we can proudly state today that we have the most complete, the most competitive and the best performing product portfolio at this point of time, said Tata Motors CEO & MD
Tata Motors CEO and Managing Director Guenter Butschek spoke to Moneycontrol's Swaraj Baggonkar about its latest offerings — 45X and H5X — and listed out the company's plans for future. Here's an edited excerpt from that interview:
Q: As and when the 45X and H5X get commercially launched, that you said is somewhere in 2019, the coverage of Tata Motors passenger vehicles, that must get expanded. Going forward, what sort of products can we expect which will help you fill up some of the gaps that are there right now?
A: I will start with the last part of your question. You do know that we have a standard answer if media is fishing for information regarding our future product plans and the answer is this time not much different. You will actually learn about the future product portfolio as the announcements are cue. We have provided enough of a teaser putting show car on the new Optimal Modular Efficient Global Advanced Architecture (Omega Arc) as we call it.
So, the Range Rover DA infused new architecture on which we are accommodating on the first instance a five-seater and then as the second product, a seven-seater SUV where I can give you that much confidence that what you see on the stage is called a show car, but it is a show car pretty close to what you can expect to see on India's roads already in the first quarter, 2019. So it is going to be more another year to go. What you have seen is a show car in the class cue based on the new Alfa Arc, previously called the Advanced Modular Platform (AMP) is also not just another design or show car teaser.
That gives you a pretty good idea on the proportion on the impact the design 2.0 approach because we strongly believe as far as our passenger vehicle journey is concerned that we need to focus on love at first sight in order to attract attention to our products and in order provide and to create the curiosity and the momentum, the people start really staying tuned to the developments of Tata Motors because this is, as I said, not just a teaser, this is an insight in Tata Motors, future product portfolio and I can promise you, with the advantage of this new architectures, we are going to spread our wings much faster with different kinds of top hats across different kinds of market segments to become overall much more present in the Indian market and provide much more product variety to the different demands and aspirations of our customers.
Q: One of the questions that is there on everybody's mind is that will the H5X replace the Safari?
A: I am aware of this speculation in the market, but I also know for sure that we have not provided any feet to the speculation. So I let the media further speculate, but I guess we have seen this product and you know the Safari. Safari is a body on frame, utility vehicle, but you have not heard us talking when it came to the H5X show care that we consider this a utility vehicle. It is unique in its kind. A sport utility vehicle, it compares to everything available these days in the Indian market. Drawing any kind of comparison to the Safari is not doing justice to the Safari and also not to the H5X.
Q: You ended December quarter putting the company back into the black. You had earned a good profit. With all the efforts that Tata Motors is taking, be it from cost control measures to various other things, do you think that the profitability will continue in the next quarters and end probably, the financial year into the black?
A: We started two years ago with our transformation journey. That was initially meant as an overall transformation of the company over a period of 2-3 years and to the maturity of the transformation journey content, starting with the mission statement all the way down to the strategic game plan still stays, but because of the financial results in fiscal year 2016-2017 and a very difficult start into the fiscal year 2017-2018 after this surprising, sudden, unprecedented, unexpected change on the BS-III transition to BS-IV, we actually needed to change gears and you know we change gears by changing the theme and the focus, moving on commercial vehicle domestic from the initial approach of the transformation to a very dedicated turnaround activity and you have mentioned one dimension, but I would like to go back to the three dimensions and the three focus points for which we have created a single focused mindset in the organisation to succeed with the turnaround because it was a three angle of a tech approach.
The first one was on closing the product gaps, ramping up the new products much faster and managing the transition to the BS-IV in a much faster period of time across the entire product range than as it was initially planned. The second one was a rigour in cost reduction across all categories but also on all of the products and this is half of the path as the answer to your question, in combination with a strong focus on sales enhancement, activating the market, activating our dealers, going all out as an organisation, as some of our competitors call it, a more aggressive approach, I call it intensive market activation and getting much closer to the customers to the key accounts, to individual customers and making sure that our dealers do not miss an opportunity. This combination of volume, regaining market share across all of the segments and for the overall market.
There is the contribution margin improvement coming from a very vigorous cost reduction, in particular on the product level. What we have demonstrated in the third quarter is the beginning of something which we consider as sustainable. In the same point of time, we had made ourselves, with this new approach, much less vulnerable to the volatility of the market because we have cyclicality in the market, we have volatility in the market, so you need to know your even point, you need to sweat your assets, you need to get to a better fixed cost allocation, you need to reduce your variable costs.
