The Indian Automotive Industry A Perspective

The Indian Automotive Industry
A Perspective
TATA Motors Organisation Structure Global Auto Industry An Analysis
Overview of Indian Economy

Indian Auto Industry Two Wheelers Three Wheelers Passenger Cars Commercial Vehicles Indian Auto Component Industry Emerging Opportunities
2
Organization Structure TATA Motors Senior Management Team

R N Tata (Chairman Tata Motors) Ravi Kant
(Managing Director)
A P Arya (President Heavy and Medium Commercial Vehicles
P M Telang (President Light and Small Commercial Vehicles)
P P Kadle (ED Finance & Corporate Affairs)
Rajiv Dube (Sr Vice President Passenger Cars)
Engineering Research Centre

4
World Vehicle Production Trends (in '000s)
70000
60000
Asias share of the world vehicle production is growing significantly..
50000
40000
30000
20000
10000
0 1997 1998 1999 2000 Year North America South America European Union Other Europe Japan Asia-other than Japan 2001 2002 2003 2004
Source : OICA.net
Data excludes 2-wheelers where Asia is not only the largest producer, but is also the largest market
State of the Global Automotive Industry
Stagnant Sales except in Asia
Over Capacity in most Regions

Intense Product & Price Competition Industry Margins Under Pressure Most of Industry EVA negative
Global Focus to Asia for growth

7
INDIA : An Introduction
India
Population States : : 1080 million 28
(+ 7 Union Territories)
USA 296 million 50

(+14 dependent areas)
Geographical Area
GDP - Nominal
:
:
3.3 mn sq km
US $ 0.67 trillion
9.6 mn sq kms
US $ 11.73 trillion
Per Capita Income - Nominal: Per Capita Income : (at Purchasing Power Parity)
Estimates for 2004 Sources: IMF Data, The World Factbook, CIA
US $622 US $ 3080
US $39,935 US $ 39,496
Current Exchange Rate: 1 USD = INR 45 Exchange Rate (PPP) : 1 USD = INR 10 (approximately)
8
Real GDP (USD Billion) 600 6.9% 500 400 300 3.0% 200 100 0 1950 1960 1970
1950 1960
After decades of indifferent growth, Indias economy is accelerating in the new millenium..
5.4% 473 5.8%
586
548
279
3.2% 4.2% 118 60 86 1980

Year 1970 1980 1990 2000 2003 2004
159
1990
2000
2003
2004
Per capita GDP (USD) 600 6.9% 500 400 300 0.8% 200 100 0 1950 1960 1970
1950 1960
Rapid increase in population in the last fifty years have negated the impact of economic growth in the past
3.6% 511 466 3.6% 0.7% 328
546
2.2% 199 164
216
231
1980
Year 1970 1980
1990
1990 2000
2000
2003 2004
2003
2004
10
Indian Economy already ranks 4th in the world in terms of GDP adjusted for Purchasing Power Parity
Goldman Sachs predicts India to be the third largest economy in the world in absolute terms by 2025
%
RANK 1 2 3 4 5 6 7 8 9 10 COUNTRY United States China Japan India Germany United Kingdom France Italy Brazil Russia GDP (Purchasing Power Parity) 11,750,000,000,000 7,262,000,000,000 3,745,000,000,000 3,319,000,000,000 2,362,000,000,000 1,782,000,000,000 1,737,000,000,000 1,609,000,000,000 1,492,000,000,000 1,408,000,000,000
GDP Growth Forecast
10
7.5
India
5
Brazil
2.5
China
Russia
2000-05
2005-10
2010-15
2015-20
2020-25
2025-30
2030-35
2035-40
2040-45
2045-50
(*) Estimates for 2004 Source : The World Factbook - CIA
11
Indias Demographic Dividend

