Tata Motors Passenger Vehicles Limited analyst Q&A

So let me first start, Richard, maybe I'll pass it on to you. There's a fair number of questions coming your way. Why would we not take all the questions of JLR in one shot because a fair amount of repetition coming in as well? And let me start with the most liked comment. It's coming from Binay Singh, Morgan Stanley. Let me hold off. Let me probably, Shailesh, give it back to you. Could you comment on the Harrier EV run rate and outlook, number one and PLI, are you getting PLI for Harrier EV? And are you seeing any price recovery actions going forward?

Yeah, so as far as Harrier EV is concerned, our run rate is about 2,500 a month. And we have a very strong booking pipeline. Our waiting period is somewhere between 16 to 18 weeks. As far as PLI is concerned, what was the second question? I'm not able to see it.

Are we taking PLI accrual on Harrier.ev?

So, you want to take?

Yeah, so Harrier.ev is right now under AAT certification. We believe that it meets the greater than 50% DVA threshold, but it will take time to complete the process. And we expect the accruals to happen in Q4. Yeah, okay. And what, any other questions?

Discounts in the festival, is the VME is going to come down? These were the two questions, right?

Yeah, are you seeing any other pricing recoveries?

Yeah, so, in Jan, in Q4, we will take the price increase typically, what we generally do. For the last nine months, we have not been able to, but with the commodity prices increased, we need to pass it on. So that will be the timeline. Of course, in after the December is over, when the whole industry will be starting with lean stock, the whole discounting environment should also go down. So that's what we expect. So, the VME should also go down.

Thanks, Shailesh. Richard, coming on to you. Kapil Singh, Nomura. What is the Q3 build rate and can the management please guide on the full year volume range on which you're basing your margin guidance? And have the full cyber costs have been taken or more to come in Q3? And the outlook on VME and tariffs. And does the long-term EBIT margin guidance of 10% hold or it needs to be reviewed? There's a lot of questions in that.

Certainly are. Q3 build rate. So look, during the month of October, we said we started production at our engine facility on the 8th. We have started all of our plants subsequently. We would expect production in October was c .17,000 cars. And as of now, our plants are operating pretty much at capacity levels. And we will keep them at capacity levels from now through to the balance of the year. In terms of volume range, I think, to be honest, you've probably got enough information from that to be able to work it out, but I will lay it out more clearly for you. So we had a month where we produced nothing, i.e. September. And we had a month where we produced 17,000, where we would normally produce considerably more. So the total loss production you will be able to work out for yourselves from that is around 50,000 units. Of that, you will note that we took a hit of about 20,000 units in Q2, coming down from a volume of 87K to one of 66K. And the logic of that is that the balance is going to occur in Q3. Q4 for us will be a normal quarter. And you can see from historical numbers what a normal quarter for us means in terms of volume. So I think from that, you have enough to be able to work it out. I'm not going to give a specific range, but you can work it out from that. Have the full cyber costs been taken? Essentially, you can take the same answer. So the cyber, it will hit us also in Q3. So there will be another considerably smaller exceptional charge in Q3. But the big effect on Q3 is going to remain the volume pull through. As I say, we will be operating at capacity in terms of production capacity through the balance of the year. So the fundamental question then is, look, what's going to happen in FY 27? How much are you going to be able to get back and not? And this industry at the moment, it's difficult to forecast what's going to happen in a month, let alone 17 months, so we haven't set our plans for next year now. On the one side we will enter the year with a very low pipeline stock. On the other hand, the pressures of geopolitics, demand and supply chain resilience will not immediately abate. So we will have a better picture when we get to our next earnings announcement as to how the balance of those forces will operate through FY 27. It's only in FY 27 that we really have the opportunity to build back even if the demand is there. Given where demand is at the moment and the overcapacity that exists in the industry, we're not anticipating VME is going to get any easier in future quarters. It might a little for us because our pipeline stock is now extremely low as a result of this incident, so we don't have the same volume pressure. But from an industry perspective, there's little to assume that it's going to come materially down. And in terms of tariffs, the Q2 numbers that I presented there include most of the reductions down to 10% tariffs from the U.K. and 15% from Europe. There will be a little bit more improvement in Q3, but it's certainly lot better than it was in Q1, but still very painful. Does the long-term EBIT guidance of 10% hold or does it need to be reviewed? I think my same comment there is as of FY 2027. We're going to look at our plans now that we've recovered from this incident and reset budget for next year and walk from there. So no comment either way on that at this point in time.