And all of this is part of this turnaround where we have come in a very short period of time, as an organisation, a long way. That is the reason why you have seen in the second quarter of the turnaround after five quarters of being negative a turn into black. And this gives you a first proof on the effectiveness of the turnaround and the switch of focus in the entire organisation to execution of the plans. And with this power of execution in the single focused mind-set, we create something which is sustainable.
Is it going to be sustainable with the same kind of growth rates and improvement rates? As far as our part, in particular cost control, is concerned, I am pretty confident. But as the other part called market, because what is the total industry volume (TIV) development, we expect a strong market development. We have no doubt that we actually further regain the market share across all of the segments because as we have seen a wide array of new products in the market, a host of them across the different market segments are on display here in the expo in the context of smart cities. We have many more products to come and on the back of the products with an improved contribution margin and higher volumes, we are set for profitable growth and this is what we have given ourselves as the aspiration.
Q: But in that case, would we see Tamo coming back from the freezer?
A: It is a huge stretch talking about domestic commercial vehicle turnaround, getting to Tamo. But, it is a complete different part of the overall transformation game. But as we have seen, we have brought Tamo, which was meant for the domestic market, back home because we launched it for very particular reason and good conservation in Geneva because we wanted to send a statement that we have a product which is absolutely unique in its kind on a global level with the full confidence that this is a product which really meets global standards which even exceeds global standards in terms of design, and in terms of features, within a very attractive potential price pocket.
That is the reason why we brought it to Geneva. And Geneva met its purpose because it has created lots of momentum, lots of headlines, social media, overwhelmingly positive on this product. Now we brought it back to India and we took it one step further because we have the Geneva version and we have an electric vehicle version.
This is now, the particular role it plays because the powertrain solution that is applied on the Racemo here for the electric vehicle version, it is giving you a hint on our expectation and our future approach for electric vehicles moving from the currently applied low voltage solution, 48-72 volts as it is on display with the Tigor electric vehicle, the Tiago electric vehicle as an additional product now going to be available to the fleet customers, but soon also to private customers in the low end of passenger commercial vehicle space with the Iris and the Magic. The future is going to be high voltage. But as a first high voltage application on the Racemo, this is where we also evaluate this high voltage, but you also attract the attention that electrification that is not necessarily mean that you just get a rational product because motoring, the thrill of driving, this is all emotional.
And the Racemo perfectly helps to send this message. This is going to be one of the makes in the coming days when the expo goes public and at the same point of time, it is the linking pin from Tamo as a ring-fenced entity in order to mature new technologies on a lower scale production volume but in real market conditions where we practice new partnership models and new business models before we actually introduce these elements into the mainstream. And you might recall one of the Racemo characteristics, is full connectivity, first Indian connected car, using to connected vehicle platform of Microsoft for which we actually embarked on a strategic technical collaboration. This is one of these examples and you possibly see in the near future, do not ask for any dates, do not ask for anything concrete, this is also going to be taken to the mainstream of our product.
So Tamo, although we put Racemo in the fridge for the turnaround reasons where we needed to reprioritise our capital expenditures is as live as it was a year ago and it is perfectly serving to the purpose of the foundation idea, the founding idea of Tamo as a very dedicated ring-fenced unit that feeds and supports the mainstream of Tata Motors to manage with a lower risk exposure, the step change into new technologies, partnerships and business models.
Q: So when you have so much of focus on electrification, you mentioned about Tiago and Tigor. You have a tie-up with Jayem Auto where they have worked on the electrified version of the Nano. Could we see electric Nano coming out from Tata Motors?
A: You mentioned it. That was a unilateral decision of Jayem whereas we believe an electric version of the Nano where they actually took care of the integration of an electric powertrain for which they also obtained the certification, etc as you do know from announcements made by Jayem. For us the question is a complete different one. We have decided that all future vehicles are going to be based on the new architectures.
As we questioned them yesterday, formally introduced them, the Alfa Arc starting 3.7 m going to 4.2-4.3 m and then the Omega Arc which is the jointly developed platform with Jaguar Land Rover (JLR) with the carry over and DNA of the Land Rover Discovery Sport. There you can actually see if this goes from 3.7 and with Omega Arc all the way up to 4.6 m plus, there is a significant space left below the 3.7 m. This is a space, it is going to played, in our need in the requirement of the congested urban environment or in line with the theme of the expo, in the context of the smart cities, this space plays a significant role for individual mobility but also for shared mobility or even ride hailing capabilities in the future.
And we are currently discussing how are we going to play in this space? Are we going to play in this space by extending the life cycle of a Nano, making it electric or bringing significant changes to Nano or to possible redefine ourselves in this particular segment completely new because the question, what is the potential architecture, what are the body types, the top hats required and even more so, what kind of powertrains solutions do you need.
