Revved Up for Success: The Story of Tata Motors' Unbelievable Rise with their Groundbreaking Platform Strategy!
Unleashing the Secrets Behind Tata Motors' Staggering Rise: A Deep Dive into their Platform Strategy and EV Ecosystem.
Tata motors reported the highest-ever annual sales at 3.7 lakh units which is a 67% increase from the last fiscal year. Chairperson of tata sons, N Chandrasekharan, highlighted how the demand in the overall passenger EV market has risen and quoted "The demand for the vehicles in each of our businesses remains strong; we expect the performance to improve through the year quarter by quarter progressively and hope that the second half of the FY23 will be notably better than the first half of the year".
Tata motors had been a struggling company in the Indian auto market for 15 long years despite being in the market for so long and being backed by one of the richest houses in the world, and, most importantly, despite having the brand name of the noblest brand in the country the company was in such a terrible condition that they had a market share of just 4.6% In FY16 all their projects like Indica Safari and sumo had failed in the long run. The company's losses were piling up so fast that their December 2018 quarter loss stood at 26,961 crores. This was, back then, the highest quarterly loss reported by any company on Dalal street.
Still, within the next six years, the tata motors team has achieved something absolutely extraordinary they have more than doubled their market share to 12.14 in FY22, they have an 80% market share in the EV space, and, more importantly, for the first time in a decade, Tata Motors made more money per car than the giant Maruti Suzuki itself.
The question is,
1. How did the tata motors team achieve such an extraordinary rise?
2. What is the business strategy feeding them towards market leadership?
Before we dive into the answers, there are some dark truths about the automobile industry. Every time an automobile company comes with a new car, the company spends hundreds if not thousands of crores on setting up the factory floor, buying the machinery, ordering the parts and deploying labour. Despite spending so much money, even if they build the best car in the category, there is no guarantee that it will sell well because automobile companies are affected by competition, geopolitics, and government regulations.
For example, after the first Brexit vote, as soon as the pound dropped 10% of its value to the euro, JLR had to cough up almost 2,300 crores because of currency fluctuations alone. As a result, their profits took a massive hit. Factors like the Pandemic and ride-sharing apps like Ola and Uber, whose growth is based on decreasing car ownership.
On top of all this, if your competition comes out with an unsafe car with the bad build quality, people would still buy it because, in India, people are more price sensitive than life sensitive. Lastly, after you spend a billion dollars and 50 long years into research and development to achieve extraordinary levels of efficiency with petrol car manufacturing, suddenly the entire world will push you to a hydrogen format or an EV format which again needs a billion dollars and needs 50 long years to perfect. Long story short, if you're in the automobile business, bankruptcy is always at your doorstep.
So if you want to succeed, you have to keep your manufacturing and fixed costs extremely low and, at the same time, keep your margins high without making the car unaffordable for the customers. This basic statement can be said easily. Still, it is an insanely difficult process in automobiles.
This is exactly what the Tata's have mastered in the past 5 years. But how?
The answer lies in something called the platform strategy.
If you look at the architecture of an automobile, a platform is a mechanical base that a car is based. It includes major parts such as
1. Axles
2. Suspension
3. Steering column
4. Pedal box
5. Engine mountings and
6. the floor pan on which all the components are mounted onto.
If you look at VW, they own multiple brands like Skoda Audi and Mini Cooper Their latest release VW Virtues, is built on the same platform as Skoda Slavia. Both of these cars have a lot of common parts. Each platform costs millions to design, so if you make a car on a different platform, it will need different parts. You will need to order several uncommon parts, which cost a lot. Moreover, if this were to be represented pictorially on a graph, this graph would consist of four types of parts.
The carryover parts are the most economical type because you can order large quantities and use them for multiple models. When Tata orders 2000 units at 50 dollars per unit and increases the order value to 10,000 units, it can get it at 35 dollars per unit. If they order parts for ten thousand cars but sell only eight thousand, they can reuse the common parts from those two thousand units.
Whereas the unique parts will be wasted. If you looked at Tata motors in 2017, they had 6 platforms for just 10 products which meant that the number of carryover parts was less; therefore, the cost of making the car was high, and the wastage was also high eventually, the profit was less, but now they've completely changed their approach and turned to just 2 platforms, and just these two platforms will be used to make eight to ten different cars in the next 3 years.
This is a drastic increase from 1.6 models per platform to 4 to 5 models per platform.
The alpha platform is meant for smaller cars, and the omega platform, derived from land rovers D8 platform, is meant for bigger vehicles of 4.3 to 4.8 meters in size.
Here's how the magic of the platform-sharing strategy plays out on the alpha platform. Suppose tata Altros is the first vehicle to be made. In that case, it will then be followed by a small SUV like Hornbill, then by the next generation of Tiago, followed by Tigor.
When Altros is built on the alpha platform, it has around 30k carryover parts, but as the second product comes in, the number of carryovers will increase. By the time the fourth product is launched in the market, the carryover parts will be around 70% of the total parts, so these vehicles on the platform are expected to have the same seat position, steering wheel and pedal box positions. This means Fewer parts for the company to manage Fewer design changes to make for a new model More volumes per tool and Less wastage and, most importantly More profit margins.
The company incurs fewer losses if one of the products in the platform fails. Tata will save on the initial platform cost, and the unique parts cost even if the model fails. The carryover parts can then be used for subsequent models. This is how sharing a platform helps you minimize losses.
Tata has reduced the implementation time by one-third. Since the number of suppliers is very few, the number of defective parts per million has sharply reduced. Hence, the warranty cost fell from 1.4 % of the revenue in FY16 to 0.9% in FY 21.
Because of these efficiency changes, Tata made more money per car in 2021 for the first time in 10 years than the market leader Maruti Suzuki. While tata motors operating profit per car rose to Rs.45,810, it was nearly double that of Maruti. A fun fact is that only three of the six tata cars are currently built on the new platform.
They make up only 40% of the volumes as of now. As the volume of cars in the new platform increases, the profit margins are expected to increase further. This is the first reason for Tata's iconic rise in the Indian auto market.
The 2nd secret behind Tata Motors' electrifying rise: its entry into the EV market.
While other automakers were busy building their EV platforms from scratch, the Tata Motors team repurposed an unused shop floor and wired and fitted gasoline SUV bodies with battery packs by hand. This clever move allowed them to test the acceptance of EVs in the Indian market and cut investments by a huge margin.
Turning a gasoline car into an EV may sound easy, but it's a complex and critical task. But Tata could do it and lead the charge in the Indian EV space. And their success is thanks in part to the support of other Tata group companies.
1. From Tata Power building EV charging stations to
2. Tata Elxsi developing a unified, connected vehicle platform to
3. Tata Capital and Tata Motors Finance offering vehicle finance and insurance,
the Tatas have created a complete EV ecosystem.
To top it all off, the government regulations in India support the Tatas over foreign brands like MG and Hyundai. And with the Nexon receiving a 5-star safety rating from Global NCAP and the Tata Tiago and Tata Tigor receiving 4-star ratings, it's no wonder Tata Motors has been on the rise in the past 6 years.
The only question is, how will they compete with giants like Maruti Suzuki as they bring in new models? Let's stay tuned to find out.
Source: How TATA motors' GENIUS STRATEGY is racing it past Hyundai & Suzuki in India? : Business Case study by Think School YT Channel.
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