doing. So I think beyond that I'll again ask Dhiman to later on talk about any additional things that we have missed. But we are very confident of coming back to these EBITDA levels in the next two to three quarters. Now the other question is EV production, vis -a-vis rare earth challenge that we are seeing. I think we are covered as far as the stock is concerned for the next two to three months and we have created alternatives to deal with the situation. Of course, it means alternative sourcing from beyond China also, but also seeing wherever possible we can avoid rare earth. I think all these options are being looked into. So hopefully we should not be affected because of the rare earth inventory issue that is going on. The next question is how much is the increase in discounts on quarter -on-quarter basis? As I said that we have been very prudent in terms of not allow ing stock to increase too much , while we had to do discount, had to counter the competition, discounts in certain segments. But this increase on quarter - to-quarter basis would not have been more than 50 bps. So that kind of a number. Yeah, that's it I think.

Thanks, Shailesh. Girish coming to you in terms of utilization, the dichotomy, the data saying. The level of utilization, what levels do new fleet additions come in and the utilization in HCV, cargo, why is industry TIV still dropping and wh at's affecting the sentiment? Can we just cover that?

Yeah. So see, you will appreciate that this fleet utilization metric and data is something that we started generating for last few quarters. We don't have a correlation today to very specifically say that beyond a particular level of fleet utilization, it leads to new purchases. And in addition to that I think this is also dependent on few other factors like what are the projects undergoing in that particular state, how are the other end use se ctors of commercia l vehicles are doing, etc. So I think the only thing I would say is that the fleet utilization actually continues to be healthy and at a higher level as compared to the same period last year. I think you also have a question that despite the fleet utilization being good, why the volumes have gone down? So, I would say that actually this f leet utilization also was seen in good pipeline generation. But throughout first quarter, we saw that generally there was a postponement in purchase decisio n making by customers. And then later on of course, there was an early onset of monsoon which therefore , impacted the volumes, especially in the month of June. So despite being end of the quarter, the retail volumes were not so high and we immediately align our off take to the retails. In addition to that, I would say that there are few states where the payments in government projects have been delayed in at least towards the end of Q1. And that was also something which was impacting the retail volumes in Q1 . There was another question, Balaji.

Yeah. so, related point was on delinquencies. I think Kapil had asked it earlier. Related point, how do you see delinquencies in the CV segment? And Financing availability?

Yeah, so delinquencies I think in buses and vans there is no issue whatsoever . In ILMCVs and HCVs, they remain at a low level. I think in SCV pickup the delinquencies amongst all the segments they do remain high. But the good thing is that Tata Motor's portfolio as shown by the financiers to us of small commercial vehicle and pickup has actually improved on the early delinquencies which is seen in the first six months.

Thank you, Girish. Shailesh, coming to you. This is on CAFE 3. Jinesh Gandhi from Oaklane. Considering CAFE 3 guidelines are yet to be finalized. Do you expect pushback of timelines and what do you expect growth for PV in FY26 and any material pickup in demand you expect in second half based on lower tax and interest rates?

As far as CAFE 3 guidelines are concerned you know, we are in touch with the Ministry of mainly of the Bureau of Energy Efficiency and we are having this discussion with Ministry of Power also. But we don't see any change in the timelines. The discussions are more around the extent of stringency that is being asked for. So, I don't see any pushback as far as timelines are concerned. The second question is more in terms of expectation of domestic PV industry growth. Seeing first four months has been absolutely zero percent growth. In fact last two months has been negative by 3% and we have maintained that for the full year, we are going to see about, again less than 5% growth. And that's what I would like to maintain for the industry. And in the second hal f, there has to be actually material pickup in demand , otherwise we would not be in even around 4% -5% of growth. So I believe because of all the actions that you have also mentioned in your question lowering tax, lower interest rates, the repo rate has been reduced and now it is reaching to the retail level also. And also we believe that rural demand is going to be strong post monsoon. So, all this year and strong festive period because we are seeing the demand pattern pretty much mimicking what we had seen in the last financial year. And last financial year had a very strong festive as well as December sales. So, we believe that the trend would continue. So quite hopeful of this. And then the last question is on share of retails from digitally generated leads. I think this would be about 10% to 15%.

Thank you. Richard, coming to you in terms of demand conditions in US, UK and China, do you expect how do you see the Q2 retail wholesale trends? I would probably add to it also with your comments on inventory as well.