Thank you. Just staying with you, a question from Rakesh Kumar. Do you think the U.S. tariff and China luxury tax has structurally brought down margins outlook? And could you comment on your order book? And then of the FCF, GBP 2.2 billion to GBP2.5 billion, how much of it do you expect to recover? And any changes to the Range Rover Electric and Jaguar launch timelines due to the cyber incident?

Okay, on the first point, the answer is probably yes. I don't think the process in the U.S. of tariffs feeding through into consumer prices has yet fully concluded. U.S. inflation remains relatively benign despite the tariffs. And I think that is because the price effects will occur over a 15 to 18 month period rather than immediately. So at the moment it looks from what I can read of U.S. inflation data as if companies are taking the majority of the tariff costs at least for the moment. China luxury tax absolutely, there I think virtually all manufacturers that operate in that luxury segment above RMB 900,000, which is where the new base has been set are at least for the moment taking those costs. So from where I stand at the moment, yes, I do think they are probably structural changes. Can we share the order bank? We've stopped doing that now. The order bank was a really, really critical piece of information for us when we were supply constrained. That's no longer really the case. So it's not something that we're going to report on every quarter. On the recovery of the free cash flow hit. I think that that goes back to my comment on FY 27. We don't have the opportunity, given the fact that we will be running our plants at capacity between now and the end of March. We don't have the opportunity to recover much of it this year. How much of it we can recover next year, we will work through and report back to you when we get back in I guess late January or very early February. And then any changes to the Range Rover electric and Jaguar launch timelines? No, I think if you look at what happens during the cyber incident and the priorities I mentioned, we did prioritize getting sales and production up ahead of engineering. So the engineering systems were down for a little bit longer that meant that CAD was a little bit behind but then we put the people to work in terms of extra testing and validation work. So how the balance of those two things impacts we'll see, but nothing to communicate at this point in time.

Thanks, Richard. Let me get back to PV here and I will come back to you as well get a breather in between. India PV, this is from Jinesh. Why was India PV realization down despite rising share of EV and CNG? What's your estimate for second half volume growth for industry and TMPV and how are discounts shaping up post festive?

Yeah, so, see realization per car has increased, as you rightly said that the share of EV and CNG has increased, so realization per car actually would have increased by ~15%. But you might be referring to the chart which Dhiman had shown where because of the higher discount and VME there was a drop, so that is the incremental change in VME that was shown. So that's the answer to the first part of your question. The second is what will be the estimate of the second half growth for the industry? So I believe that this should be in double-digit. The way we have seen in September and October, the industry has grown by 5% and 17%. Even if I take out the festivity demand, which would have grown because of the festive period or the pent up, which still continues to overflow in November and December should also be strong. My estimate is that it should be a double-digit growth. So, overall, in financial year, because the first half had seen a decline of 1.6% before the festive period, so overall, it should be in the zone of 5% or so. Third question is how discount shaping? Of course, I already answered this that, from Jan onwards, we should start seeing increase, but post festive so far, the discount has remained more or less the same.

Thanks, Shailesh. Probably a question that I will take, has there been any actions taken at Tata Motors, PV and other group companies so that this doesn't happen in the future? This is from Kapil. I needlessly agree. I think this is a critical development and therefore all learnings that are coming out of JLR are indeed being shared to the extent that it is possible and relevant to the concerned Companies. And of course, there's also a group -wide initiative that's also kicking off to ensure how do we harden system, how do we make ourselves more resilient and how fast we can bounce back. So this is obviously all these learnings will be factored in our planning, not just at a Company level, even at a Group level. And therefore, that's being led out on Tata Digital, the Head of Digital for Tata Group, she is leading it herself. And therefore, you should expect to see a lot of action at a Group level as well, as much as we are doing work with the respective Companies, including Tata Motors, PV as well as JLR. Richard, coming back to you, Binay Singh, Morgan Stanley, JLR top line, any backlog built up due to production cuts? Then on JLR expenses, raw materials, ex -U.S. tariffs as a percentage of sales are also up sharply this quarter, quarter-on-quarter basis. What drove that? And why did U.S. duties impact fall sharply in this quarter? Why is VME up, which I think you have already talked about. And what is the full impact of cybersecurity, which also you've talked about .

