SWOT Analysis Report on Tata Motors Limited- Automobile Industry in India
SWOT ANALYSIS
Tata Motors is one of the leading automotive vehicle manufacturing companies in India with a portfolio that includes trucks, buses, utility vehicles and passenger cars. The company has a strong market position. The company is the world’s fourth largest truck manufacturer and the second largest bus manufacturer in the above 6 ton category. A strong market position enables Tata Motors gain a competitive edge in various markets. However, increased levels of competition may threaten the company’s market position.
Strengths
Strong domestic player
Tata Motors is India’s largest automobile manufacturer by revenue (with revenues of approximately $9,072.3 million) in FY2008. The company’s market share in the Indian four-wheeler automotive vehicle market (i.e. automobile vehicles other than two and three wheeler categories) stood at 26.1% in FY2008. The company is also the leader in the Indian commercial vehicles with a market share of 62.7% and is the second largest player in the Indian passenger vehicles market with a share of 14.2% in FY2008. Further, the company is the world’s fourth largest truck manufacturer and the second largest bus manufacturer in the above 6 ton category. A strong market position gives the company significant bargaining power and benefits it with the economies of scale.
Steady revenue growth
The company recorded strong revenue growth for the last five year period. During 2004-08, the revenues of the company grew at a CAGR of 27.1% to reach INR365,230.6 million (approximately $9,072.3 million) in FY2008 from INR139,696 million (approximately $3,096 million) in 2004. Further, the company witnessed significant revenue growth in all the five years.The revenues of the company grew at year-on-year growth rate of 37.7% to reach INR331,525 million (approximately $7,347 million) in 2007. Further, the revenues grew at a rate of 21.2% in 2006, and 42.1% in FY2005. The steady revenue growth is also evident in the company’s major business division, ‘automotive’. The revenues of automotive division grew at a CAGR of 25.8% to reach INR331,517.5 million (approximately $8,234.9 million) in 2008 from INR132,356 million (approximately $3,287.7 million). The strong revenue growth of the company has contributed to its market dominance.
Research and development activities
Tata Motor has strong research and development (R&D) capability. The company incurred large expenditure for its R&D activities. For instance, the total R&D costs of the company was Rs.4,663 million, Rs.6,018 million and Rs.9,906 million during financial years 2006, 2007 and 2008 respectively. The company’s R&D activities focus on product development, environmental technologies and vehicle safety through its Engineering Research Centre (ERC) established in 1966. The ERC is one of the few government recognized in-house automotive R&D centers in India. In the recent period, the ERC developed the Tata Nano, an affordable family car, which was unveiled at the Auto Expo 2008 in New Delhi and at the Geneva Motor Show. The company’s R&D activities also focus on developing vehicles running on alternative fuels, including CNG, liquefied petroleum gas, bio-diesel and compressed air and electric cars. The strong R&D capability enables the company to build a broad range of vehicle portfolio and improves its competitive strength in the automotive industry.
Weaknesses
Decline in vehicle sales
Tata Motors recorded decline or marginal growth in its vehicle sales in the last financial year. The company recorded a sale of 585,649 vehicles, a growth of 0.9% over last year. During the same time, the automotive industry in India recorded a growth of 10.4% to reach the total vehicle sales to 2,309,324 units. The overall market share of the company stood at 25.4% in 2008 as compared to a market share of 27.8% in 2007.
In commercial vehicle segment, the company recorded a growth rate of 5.5% to reach the total sales of 352,785 units in 2008. Where as, the commercial vehicle industry recorded a growth rate of 8.1% in 2008. In passenger vehicles, the company witnessed a 5.4% decline due to aging of some products and increase in the intensity of competition in the car segment. Where as, the passenger vehicle industry grew at 11.1% in 2008. Further, the company’s market share in commercial vehicle industry declined from 64.7% in 2007 to 63.2% in 2008.The market share in passenger vehicle industry also declined from 15.6% in 2007 to 13.3% in 2008.The decline in sales would further affect the company’s market share, and erode investors’ confidence.
Employee productivity
Tata Motor posted weak revenues in proportion to the total number of its employees. During 2008, the company recorded total revenues of INR365,230.6 million (approximately $9,072.3 million) with a total of 36,364 employees. The revenue per employee of the group stood at INR10 million (approximately $0.24 million), significantly lower when compared to its global competitors such as Toyota Motor, and Nissan Motor. For instance, the revenue per employee of Nissan Motor stood at $0.53 million (with revenues of $95 billion and employees of 180,535 people) for the FY2008, significantly higher than the revenue per employee of Tata Motor. And also the revenue per employee of Toyota Motor, another competitor stood at $0.73 million (with overall revenue of $230.8 billion and employees of 316,121 people) in FY2008. The weak revenue per employee of the company compared to the global auto majors indicates its weaker productivity and operational inefficiency.
