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EV businesses targeting to sustain leadership and turn profitable

TTMT’s India Investor Day 2023 highlighted its focus on a) customer-centric innovations in both businesses, b) profitable growth by leading from the front, and c) consistent delivery on financial targets. Here are the key takeaways from the meetings:

* Most of the leading indicators, such as customer surveys and transporter confidence index (except ICV and LCV), seem positive. TTMT expects a single-digit growth rate for the CV industry in FY24. It is yet to see any benefits from the implementation of the voluntary scrappage policy from Apr’23.

* Usually, CV demand is good in a pre-general election year due to election spending, and it moderates after the elections.

* The company’s focus on discount moderation is paying off, and it wants to cut discounts to below 10%. It has not increased ex-showroom prices since Sep’22; however, a reduction in discounts helped improve realizations.

* TTMT is driving electrification in CVs to lead the EV transition by delivering comprehensive EV solutions customized to address intended application requirements. For each of its EV products, it has an anchor customer in place. It has entered into a JV with Cummins for all future zero-emission technologies, including BEV, Hydrogen ICE and Hydrogen Fuel Cell.

* For electric PVs, it plans to launch six new products on Gen-2 and Gen-3 platforms by FY26, taking its total EV model range to 10 products. These new products will address additional customer segments, with the next four products expected to address ~38% of industry volumes.

* Agratas Energy Storage Solutions, a subsidiary of Tata Sons, plans to invest in gigafactories in India (Gujarat) and the UK and set up capacity of 20GWh in each location. It expects to start production in two years. TTMT would source 70% of its battery requirements from Agratas.

* For the CV business, TTMT targets a) strong double-digit EBITDA margin, b) annual capex of INR25b, and c) strong FCF generation. For the ICE PV business, it expects a) double-digit EBITDA margin, b) annual capex of INR30b, and b) positive FCF generation. For EVs, it aims to achieve a) positive EBITDA margin, b) cumulative capex of USD2b until FY27 for product development and architectures, and c) breakeven FCF.

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