All right, so let me try and cover the bits that I haven't already spoken about. In terms of backlog, look, I think I have referenced the amount of production that we have missed and how much of that we will actually get back will be determined in FY 2027, which is the first opportunity we have to build beyond the capacity that we currently have. Raw materials, I think there's nothing specific in the quarter that impacts raw materials. The foreign exchange rates of the Euro down to 1.14 certainly didn't help in the quarter as a significant percentage of our raw materials are euro -based. So there's nothing particularly there to report. Then U.S. duties fell sharply. That's two things. One is the volume, because obviously it's a per unit charge. The second is that in the first quarter, the tariffs were largely 25% for all imports, including from both the U.K. and from the EU. It's only in Q2 that we see the effects of the deals that were struck between the EU and U.K. governments and the Trump administration that took the U.K. rate down to 10% and the EU rate down to 15%. So there's two impacts there. One is the lower volume. But secondly, there is the deals done between the various governments to take the rates down to levels which are less penal. Do note that even though they're less penal, it's a 300% increase in tariffs for vehicles sent from the U.K. and a 500% increase in tariffs on vehicles sent from the EU. Then VME I've covered, China I've covered and the cyber security thing I've also covered, it does go into Q3.

Thank you. I think Shailesh this is coming back to you. I think this is on E20. With E2 0 becoming mandatory by December 2025, early consumer concerns are on mileage drop and corrosion on the pre 2023 models. Any comments you have? Have you observed any measurable impact on that on the old vehicles? And is there any proactive measures you're planning to take?

See, it's true that there is a bit of mileage drop. That is for sure. And 2025 onwards, whatever we are selling is E20 compliant. So there is no risk of any vehicle getting damaged. But yes, of course, the cars which have been made before that, first we are respecting the warranty terms of whatever cars we have sold earlier. So that is not a problem. We have also tested the components which might have the potential of failing, but there's not going to be a big cost item per s e. But the availability of the items involved will be made sure. So there is no specific product in terms of extended warranty or something which we have come specifically for this. This is like ongoing maintenance that you can take care of this. As far as resale value is concerned, frankly I have no data to share on this. Resale value remains strong. The greater impact we have to measure, post the GST, the prices which have gone down is still to be assessed, but not because of E20 issue, we are seeing any issue as far as resale value is concerned.

Thank you. Shailesh, I will probably stay with you. First of course, congratulations to you for your role. This is from Kapil Singh, Nomura for the new appointment that's coming to the President of OICA. Great to see EV is bouncing back and what was the FY 2026 full year PV industry outlook? How should one see that? And how's the current demand and footfalls? So, presumably, meaning post the festive season. And industry discount you already talked about. Yeah, so, thank you for, the wishes and compliments. Thank you so much. It's definitely an honor to be appointed as the President of OICA. As far as EVs are concerned, it's just a comment, so I don't need to answer that. But as far as growth is concerned, PV industry growth in FY 2026 I just said that second half, I expect that the growth will be in double-digit. That's my estimate. And therefore, at a full year level, the growth rate would be about a 5% or so. Around +/- 2% you can say. Yeah, so the question was also on the mix if it has changed a bit, footfall. Footfall of course, it is weaker than the festive period, but stronger than what we typically see in November. So that remains strong, which indicates that there will be growth versus last year. And in terms of mix change, post GST, we clearly see that the compact SUV segment has seen greater traction as compared to other segment, but traction is, all across all the segments.

