Tata Motors’ demerger is backed by a strategy
It’ll unlock value by letting trucks take the slow lane while cars bet on fast-lane leadership at a key inflexion point of technology. It also proves conglomerate-sceptics wrong again
It was common once for the word ‘conglomerate’ to be prefixed by ‘unwieldy’ and ‘unfocused’ by reflex. If that sounds strange today, then the Tata Group could claim some credit for it. Sure, survival amid competition demands an edge sharpened in focal fields of specialization, and Tata did withdraw from some markets in the 1990s (soaps and suds, for example), but its operations still span a spectrum from salt to software. Critically, the group has proven that a clutch of diverse companies can keep business risks in control well enough to enable long-horizon plans with minimal short-term pressure from investors at large. Although a recent bout of instability at the top—the Cyrus Mistry interlude—had briefly put that advantage at threat, India’s foremost conglomerate appears back in form as a strategic planner. True, the glitter of Tata’s crown jewel TCS may have dimmed a bit lately, tackling which must be top priority for group chief N. Chandrasekaran, but its proposed demerger of Tata Motors reveals an approach with its sights set on emerging paths to success.
It’s not a simple split-up of the group’s auto business into two. Since 2021, on-a-revival Tata Motors has been operating as three distinct units under separate chief executives: one for Tata trucks and buses, another for its cars, both combustion and electric, and the third being Jaguar Land Rover (JLR), acquired in 2008. As approved by Tata Motors’ board, the proposal is to place truck-making under one listed firm and merge Tata’s cars unit with JLR to create a second, with shareholders to get equal shares in both. This is subject to approvals, of course, but the rationale is clear: It is likely to unlock value. As the company has stated, the motive is to further “empower” businesses to pursue their own strategies, with “considerable synergies” to be exploited across JLR’s platforms and Tata’s passenger cars, be they fuel-burners or battery run. As investors cheering the move have interpreted it, the basic idea is to bifurcate the path ahead into slow and fast lanes. So, while heavyvehicle sales move in classic cyclical patterns, serving a profitable core-sectorish business, the separated part—about four-fifths of revenues, JLR being their bulk—can take a speedier lane by blending skills, extracting efficiencies and betting on a big tech shift underway. After all, a switch to electric vehicles (EVs) may turn out to be an inflexion point that resets the auto race, though it’s unclear what makes for a competitive edge globally. The success of Chinese EVs would suggest that the performance of powerpacks is key. Tata Motors’ domestic EV success so far is a sign that it may have a low-cost winner under its EV hood, but only an export thrust would reveal how well its models can compete across the world. Can JLR’s premium aura and market reach be leveraged for bulk shipments of value-for-money Tata EVs? Investors can only wonder. What’s clear is that vehicles are pivoting full-torque digital and Tata will have to draw upon a wide range of expertise, including software, to blaze a trail along this tech-led path. Indeed, Tata Motors’ ambitions will test the group’s ability to deploy talent.
Critics of conglomerates, awed by the complexity challenge or not, failed to consider the value of shock absorbers. They also overlooked how its alleged weaknesses could be overcome via a structure designed to devolve authority aptly. As for the complacency that group safety is said to instil, it’s evidently escapable. It takes leadership. Just as Tata Motors’ return to the automotive arena for a buzzy new race took.