The passenger and electric vehicle divisions of Tata Motors will be clubbed together under one entity before any mutually beneficial strategic alliance is agreed upon by its board, the company stated on March 27.
The board of Tata Motors, India’s fourth largest passenger vehicle maker, approved a plan to hive off the company’s passenger vehicles (PV) business, including electric vehicles (EV) business, into a separate subsidiary through a scheme of arrangement.
The board has in-principle approved to hive off the PV business (including EV) by transferring relevant assets, intellectual properties and employees directly relatable to the PV business for it to be fully functional on a standalone basis through a slump sale, the company stated.
A break up of PV business from the main entity allows Tata Motors to unlock value in the new entity that will house the PV business. “A move towards subsidiarisation of the PV business is the first step in securing mutually beneficial strategic alliances that provide access to products, architectures, powertrains, new age technologies and capital,” the company said.
“This decision is a first step in our plans to secure mutually beneficial strategic alliances for the domestic PV business and help secure its long-term viability. The proposed transfer shall be implemented through a scheme of arrangement, which will be tabled for approval by the Board over the next few weeks,” the company added.
The standalone entity comprises the commercial vehicle division, passenger vehicles, electric vehicles and exports. In CVs, Tata Motors is the largest player and has remained so for several years. In the PV segment, it has slipped from the third spot to a record low of seventh, before clawing its way back up.
This is not the first time that the company has taken steps to revive its PV business. A couple of years ago, Tata Motors was in talks with Volkswagen for product and technology sharing. The deal, however, failed to fructify due to high costs.
Since the past three years, news about Tata Motors joining hands with Chery Automobiles of China have been intermittently doing the rounds. Chery is Tata Motors’ joint venture partner in China and in control of assembling Jaguar Land Rover vehicles.
“The PV business landscape is seeing rapid transformation in the form of tightening emission norms, push towards electrification, and enhanced disruptions from autonomous and connected technologies. Additionally, India continues to remain an attractive market for global OEMs, while the aspiration levels of the Indian consumer continue to rise, requiring stepped up investments in contemporary products in a competitive market,” Tata Motors added.
Certain shared services and central functions will be retained at Tata Motors to deliver cost efficiencies for the entire group.
The restructuring will also result in the current President of the PV business Mayank Pareek moving out by February 28, 2021 after superannuating. Shailesh Chandra, President EV and Corporate Strategy, will take takeover as President of the PV business, including the EV business, with effect from April 1.
Tata Motors’ domestic market share in the PV segment stands at 5 percent as of February-end, as per data shared by the Society of Indian Automobile Manufacturers (SIAM). About a decade back, its market share stood in the region of 15 percent, behind market leader Maruti Suzuki and Hyundai.
The poor performance is despite a slew of new product launches such as Zest, Bolt, Tiago, Tigor, Nexon, Hexa, Harrier and most recently the Altroz and Nexon EV.
Implementation of the scheme of arrangement will be subject to regulatory and statutory approvals as applicable, including approval of shareholders and creditors. “We expect the transfer process to be completed in the next one year,” the company said .