There are a few more questions on demand coming up, which we will cover later. This one is from Nishit Jalan. Richard coming to you a critical question. Apart from the cyber issue, big reasons for cutting margin on FY, FCF guidance seems to be due to higher VME led by weaker demand globally and luxury tax issue. Have these issues worsened since Q1 results? And if not, should we not have cut guidance last quarter itself?

Sorry, I'm just trying to find the question. There it is.

Nishit Jalan, go to the most liked.

Yes, they have worsened since Q1 results is the bottom line. I think demand continues to deteriorate in China and doesn't get any better in other regions. So I think the reality is, even excluding the cyber incident, we almost certainly would have been amending guidance at this point. But this is the right point for us to be amending.

Thank you. And again, staying with you for a minute, with the cost reduction efforts, what could be the reduction in breakeven levels that you are targeting from about 300,000 units earlier? If you want to comment on the 300,000 is to begin with.

Yes. So I think the big issues that we have got at the moment is trying to make sure those breakeven levels don't rise as global demand falls and VME levels increase. So that's the purpose of the missions, is to make sure that those breakeven levels don't actually rise to dangerous levels. So I don't think at the moment the question of having it drop, is a question of stopping it rising.

Thank you. Shailesh, coming to you. Can you talk about the segment that you're seeing demand growth in the India PV business, particularly post the GST cut, I presume. And is the consumer coming back specifically? You talked about the compact segment, but it's more broad-based?. Maybe you may want to take one segment at a time. Yes. So, see, the steepest drop in terms of percentage reduction has come in the less than 4 meter. But so is the case for the higher SUVs also. So actually the traction is therefore across the board that we are seeing. Also there have been new launches also, so in certain segments, so there is a traction coming because of that also. But as I said, that I think compact SUV segment and also the subcompact SUV segment where the price drops have been also significant, not only in terms of percentage, but also absolute value, we are seeing greater traction. And that's the reason you have, as I was speaking about Punch and Nexon, having done significant retails in September and October clearly indicates that these two segments have been quite strong beneficiaries of this introduction of GST 2.0.

Thank you. Coming to India EVs, D himan, this is to you. What percentage of EV revenues are eligible for PLI currently? And is there a combined upper limit of that Rs. 6,500 Cr of PLI over five years for PV plus CV or both can they claim separately.

Yes, so right now we are accruing PLI only on three of our products which is Tiago, Tigor fleet and Punch. Cumulatively they only contribute to only 30% of our volumes. Bulk of our portfolio which is Nexon and Harrier.ev as I previously mentioned will start accruing in Q3 and Q4. In terms of cumulative cap the Rs. 6,500 Cr cumulative caps there will apply to the Passenger Vehicle business and the Commercial Vehicle business together because we had applied originally in 2021 as a Group.

Okay, staying with you on PLI for a minute. What percentage of the EV volumes in second quarter qualify for PLI and will third quarter have the EV portfolio enjoying it?

So, Balaji , as I mentioned in Q2, 30% of our volumes qualified for PLI. In Q3 we have Nexon.ev also qualified which will probably add another 25% of our volumes and Harrier.ev will follow through in Q4. That would only mean that Curvv will not come under PLI because it's manufactured outside in our joint venture. It does not come under the PLI scheme.

And then there's again Binay Singh, Dhiman to you. Other businesses ex-India, PV and JLR had a PBT of Rs. 389 Cr. Can you give a break up of this or you want to take it offline?

We'll take it offline.

Let's take it offline. Binay we'll reach out to you. Richard, coming your way. I think you already covered, this is from Jinesh Gandhi. We expect the further cyber incident cost. You already covered that. Where do you expect depreciation to settle and when do you expect it to start rising as the new product launches?

Okay, so I expect depreciation to settle roughly where it is at the moment and obviously it will start rising when the new products start launching the first of the new products will still be the Range Rover BEV and that'll be next year. So until that point in time it will stay where it is and then it will tick progressively up as our new vehicles launch and then world production in general is normalizing. Nexperia. Okay, so Nexperia, I think the political tension seems to be dissipating. So the China authorities have opened up export to auto manufacturers. So that's generally good news and I think that we should welcome it. I don't think it's necessarily the end of the issue because you have to look at Nexperia's value chain. What they actually do is they use the wafers in Germany, ship them to China for processing and then export them from China. So during the period where they have had this, let's say, power struggle, those shipments from Germany haven't necessarily occurred. And I think they ship about 8 billion wafers a year out of Germany. So there is more than possible that there will still be a supply hole as their value stream adjusts. We haven't seen it yet, but I am fearful of it. So we are keeping very aggressive in the market to make sure that we can find alternative chip sources just in case that happens. So generally positive, but I would say we are not out of the woods on Nexperia yet. And I think I've answered the last question.

