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But that rally is losing momentum. Since September, the Nifty Auto Index has slipped 25%, while Tata Motors has erased nearly a third of investor wealth. Concerns over an economic slowdown, stricter emission norms, tariff threats, weak domestic demand, and margin-dilutive expansion in electric vehicles (EVs) have weighed on sentiment.
JLR at the heart of Tata’s recent troubles
Much of Tata Motors’ fate is tied to Jaguar Land Rover (JLR), which accounts for 72% of its revenues and 74% of its Ebitda.
While JLR’s global footprint should have provided a cushion, economic sluggishness in key markets—UK, Europe, and China—has exacerbated its struggles.
Europe’s stringent emission norms are another headache, despite JLR’s push toward electrification, with 80% of its powertrain mix now electrified. Meanwhile, with most of JLR’s manufacturing based in Europe, Tata Motors is staring down potential tariff hikes on US sales, which make up over 25% of its revenue. If Trump’s proposed tariffs materialize, Tata may have no choice but to pass them on through price hikes—an unwelcome move in an already soft demand environment.
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Adding to the uncertainty, a potential US recession under the new administration looms large.
China compounds JLR’s woes
China, the world’s largest car market, is shifting rapidly toward electric vehicles. In the nine months ended December 2024, the internal combustion engine (ICE) segment contracted 16% year-on-year, while the premium auto segment (excluding Tesla) declined 14%.
For JLR, the fallout has been stark. Its China sales have slumped at both wholesale and retail levels. Locally manufactured JLR vehicles saw a sharp 27% drop, while imported JLR sales fared slightly better with a 6% decline. Retail challenges persist, with a 30% reduction in JLR’s dealer network in 2024.
The numbers tell the story: JLR’s China JV revenues plunged from €398 million in Q3FY24 to €253 million in Q3FY25. Worse still, the business swung from a €7 million profit to a €19 million loss over the same period.
JLR is now doubling down on its EV strategy. It plans to license Freelander new energy vehicles to its China JV, with the first model expected by mid-2026. This is expected to help volumes. FY25 revenue outlook for JLR stands at €29 billion, up from €21.2 billion in the previous year.
However, scaling EV production remains a challenge. JLR’s pivot—such as relaunching Jaguar as an all-electric brand—could weigh on margins. The premiumization of its lineup with the new Type 00 and the continued strength of Range Rover will be critical to offset this pressure.
Domestic business offers little respite
While an improved performance in buses has supported Tata Motors’ medium and heavy commercial vehicle (MHCV) sales, its grip on the small commercial vehicle (SCV) market is slipping.
Market share has declined from 41.7% in FY23 to 39.2% in FY24 and 37.7% in FY25 so far. Revenues fell 8.4% year-on-year to ₹18,400 crore in Q3FY25. Pre-tax profit remained stable at ₹1,700 crore, aided by a 130-bps expansion in Ebitda margin—though largely due to a ₹169 crore Production-Linked Incentive (PLI) credit.
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In passenger vehicles (PVs), Tata Motors’ market share has held steady at around 13%. EVs and CNG models are growing as a share of its domestic PV sales, rising from 8% in FY22 to 35% in FY25 so far. However, despite a 5.8% year-on-year increase in EV volumes, Tata Motors’ EV market share has fallen sharply—from 73% in Q3FY24 to 53% in the most recent quarter—amid intensifying competition from JSW MG Motor and Mahindra & Mahindra.
The company has also shelved plans to build domestic EVs, partly due to a strategic pivot toward hybrids and partly due to challenges in sourcing high-quality EV components at competitive prices. These constraints have pushed the launch of Tata Avinya to FY27.
Tata’s domestic PV revenues fell 4.3% year-on-year to ₹12,400 crore. While its Ebitda margin expanded by 120 bps, the gain—much like in CVs—was largely driven by PLI credits that offset weaker volumes and an unfavourable product mix. EV margins have improved from -8.2% in Q3FY24 to 10% in Q3FY25, but for other PVs, margins have shrunk from 9.4% to 7.3% over the same period.
The impact of repositioning the Curvv and the upcoming launches of the Harrier EV and Sierra will be key to watch.
Tata Motors has maintained its overall Ebit margin guidance at 10% for Q4.
Management reassurances lift sentiment
Tata Motors’ CFO recently sought to ease investor concerns, reaffirming that JLR remains on track to hit its Q4 Ebit margin target of 8.5%. He also pointed to strong momentum in the US, a better-than-expected demand environment in Europe, and early signs of recovery in China.
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Europe, in particular, is expected to benefit as Germany scraps its debt ceiling and the European Central Bank (ECB) delivers a 25-bps rate cut—both of which could provide a tailwind for JLR and, by extension, Tata Motors.
Meanwhile, JLR is set to generate €1.3 billion in free cash flow in FY25, pushing it into net cash-positive territory. This improving outlook has reassured investors. The stock jumped 3% on Wednesday, extending its monthly gains to over 6%.
Valuations offer comfort
The planned demerger of Tata Motors’ commercial vehicle business is expected to unlock significant investor value. While a further split between JLR and the passenger vehicle segment could have sharpened focus on non-JLR PVs, the sum-of-the-parts valuation still suggests a target range of ₹830-930 per share—an upside of 25-40% from current levels.
For more such analyses, read Profit Pulse.
Key re-rating triggers include a recovery in China, an economic rebound in the UK and Europe, and clarity on potential tariff risks. In the CV segment, fleet utilization, operator profitability, and freight rates will be critical indicators to watch.
Ananya Roy is the founder of Credibull Capital, a SEBI-registered investment adviser. X: @ananyaroycfa
Disclosure: The author does not hold any shares of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.