Average Median Age (Years) 50.00 45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Japan Germany UK France USA China
Year Average Median Age (Years)
42.64
42.16 38.99 38.85 36.27 32.26 27.81 27.60
India has one of the youngest population amongst all nations
24.93
24.66
23.98
Brazil
World
Mexico
India
South Africa
Source: The World Factbook, CIA
Although it is the most populous country, because of Beijings long-standing one-child policy, Chinas working age population will begin to decline in the next 10 years. Meanwhile, Indias youthfulness - 350 million citizens are under age 15 - ensures its workforce will expand for decades, potentially enabling it to outstrip Chinas economic pace through sheer weight of numbers. Time Magazine, Issue dated Dec 05, 2005
12
India has transitioned from a predominantly agrarian to a service-based economy in line with the growth trajectory followed by major developed economies..
Sectoral Share of GDP 100%
29.0% 33.5% 32.9% 36.0%
The Indian Economy is now more broad-based and thus resilient..
41.1% 48.5% 51.4%
75%
15.2% 20.7% 21.9% 25.9% 24.9%
50%
24.2% 55.8% 45.8% 45.2% 38.1% 34.0% 27.3%
24.5%
25%
24.0%
0% 1950
Sources: Statistical Outline of India 2004-05
1960
1970
1980
Year
1990
2000
2004
Agriculture
Industry
Services
13

14
Automobile production in India has doubled in 4 years, with growth seen across all four major segments..
Automobile Production in India (Nos.)
9,000,000 8,000,000 7,000,000
By numbers, two wheelers are the dominant segment of the Indian Automotive market
275,040 203,697 989,560 356,223
350,033
1,209,654 374,414
6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2000-01 3,758,518 156,706 640,934 203,234
723,330 162,508 669,719 212,748 276,719
6,526,547 5,076,221 4,271,327 5,622,741
2001-02
2002-03 Year
2003-04
2004-05
Two Wheelers
Three Wheelers
Passenger Vehicles
Commercial Vehicles
15
In many ways, the Indian Automotive Market is unique

Harsher operating conditions pose unique challenges for product conceptualization, design and development:
Road inadequacy and quality High Traffic density Poor Fuel quality & variety (Gasoline, Diesel, CNG & LPG)
Manufacturing complexity higher despite lower volumes compared to global standards

Large product portfolios
Product obsolescence policies not articulated and enforced, entailing longer product life. Firms able to maintain profitability even at low volumes.
16
Personal Mobility is positively correlated to per capita GDP
17
India is expected to achieve mass motorization status in 2014

Vehicle Density vs. GDP/capita
Inhabitants/Vehicle India in 2002 Developing Markets Mature Markets
Inhabitants/Vehicle
100
50 10
China in 2002
India
02 100 82
India in 2014 China in 2014

Mexico South Korea Brazil Poland Argentina Czech Spain Republic Canada
China
Germany
Belgium Austria UK Sweden
Australia
Italy France
Japan
USA
0 $1,000
15
20
25
30
35
40
Per Capita Income (US$ 000)

Note: The above includes both Passenger Vehicles and Commercial Vehicles Sources: Wards Auto Yearbook 2002, EIU, Goldman Sachs BRICs report, DRI 2002, A.T. Kearney analysis 18
Key Challenges facing the industry

Increasingly Stringent Emission & Safety Regulations
Technological capability Cost
Increase in input prices

Ferrous & Non-Ferrous Metals Crude oil & derivatives Natural rubber
Transition of Emission & Safety Regulations for Vehicles India
YEAR
Emission Regulation Metro Cities Rest of Country BS 2 (Euro II) BS 1 (Euro I)
Safety Regulation Underbody Protection Devices Advance Warning Triangles Spray Suppression, Noise Norms, Headlamp levellers ABS, Pedestrian Protection (Expected)
Rising Customer Expectations

Product features Quality & reliability
2000
2005
BS 3 (Euro III)
BS 2 (Euro II)
2009
BS 4 (Euro IV)
BS 3 (Euro III)
Integration with Global Markets

Lowering product life cycles Reducing time-to-market for new products Threat of new competition
19

20
2-Wheeler Production & Market Sub-Segments (Nos.)
CAGR 15%
8,000,000
Within 2-Wheelers, Motorcycles contribute 80% of the segment size