Yes, you have. And Shailesh, the Nexperia impact on PV here?

Yes, so immediate impact we don't see. We have also been mapping our exposure to Nexperia on different components. No immediate exposure, but we are watching very closely. We are taking alternative actions to see that our impact is less if there's going to be a real issue continuing with Nexperia.

Okay, Dhiman, maybe I'll get this question onto you, in terms of margins of the PV business. Can you talk about how do we reach a double-digit EBITDA margin in our ICE PV portfolio? Is there a scope to improve margins on existing products or we expect profitability improvement only because of new launches?

No, it will be a combination of both. Not too long back in FY 24, we were at a 9% EBITDA margin. The last two years has been a tough operating environment given that our portfolio was largely less than less than 4 meter, which saw the maximum amount of stress and also discounting. So we've lost value in terms of adverse realization coming through the last two years. Commodity hit has also been fairly high this year for which we have not been able to take a price increase. So we should see reversal of that next fiscal. There is a strong cost reduction program that we run, which gives us anywhere between 1% to 2% year-on-year benefit every year. It's just not visible because of all the other losses that we've got. Sierra should then make it more positive starting Q4. So definitely we have a pathway to a double- digit EBITDA margin.

Okay. Thank you. I think there's one question on Agratas that's coming in, which probably I'll take it. This one's from Chandramouli, Goldman. Could you share an update on the cell manufacturing plants in India and Europe? Any timelines here? I think the timeline that we had originally indicated, Chandr u, continues. So by end of next year, what we'd expect to stand up India first and there is U.K. soon thereafter. So timelines, obviously, we are running against the clock on this one. It is stressed, but we will do our best to reach there. On the rare earth supply situation, Shailesh, would you want to pick up the piece there?

Yeah, so, on the rare earth, we had taken several actions as alternatives to ensure that this does not become a disruption for us. So initially, it started with, securing inventories and all, but later on, we also found alternatives in terms of, substituting the high rare earth in certain components. And we continue to do that in terms of exploring, eventually, to be, high rare earth free in many cases. So there are multiple initiatives that we have undertaken, but we don't see any exposure as far as rare earth situation is concerned.

Staying with you, after the GST cut - this is from Kapil. After the GST cut is there a rise in first time buyers? How are the numbers?

So, frankly, I would not have specific data on this, but there has been not a significant change in percentage of first -time buyers so far. And remember that, typically we see consideration to retail cycle of 60 days. So we still need to get those new customers who are not thinking of buying a car. It will take them 60 days to really start, really getting access on delivery of the car because they would have started considering after, say, 5 th September. So still that part is going to play out. Right now, what we have seen that all the customers who had already thought of buying a car were inquiring about cars. They have found this opportunity to upgrade themselves to a higher segment car or a higher trim. So that's the feature that we have seen, but not a significant change I have seen in terms of percentage of first-time buyers. I have to again re-look at it if there is any change that I see in the data with the team.

We also then talked about CAFE norms and why does the new draft have a lower credit for EVs?

So see, at SIAM, we have already represented to keep it at a level of 4, possibly the current proposal would have just carried forward by default what was in CAFE 2. So the representation has gone, asking for a higher super credit for EVs given the extent of investments that we have to do in EVs as compared to any other alternative technologies and the ecosystem challenges that we have. So there is already a proposal which has gone to be.

Thank you. I think with this we come to the end of the Q&A session, also we are on the clock. So thank you all of you for the probing questions. It's fair to say a difficult quarter and a quarter that will ensure that we learn from what we have gone through and then bounce back harder. So thank you for that and look forward to continuing to engage with you. Bye.