On demand, the uncertainty, I think that's been so pervasive over the last few months, it has definitely impacted demand for ticket luxury purchases across the board. So, many of ou r clients are small business owners only facing the same tariff challenges. Now that we've got some certainty going forward, I think we would expect this to slowly recover. But demand has been weaker than we would like since our year end. In terms of region al splits, if anything, the US is remaining still relatively solid. China definitely , since the introduction of the China luxury tax has continued to slow. The UK is reasonably stable and Europe I think is the market where that small business owner uncertainty has probably had the most effect. So, I'd say certainly muted in the first quarter , driven by the uncertainty of the macro environment that we all face. But as that starts to stabilize through the back end of the year, we would expect that to recover slightly. So our retailer inventory levels are at probably the top end of our range at the moment. So we would not expect wholesales and retails to significantly diverge from here and we'll manage them together with our retailer body. We still have a strong order bank and we are expecting demand to slowly recover as certainty or rather lack of uncertainty takes hold.

Yeah, also since you're commenting on other market, just talk Middle east as well. That's not been asked but it's just a logical next question coming up.

Yeah, Middle east is a really strong market for us. This quarter was a little bit affected by the fact that I think as a result of the conflict over in that zone, a fair few of them left the region on their summer journeys earlier than usual but particularly for Range Rover and Defender, it rem ains an absolutely core market for us and that is why we both , externally in our reporting, but also internally we have now separated out MENA from the other Overseas market so that we can give it the attention it needs. It is definitely ripe for some furth er growth for Range Rover and Defender and ultimately Jaguar as well.

Thanks Richard. Girish, coming to you. In terms of CV full year outlook, we heard from Shailesh, how do you see CV full year?

So, I think we still maintain that for the entire year and within that I think HCV should do similar around 3% to 5% kind of a growth. ILMCV a bit lower, SCV pickup probably will remain flat. The volume should pick up from the festive season . In terms of buses and van while the projection is flat , but I think Q1 has done well. But Q1 and Q4 are generally good for buses and vans. I think it is very important to see how Q2 and Q3 pan out and also what kind of tenders come from the government, both ICE and electric. Based on that we can say whether the volumes remain flat or there will be a good growth even in buses. So that's where we see the whole year, Balaji.

Maybe this is more Ramanan your side on the margin performance, can you let us know why have gross margins improved quarter -on-quarter - this is from Kapil. in light of higher steel prices and AC cabin impact, are these sustainable and how much of PLI was coming onto it then? Probably basis PLI for Dhiman, I'll come to you in terms of PLI for PV for this year.

G.V. Ramanan

Yeah. So thanks, Balaji. So I think the reason for the Q -on-Q margin largely impacted by a combination of couple of things. One I think better realization and then the revenue salience in international market and the do wnstream business has been higher than the earlier quarter. So, that's kind of helped us from a margin perspective. On the question on sustainability, I think Girish does touch upon any focus area that's a clear focus area for us to sustained robust financi al performance. So, we kind of look forward to it. There's a question on PLI. So I think the Q1 accrual of PLI was around Rs. 25 crores and as Girish rightly said we expect the volumes to be increasing in the bus. So as the year goes by , we see this amount going up for us.

Dhiman, can you just cover off PLI for PV as well?

Yeah. So I think Balaji , we had given a guidance that our PLI run rate will be about Rs. 110-120 crore a quarter. We are on track. The PLI this quarter was about Rs. 115 crore. What is important to note is that you have a base year effect of FY21 which kicks in Q1. So Rs. 20 crore gets deducted from the gross and then there is a discounting impact because this cash is going to come next year. So our P&L of course was about Rs. 87 crore. But for the full year this already takes into account the PLI we are accruing on Punch and Tiago. We have Nexon coming in and Harrier .ev. So for the fu ll year we are on track to get about Rs. 700 crore PLI approval for the full year.

Yeah. Thank you. Richard, coming back to you. Timelines on deliveries of RR Electric and Jaguar Electric and as well as implication on China demand. You covered it a little bit. Maybe there's more questions coming over. This got bumped up implication on China demand post the luxury tax.