We believe you need battery electric as an absolute must for the urban environment and we anyway have the solutions. But, do you possibly need if you would like to spread your wings also into rural India, do you possibly need internal combustion engines, low displacements in order to cover a larger range of the market. We are in the midst of this discussion. That is also the answer why no announcement on the Nano has been made yet because we first decided the product portfolio before we actually take decision on the individual product and then we will actually make statements on an individual product.
Q: How soon can we expect a decision on the Nano?
A: You can expect a decision on the Nano as we find a clear answer to the challenge I have just described.
Q: The commercial vehicle production, there is a significant upside in demand for trucks in the last few months. Mr Wagh had mentioned that some of the capacities are running to almost full. On an average basis, all your commercial vehicle plants running at 75 percent plus utilisation levels. Is there a need for setting up a new facility for commercial vehicles only?
A: We are at this point of time not even close to a discussion of an additional site. First of all, even if you would run across all the plants with an average of 75 percent, then this is the utilisation of capacity as we speak. We are trying very hard in the new organisation as part of the structural and sustainable improvement on our cost reference and our bottomline financial performance, a strong focus on efficiency and productivity. There is plenty of upside on efficiency and productivity. One contributing factor is that we debottleneck the supply chain because each and every part constrained and we still have lots of supply constraints coming from our product suppliers because not all of them could keep up with the rapid increase of demand on our side because just as a reference because this figure went public, the second quarter, we increased our output by 70 percent.
But this is only a third of the truth. The second one was, at the same point of time, we ramped up our BS-IV solutions including new technology on the displacements with more than 180 HP across the entire product range. So it was a huge demand and additionally, you know that we actually launched lots of new products at the same point of time. Even with more than 30 years of experience in this industry that is unprecedented, I have never seen something like that, 70 percent was an overlay of output, higher degree of complexity and new technology and new product.
So that was the journey we continued because actually in the third quarter, month by month, and again in the month of January an increase of volume in production output but also in sales, we have still not been able to keep up completely with the demand because we could have done more and the model mix should have been different because we have an extremely strong focus, as Girish has also mentioned in some of his interviews, that we see a very strong demand on all of the new products which were long awaited by our customers to actually close some product portfolio gaps against competition where we unfortunately offered some wide space in the initial stage to the competition because our reaction was too slow and we introduced our products too late.
But we can proudly state today that we have the most complete, the most competitive and the best performing product portfolio at this point of time. And on the back of this highly attractive product portfolio, we managed to actually increase our volume, the market share, with the cost reduction effort magnified by a much better contribution margin, delivering the very exciting turnaround financial turnaround performance as it got reported beginning of the week for the third quarter. This is just the beginning.
Q: A last question on the EESL contract you have. The supplies have already started for the Tigor electric vehicles. You said the initial supply is for 350 or 250 units, thereabouts. What happens to the rest of the units? Are you bidding for that? Are you still going to supply those?
A: To get the story straight, the bid was 10,000. There is an L1 that is Tata Motors, there is an L2 that is Mahindra and Mahindra and there was not L3 which gives according to the tender specification the L3 volume as an entitlement to the L1 namely Tata Motors. This is the rule of the game applicable for the first 500. That remains the rule of the game for the 9,500 which the LOA has not been given yet. We are about to complete the first lot of committed deliveries in the coming weeks perfectly in line with the EESL demand as far as their customers' demand vehicles to be made available over time.
What we expect in the coming weeks but it is more a question you need to give to EESL than to us as the supplier to EESL. We expect in the coming weeks that EESL is going to award the LOAs according to the rule I have mentioned in the beginning. There is not going to be any surprise. Also, assuming that L1 and L2 actually accept the LOA for the 9,500. I can talk on the behalf of Tata Motors. We will certainly accept it because this is what we have bidding for in the first instance and as it was a huge surprise to the industry and as it brought us into the lead in the electric vehicle space in India, there is absolutely no doubt that we are going to execute it, even more so since we have fully industrialised our powertrain solution with our powertrain partner Electra EV.We are now in the process to ramp up this industrialised powertrain solution with all the relevant suppliers, a good portion locally, but also some suppliers in the international supplier network and with the availability of the parts, we can ramp up our own capacity by the way a capacity which is scalable which certainly covers the demand of EESL. But since we would like to provide and already in discussions to provide the Tigor electric vehicle, the Tiago electric vehicle, but with similar powertrain solutions, the Iris and the Magic to more customers, more fleet customers, but also to private customers if there is an interest. We are going to ramp up capacity which is certainly going to contrive the demand in India for electric vehicles coming from Tata Motors.