1,209,654
7,000,000
6,000,000 723,330 5,000,000 669,719 4,000,000 640,934 3,000,000 879,759 937,506 848,434
989,560
986,208
935,279
5,193,752 4,355,168 3,876,175 2,906,323
2,000,000 2,183,785 1,000,000
0 2000-01 2001-02 2002-03 Year 2003-04 2004-05
Motorcycles
Scooters
Moped
21
Indian 2-Wheeler Market Competitive Scenario
Motorcycle
50% -
30% 15% -
13% 28% 82%
4% -
1% 2% -
2% 46% -
<1%
<1% -
9% <1% 8% 10%
Figures denote Mkt Share (Apr-Oct 05)
India is now the second largest two-wheeler market in the world
22
The Indian 2-Wheeler Industry
Indian 2-wheeler Industry
Characteristics
Similarity with Global Industry
Large variety of products & choice for the customer (9 manufacturers, 70+ Models)
Basic transportation necessity as against fun & fashion orientation of the Western Markets. (Primary transportation vehicle for entire families) Dis-similarity with Global Industry Product design & execution driven by economy rather performance and power Presence of strong home-grown players competing against Global majors.
23
Key Market Drivers

Increasing disposable incomes
Key Trends
Eclipse of scooter segment
Low operating cost

Higher fuel efficiency of Newgeneration motorcycles Greater reliability resulting in low maintenance cost
Emergence of new motorcycle subsegments

Economy
Low interest rates translating to low financing and acquisition costs hence greater affordability.
Executive Performance
Inadequate urban & rural public transportation infrastructure

Ease of use in congested city centres
Shrinking product life-cycles
24

25
3-Wheeler Production (Nos.)
CAGR 17%
400,000
350,000
Predominantly used for commercial purposes, for both Goods Transport (40%) and Passenger Transport (60%).
300,000
250,000
200,000
356,223 276,719 203,234 212,748
374,414
150,000
100,000
50,000
0 2000-01 2001-02 2002-03 Year 2003-04 2004-05
Three Wheeler
26
Indian 3-Wheeler Market Sub-segments and Competitive Scenario
Sub Segments
Scooters India
60%
Passenger
68%
24%
2%
1%
3%
3%
40%
Goods
23%
40%
12%
13%
7%
6%
India is the largest threewheeler market in the world
27
The Indian 3-Wheeler Industry
Indian 3-wheeler Industry
Characteristics
None.
Product unique to emerging markets in South / South-East Asia & parts of Africa Dis-similarity with Global Industry Product design & execution focus on technological simplicity and ease of use. Lesser competitive intensity as compared to other segments.
28
Key Market Drivers

Last Mile Transportation needs.
Key Trends
Goods segment growing at faster
High product maneuverability & driveability. Ideal for congested Indian roads and tropical conditions. Inadequate urban & rural public transportation infrastructure
Low initial ownership cost Self-employment opportunity for large segment of urban youth
clip.
Ability of product to meet increasingly stringent emission & safety regulations is doubtful.
Market push building up for product upgradation.
29

30
Passenger Vehicle Production & Market Sub-Segments (Nos.)
CAGR 17%
1,400,000
Unlike the USA, the Indian Passenger Vehicle market is dominated by Cars (79%)
1,200,000
67,371 181,778
1,000,000
60,673 146,325
800,000 51,441 600,000 0 127,519 63,751 105,667 960,505 400,000 513,415 200,000 500,301 557,410 782,562 114,479
(*)
0 2000-01 2001-02
(*) MPVs were part of Passenger Car segment till 2000-01
2002-03 Year
2003-04
2004-05
Passenger Cars
Utility Vehicles
Multi-Purpose Vehicles
31
Indian Passenger Vehicle Market Competitive Scenario
Passenger Cars
Utility Vehicles Multi Purpose Vehicles
52% 2%
100%
17% 18%
-
19% 1%
-
42%
-
1% 21%
-
5% 1%
-
2% 10%
-
2% 1%
-
2%
<1%
1% -
4%
-
<1% -
<1% <1%
<1%
Figures denote Mkt Share (Apr-Oct 05) 4th largest Passenger Vehicle Market in Asia
32
The Indian Passenger vehicle Industry

Indian Passenger Vehicle Industry
Characteristics
Multiple segmentation across & within major segments