Okay, let's talk about B EV timing first. I think that's the first point. So we're still lucky in that our main vehicle application, the ones that sits under Range Rover / Range Rover Sport is fully ICE BEV flexible. The vehicles go down the same trim and final line. They go down virtually the same body shop line. So, we are really flexible. We can launch when we're ready and when our customers are ready. We expect it to be on sale next year. Our rollout of BEVs will go from there. For Jag, the on sale date is going to vary a little bit by market. I think what's really important, especially where demand is that in both cases we are not going to compromise on the quality of the vehicles or their capability. It's really important for us that these BEVs are in fact true Range Rovers, true Defenders, true Jaguars. They will be brilliant exemplars of their brand and that's why we are confident that we can make them successful not just in the western markets but also in China. In terms of demand in China at the moment it's still, I mean the change in luxury tax was we had about 48 hours notice like the rest of the industry and it came in mid to late July I think, so only two, maybe three weeks ago. So, a little bit early to see what's happened. What we have done for the moment for the interi m is we have told our retailers who we know are not in the best financial shape generally that's not something that's specific to JLR, that's industry wide. We have told our retailers that for the short term we will take the cost of that luxury tax. The netw ork, the retailer network over there is fragile enough without having to take that. So in the short term before we come up with a medium term plan but in short term we will take the cost of that. It is an extra 10% on the list price of the vehicle.

Thank you, Richard. Maybe we'll skip to another topic , this from Chandramouli, Goldman Sachs. Let me try and skip to EV and I'll come back to JLR in a minute. There appears to be a year -on-year drop in EBITDA margin for electric cars. Could you elaborate the rationale? At the same time, given the low volume growths, will the discounting be high throughout FY26?

So, year-on-year EBITDA margin for electric cars. It's not the right question. Yes, so I'm going to cover the PV one which is 1% to 2% PV volume growth plus this potentially. So see we have been seeing that there are clear segments, there are specific models where we are seeing a significantly high level of discounts. Main pressure is, in this less than Rs. 10 lakh segment is where I sit, where the demand is under stress. It has seen a nearly 15% decline, as compared to last year. So this segment is under stress and we'll continue to see discounting. We are also now started seeing, kind of a flattish trend in SUVs and that is also something which we need to watch out for. How the discounting environment would be. I think, where the trend will remain strong. We have seen in the first quarter CNG continuing to do well with 20% growth this year. We also see that EVs are going to see about 70%-75% growth. The next question is around when you ex pect the demand environment internally. We already talked about how we are going to, how with the new model launches, our growth is going to be better. Hopefully, from now on industry – in hatches, as I said that while industry is declining by 14% we are seeing growth here. There are new launches, Harrier Petrol, Safari Petrol is going to come. Harrier EV is doing well. Then we have Sierra which is going to come. So I think we have a lot of launches in the coming quarters. So I think it should significantly improve from here on.

Thanks Shailesh. Richard, coming to you a different one on the tariff. This is more about the quotas. 100,000 units per annum imports into US from the UK that can be done at 10% duty. Would that cover all of our imports into the US coming from UK? And also how do we intend to manage it? What are the kind of price increase, mix benefit s that we are planning to manage this?

So it's 100,000 units as you say, at 10%. We think that that will be enough to cover the volume that we would do within the US for this year. The deal effective 8 May, if you do a pro rata from 8 May to the end of the year the quota is 65,200 vehicles. We t hink again that will be sufficient in terms of the mechanism for the purposes of this year. It's going to be on a first come, first serve basis. Next year we're working with the UK and US teams to make sure there are some rules and structure brought in. The free for all almost certainly will do nobody any good. So for this year we think we're okay for next year we'll be working with the governments to try and come up with something which is a little bit more organised than a free for all.

Thank you. Shailesh, coming to you this is from Kapil, what do you think worked well for Harrier.ev?

Yes. When you compare with any high SUV segment cars, irrespective of whether it is an EV or ICE, this is a car which is significantly superior in terms of not only performance but all the kind of new tech features which has gone inside this car. Whether you talk about the whole Dolby experience or the kind of screens that has been given , 540 degree view, or for example, the APA which is auto parking summon mode and all this is something which people did not imagine in this kind of a car. And on top of that, this is the first trim which is an army drag . And people saw its capability that elephant rock climb, people were just amazed and surprised with the capability that an EV can really deliver. So those were the primary reason and that's the reason why this is being completely compared, not only compared with ICE, but it is being seen significantly superior to 50% more in terms of torque what you get in this segment. So that has been really taken well and from a EV perspective, when I see from that lens the barriers which used to be around range, this delivers a 500 kilometer range, real range, which breaks the barrier around range, you know which used to be a concern. Range anxiety we used to call. Then all of this comes at no incremental price. This is at price parity rather if not slightly better than ICE. So I think it has just ticked all the boxes what people could imagine or it has more than ticked the boxes that people expect in this kind of a category of car. And this has become a highly desirable vehicle in the segment.