Opportunities
Product launches
Tata Motors has launched various new products during the last two year period (2007–08). For instance in December 2007, Tata Motors introduced its new range of Medium and Heavy Commercial Vehicles. The new M&HCV range includes multi-axle trucks, heavy-duty trucks, tractor- trailers and tippers and fully-built solutions like tip-trailers and load bodies.
In March 2008, Tata Motors (Thailand) launched the Tata Xenon 1-ton pickup truck at the annual Bangkok International Motor Show. The Xenon will be sold across Thailand through the company's own dealer network. In FY2008, the company launched the Indigo sedan and Indica with the Direct Injection Common Rail (DICOR) and Sumo Grande. Apart from these, the company also launched the Indica V2 Xeta LPG equipped with a dual fuel (gasoline and LPG) engine. Further in August 2008, the company launched Indica Vista, a new passenger car model. Product launches in various segments and geographies would improve the product portfolio, which could result in higher sales growth for the company. This would also enhance the company’s brand image.
Growing passenger car market in India
The outlook for growth of passenger car sales in India remains positive. It is primarily due to the higher disposable incomes and easier vehicle financing options in India. Further, it is estimated that real consumption expenditure in India would grow from INR17 trillion (approximately $0.4 trillion) in 2007 to INR70 trillion (approximately $1.6 trillion) by 2025, a fourfold increase.
Further, the passenger car production in India is projected to increase from 1.3 million units in 2007 to 3 million units by 2014. The sale of passenger cars is expected to grow at a CAGR of around 10% during 2008 to 2015.Tata Motors is the second largest player in the Indian passenger vehicle market with a share of 14.2% in FY2008. Furthermore, the launch of its small car, ‘NANO’ in January 2008 would further fuel its presence in the passenger vehicle market.Tata ‘NANO’, called as the people’s car is projected to be the least expensive production car in the world. The standard version of the Nano is projected to cost close to INR100,000 (approximately $2,500). The four-door ‘NANO’ is of little over 10 feet long and nearly 5 feet wide and is powered by a 623cc two-cylinder engine at the back of the car. The company can therefore, leverage its strong position to exploit the growing demand of passenger vehicles in India.Rover (JLR) were in the business of development, manufacture and sale of high end luxury cars and SUVs respectively. JLR operated 3 manufacturing plants, 1 component manufacturing facility and 2 design and engineering centers in the UK. These brands had sales operations in more than 100 countries with over 2,200 dealers. The combined volume of these brands was around 288,000 vehicles in 2007. Further, these brands achieved revenues of $14.94 billion for the year ended December 31, 2007 with an operating profit of $ 650 million.
Acquisition of JLR provides the company with a strategic opportunity to acquire iconic brands, and increase the company’s business diversity across markets and product segments.
Threats
Increasing competition
Tata Motors face intense competition from its domestic as well as foreign competitors including General Motors, Honda Motor, Maruti Udyog, Mitsubishi Motors, Fiat, Ford and so on. Competition is expected to intensify further as Indian automotive manufacturers obtain greater access to debt and equity financing in the international capital markets or gain access to more advanced technology through alliances.
Additionally, in recent years, the government of India has permitted automatic approvals for foreign equity ownership of up to 100% in entities manufacturing vehicles and components in India. With the gradual liberalization of the automobile sector, the number of manufacturing facilities in India has grown progressively. At present there are 15 manufacturers of passenger cars and multi utility vehicles, 9 manufacturers of commercial vehicles, 16 of 2/3 wheelers and 14 of tractors besides 5 manufacturers of engines. These changes have led to noticeably increased competition in product offerings by all the auto manufacturers in India. Increasing competition would adversely affect the company’s market share and profitability.
Environmental regulations
The company is subjected to extensive governmental regulations regarding vehicle emission levels, noise, safety and levels of pollutants generated by its production facilities. These regulations are likely to become more stringent in the near future. For instance, India's major cities plan to adopt the Euro IV emissions standards in April 2010, requiring a 35% reduction in sulfur emissions over the current Euro III standard.
In addition, Jaguar Land Rover has significant operations in the US and Europe which have stringent regulations relating to vehicular emissions. For instance, The European Union (EU) Commission and the EU Parliament are planning to adopt more stringent emission standard ‘EURO 5’ from September 2009. The proposed tightening of vehicle emissions regulations will require significant costs for the company.
If you want SWOT Analysis Reports on Tata Motors, you have to read market and industry reports on automobile industry and contact Research Writers for your academic dissertations at Mahasagar Publications.