Cars (A, B, C, D & E segments) (Hatchbacks, Sedans, Notchbacks, Station Wagons & Saloons) Utility Vehicles (Multi- & Sports Utility)
Large variety of products & choice for the customer
(13 manufacturers, 50+ Models)

Market dominated by Mini Cars & Hatchbacks (>80%) High incidence of taxes in Car Prices.
(24% Excise Duty, 12.5% VAT, Local Taxes as applicable)
Dis-similarity with Global Industry
Customer preference driven by value for money and cost of ownership considerations rather than image, performance and power. (80% of cars sold are priced below USD 12000) Large proportion of chauffer driven cars. Rear Passenger comfort is a critical influence in purchasing decisions. Emergence of strong domestic players (TATA, Mahindra). Strong demand pull for Utility vehicles from Private Taxi segment.
33
Passenger Car Penetration is low in India
Cars per thousand population
The low penetration presents an opportunity for industry players to offer an affordable fourwheeled alternative to the mass of 2-wheeler customers
34
Key Market Drivers

Increasing disposable incomes Rising aspirational levels Low interest rates. Wide variety and easy availability of Financing options. High sensitivity to Fuel prices Lack of urban & rural public transportation infrastructure Flourishing Service Sector
Key Trends
Market evolution from Mini cars to Hatchbacks to Compact Sedans now evident
Increasing customer emphasis on aesthetics and comfort.
Shrinking product life-cycles
35

36
Commercial Vehicle Production & Market Sub-Segments (Nos.)
CAGR 22%
400,000
350,000
Unlike most developed markets, Indian Market has seen dominance by Medium Commercial vehicles
300,000
138,890
250,000 108,917 200,000 83,195 150,000 68,922 100,000 120,502 50,000 87,784 96,752 65,756 211,143 166,123
0 2000-01 2001-02 2002-03 Year 2003-04 2004-05
Medium & Heavy Commercial Vehicles
Light Commercial Vehicles

37
Indian Commercial Vehicle Market Competitive Scenario
Medium & Heavy CV Trucks Buses L, M & HCV Light & Small Comm Veh Trucks
64% 40% 59%
24% 30% <1%
7% 32%
8% 5% 4%
10% 3%
3% 6% 3%
1%
<1%
<1% 1% -
<1% -
TATA Motors dominates over 60% of the Indian Commercial Vehicle Market. It is also the Worlds fifth largest Medium & Heavy commercial vehicle manufacturer.
38
The Indian CV Industry
Indian CV Industry
Similar with Global CV Industry
Characteristics
Indian CV Industry
Cyclical
250 200
Nos in '000
150
CAGR: 5%
100 50 0
70 -7 72 1 -7 74 3 -7 76 5 -7 78 7 -7 80 9 -8 82 1 -8 84 3 -8 86 5 -8 88 7 -8 90 9 -9 92 1 -9 94 3 -9 96 5 19 -97 98 -9 00 9 -0 02 1 -03
Dis-similar to Global CV Industry
Secular long term growth trend Lower Power to Weight Ratios Early stage of road development Less degree of product sophistication. Strong price entry barriers created by domestic players
39
Key Market Drivers

Growth in Economic Activity
Road Network Development
Low interest rates. Wide variety and easy availability of Financing options.
High sensitivity to Fuel prices
40
Indian CV Industry: Trucks

The growth of the Commercial vehicle industry is critically dependent on Infrastructure development & economic activity
Impact of Road development Dramatic impact in initial stage of road development Impact of GDP Growth.
1000 900 800
Stage
Germany
1000 900 800
Gradual impact
Stage
Germany
France
Truck penetration MHCV / m population
700
Truck penetration MHCV / m population
UK
700
UK
France
600
Turkey
600 500 400

Argentina Portugal Spain
500 400 300 200 100 0 0 0.5

Australia Russia Argentina Brazil China
Spain
4
Portugal
3 2 1
1 1.5 2
300 200 100 0 0
Brazil Hungary
3 2 1
10 15 20 25
South India (AL) Africa
Indonesia India
Mexico Romania
China South Africa
Indonesia India
Road Density Paved Highway (km) / Area (km2) Source: VDA (German Automotive Association), Worldbank, DRI Automotive report
GDP per capita 1000 US$ / head
41
Road network development in India
Between 2003-04 to 2007-08 each year ~2000 Kms of 4-laned highways will be added
Golden Quadrilateral
Year-wise completion schedule of NHDP Planned length 14,000 km