Thanks Shailesh. Girish, coming to you. This is from Jinesh Gandhi from Oaklane . Can you talk about the upcoming CSL tender for 10,900 E-buses? Do they address your two concerns and do we intend to participate again?

Right, so yes, I think we have been engaging with the government for almost last three years and therefore over the last three years we are not participating in the tender. We had two specific requests. One is a payment security mechanism and herein we worked with C ESL and some of the other government agencies and a payment security mechanism based on the one used for Solar Energy Corporation has been worked out and it is there currently in the tender document. So this to a large extent meets our requirement on payment security guideline. Our second requirement was about having an asset light model. While this has not been addressed fully and exactly the way we want, but even this to a good extent addresses what we were expecting. But herein I think this will now call for a formation of a consortium with an operator who can run the buses and a financier who can bring in capital. And therefore I think we will now be working with financier as well as operators, whom we can bring together form a consortium and our Smart City subsidiary, then will be part of that particular consortium and OEM Tata Motors will sell buses to this consortium. So that's something that we will work out. Meanwhile, I think there is a good understanding that we now have on the profitability for operating the buses. I think we have been able to develop or build this model over the last three years with good experience and ther efore we know what are the value creating quotes , etc. which is what we will participate in the upcoming tender. Balaji, he has another question on ACE Pro?

ACE Pro and ACE Pro EV, what are the feedback on ACE and ACE Pro EV and how do you think is likely to ramp up your volumes?

Yeah, so I must say that ACE Pro EV and also ACE Pro Bifuel Petrol, all three the feedback has been very good. I think the value proposition has been appreciated very well, especially the price at whic h it has been launched and the capability and features that have been given. We also had a very unique launch wherein we did launches in 10 cities across the country. It was a two -day affair wherein not just the media but we also got in the influencers, key customers, financiers, all of them there and all of them were also made to drive the vehicle. So we have very extensive feedback from these drive sessions. Generally, the participants have appreciated the pickup, the comfort, suspension, power and I think many of them have felt that it actually offers a very good option for intra city last mile transportation . In terms of capacity and ramp up we don't see any issue and we are going to in fact start ramping up from this month itself. Not just EV but even the b ifuel and petrol version. , Balaji, I'll just also answer Jinesh has asked one question about, pre buy due to AC Norm's introduction. So Jinesh, I would like to tell you that frankly , we have not seen any pre buy. There has been no pre buy whatsoever in HCVs and ILMC Vs due to the AC norms which in my view is a good thing. I mean it shows the maturity in the market and in terms of your question about how the market will pan out over the next nine months. Since the Q1 has been more or less flat, the 3% to 5% growth that I have spoken about should now happen over the next nine months. Balaji, back to you.

Thank you, Girish. Richard, coming to you maybe to wrap the whole tariff impact up question from Kapil. Now that the tariffs are clear both in EU and in UK, how much will the impact be? How much will it reduce from the current quarter in term of bps? How are you assuming this?

Okay, on the assumption that the 15% reduction for Europe does become effective on or around the 1st of August. Remember that is the one uncertainty still in the market. We think this year when you take it in the whole for a full FY26 year, you're probably talking somewhere between GBP500 million and GBP600 million effect of tariffs for the year net of the offsetting measures that we put in, on a more perpetual basis on a 10% and 15% basis, probably more around 300, 400 range. However, I will caveat that by saying look a lot of it will depend on how the market reacts in terms of demand and in terms of pricing. So, those would be sort of the type of estimates that I would use.

Just staying with you there. You had good US retail trends on a year -on-year basis even in July. Is it because dealers are selling pre -tariff inventory or customers expecting full pass through on tariffs happening in the coming months? What's the read there?

I think there probably is a little bit of an expectation by customers that prices ar e more likely to be rising than falling. So, getting in there now also typically around this time of year in the US there's the move from '25 model year to '26 model year cars. So retailers will be trying to sell their '25 model year cars before '26 lands on their stores. So there's a little bit of seasonality that normally happens in the couple of months before you change your model year -over in the US.

