Tata Motors writes off Rs 230 crore in Q2 on cars no longer profitable

Tata Motors, India’s fourth largest car maker, was forced to write-off Rs 230 crore in investments it made on passenger vehicle models and platforms during the recently concluded quarter.

The Mumbai-based company said that while a significant chunk of the margin decline during the second quarter had to be attributed to worsening situation for truck and bus demand, a portion of that dip was also due to write-offs.

“We had to initiated a write-off of around Rs 230 crore in the passenger vehicle business in the September quarter on those models and platforms that we don’t intend to take forward,” PB Balaji, CFO, Tata Motors, told analysts.

While the company did not specify names of models that it has decided to axe, production of at least two well-known models --  Nano and Sumo -- have been stopped. Since January no production of Nano has taken place.

The troubled mini car was facing an uncertain future as buyers continued to prefer entry level cars like Maruti Suzuki WagonR and Hyundai Santro that were priced more than twice that of the Nano.

One of Tata Motors’ oldest warhorses, the Sumo, was also given a quiet burial in the last few months. Sumo, which celebrates quarter of a century in continuous production this year, has been pulled out of the market following continuous fall in demand.

But the main reason behind Tata Motors deciding to pull the plug on the two models was because of enforcement of new safety regulations such as mandatory fitment of airbags, parking sensors and conformity to new crash tests as mandated by the government.

Without airbags, the Nano landed zero stars for safety on one of the crash tests conducted by Global NCAP, a vehicle safety watchdog based in Europe. The multi-seater Sumo was never tested by the agency.

Further, the cost of strapping these models with the low-on-emission Bharat Stage VI (BS-VI) engines will be a costly affair for Tata Motors. BS-VI regulations come into force from April 1, 2020.

There are other models in the Tata Motors line-up, which are very low on sales, raising doubts on their survivability beyond the emission deadline. Tata Bolt, Tata Safari Storme and Tata Zest have been struggling to find buyers. In recent years, Tata Motors phased out the Indica and Indigo its very first models that announced the entry of the company into the cars segment.

The phase of these models, coupled with delay in launching a new model, will certainly worsen the market position of Tata Motors even further. The company has seen a dramatic slide in market share, which has declined to its worst-ever level.

Settling at just 5.1 percent at the end of September, the maker of Nexon and Harrier closed the month at less than a third of its market share compared to its record best of 16.5 percent clocked in 2007 despite multiple new product launches.

Originally scheduled for mid-2019 there has been a several month delay in the launch of the Altroz, a premium hatchback designed to take on the Hyundai i20 and Maruti Suzuki Baleno. First showcased as a concept at the 2018 India Auto Expo, the launch of the Altroz is now rescheduled to 2020. Tata Motors has not provided any reasons for the delay.