Yeah. Thanks Shailesh, coming to you in terms of Nexon .ev powertrain for the higher wattag e, are we looking to shift supplier base to India and when do you expect it to be 100% local source?

See we are you know as far as battery pack is concerned and the e-drive is concerned it is completely localized, so it is already being made in India.

Yeah. Okay. Richard, a comment on Forex. If you did not pick up, this is basically with the USD appreciation. I suspect you're referring to pound appreciation here. How much impact of dollar weakness is already in the P&L and assuming that due to hedging bulk of the impact is yet to come?

Yes, look, we have a reasonably good hedge portfolio. Actually the thing that we're most exposed to is the dollar-euro cross because we're long dollar short euro. So the move of that over the last months or so during the quarter, I know it's currently at 1 .15. I think it was probably at 1 .04-1.05 at the start of the year. That's the one that hurts us more. And we're keeping a close eye on that cross to make sure it does not get any worse for us.

Okay. I think Vinay's questions, most of it we have covered already. We've covered accounting, we have covered PLI, we talked JLR, VME. I think they covered everything there. So let me see if there's any other questions that you have not covered. It's an i nteresting question from Kapil, Girish coming to you in terms of consumer sentiment, how exactly we measure it because one would expect that with the good monsoon the sentiment should have picked up but that's not playing out as you as one would expect. Wh at are we missing?

Yeah, so as I've been saying, I think the sentiment is actually a combination of two factors which is satisfaction with the current status and how do they look into the near future, say next three, six months. And I think w hat we've seen across the segments , apart from maybe ILCV, I think the satisfaction with the current status is something which has dropped from Q4 to Q1. But the good thing is that the expectations from the future still remains optimistic. So I think that' s how I would break down the sentiment survey again in almost all the segments. And I think to a large part, I would say it is also expected in the sense I think the early onset of monsoon have in a manner of speaking also given us the Q2 sentiment scores into Q1. I think that's a timing change which has happened this year.

Okay, this is Richard coming way on financing. One is the cash flow recovery in the rest of the year. What would be the key drivers for it? Any y ear-end inventory upswing expected because of managing the quotas and any refinancing plans that you have in place. We haven't talked about the UKEF financing. Maybe you could cover that as well as part of that.

Yeah, why don't I do that first? So, we signed a few da ys ago a GBP1 billion UKEF backed loan facility in the UK to boost our liquidity. That is not yet drawn but it's going to be available very shortly. Our next maturity is a $700 million bond that is due in October. So, we boosted our short -term liquidity. The question in the first question, cash flow recovery. So, obviously we paid a couple of hundred million pounds in tariffs in Q1, and that will be significantly smaller in future quarters. We will have working capital come back in our favor again. Remember out of our GBP758 million hit in the quarter in terms of operating cash, GBP616 million is working capital and the vast majority of that is cyclical. Also normally for us we would have higher wholesale volume in the second half of the year than the first half of the year. So there's a few things that I would play on in that. The question around , are we planning on adjusting delivery timings for the first set? Remember, the first quota is the 65,000 that is applicable up until 31st of December this year. At the moment, we're not anticipating that the UK industry will breach that. So, we're not changing our plans. As of next year, The way the quota works is it's actually a quarterly quota of 25,000 units. Any part of the first quarter that isn't used gets added to the third quarter's number. Any part of the second quarter that isn't get used doesn't ge t used, gets added to the fourth quarter. So there is some flexibility during the year and we'll manage that as we get through 2026. My intent, as I mentioned beforehand with our intensive company, is to work with the UK and US governments to have something that is absolutely not a brief rule by the time we start next year's 100,000 unit on batch three.

Great, thanks. I think with this we have come to the last of the questions. Once again, thanks all of you for your probing questions. Just to su mmarize, a very challenging quarter on multiple fronts, particularly on the JLR side. But I think we are coming out of as we get finish this quarter and come out into this Q2 and then subsequently into the second half, lots of things that are underway in te rms of interventions, be it in JLR, CV or in PV, which will help us sequentially start improving from here on. And one does expect to have a pretty strong second half as these things come into place. So thank you once again and more than happy for clarifyi ng any further questions that you may have. Do feel free to reach out to the investor relations team. Thank you. Speak to you soon.