2003 12% 2004 21%
NSEW Corridors
Feeder Roads
Completed 15%
2005-07 52%
Source: CrisInfac, NHAI
Impact on Domestic CV Industry Faster turnaround Increased freight movement Lower operating cost of vehicles Replacement demand
Between 1997 - 2002, Highway length in China increased by around 15,000 km and CV volumes nearly doubled from 1.2 mn to 2.1mn .. Indicative of future likely directions in Indian market
42
Key Trends
Migration from erstwhile Basic MCV Workhorse to Hub & Spoke Model Increasing Power to weight ratio Increasing customer emphasis on aesthetics and comfort. Arrival of Global Players Divergence in Truck and Bus Technology Focus on Fully Built Transport Solutions
43
Average Power To Weight Ratios Of Selected Countries
Average Power to Weight ratio
18 16 14 12 10 8 6 4 2
15
Europe Japan
Brazil China India
25
35
45
GVW (Tonnes)

44
Automobile Component Business - India (In USD Million)
CAGR 22%
9,000 8,000 7,000 1,020 6,000 760 5,000 578 4,000 3,000 4,670 2,000 1,000 0 2000-01 2001-02 2002-03 Year 2003-04 2004-05 3,340 3,892 625 5,710 7,300
The growth rate in Auto Components business has kept pace with OEM growth
1,400
Domestic
Export
45
Key Market Drivers

Linked to growth of OEM Industry Highly sensitive to input cost escalation. Competitiveness driven by
Manpower Large pool of qualified engineers & skilled technicians at lower cost Lower investment cost Through appropriate, low cost automation.
Key Trends
Indias emergence as low cost global sourcing destination.
Indian ancillary manufacturers are

shifting focus from global aftermarket to global OEM supplies. Firms focus on operational excellence to improve quality & reliability of products.
(8 Deming Award winners)
Increasing relevance of Global Tier

1 suppliers (Bosch, Denso, Visteon, Delphi)
46
The Indian Auto component industry is now transitioning from being a supplier for the global aftermarket to becoming a fullscale global Tier 1 supplier Rotating Auto Electricals Tyres & Tubes Heavy Forgings Wheel Rims
Product Complexity
High
Medium
Small Castings & Forgings
Plastic Components
Low
Hand Tools Metal bonded & Moulded Rubber Parts
Aftermarket
Tier 2-n supplier
Tier 1 supplier
Customer complexity
47
Indian Component suppliers are adopting different approaches for Global expansion & growth
Exports from India Suppliers of: Castings Forgings Machined Items Rubber Items Wheel Rims Sundaram Fasteners: China Minda Group: Indonesia Overseas Acquisitions Bharat Forge (CDP-Germany; Federal ForgeUSA) Greenfield Overseas Locations
Sundaram Fasteners (Cramlington Precision, UK; Peiner-Germany)
48

49
Automobile Exports from India (Nos.)
700,000
CAGR Overall 22% Passenger Veh 57% 2-Wheelers 35%

29,949
600,000
500,000
International Business growth presents a huge opportunity, as well as a challenge for the Indian Automotive Industry
166,413 17,432
400,000 12,255 300,000 72,005 11,870 53,165 15,462 179,682 111,138 0 2000-01 2001-02 2002-03 Year 104,183 43,366
129,291
66,801
68,144
200,000
13,770 27,112 16,263
366,724 265,052
100,000
2003-04
2004-05
Two Wheelers
Three Wheelers
Passenger Vehicles
Commercial Vehicles
50
Opportunities for the industry are emerging both in the areas of Automotive Manufacturing and Engineering Services
Manufacturing:
Emerging World hub:
Small Cars (Suzuki, Hyundai) Castings & Forgings
Engineering Services:
Indian IT Majors offering on-shore and off-shore engineering services to Global IT players.
(e.g. TCS, TATA Technologies, Infosys, Satyam)
Regional Sourcing base

Aggregates for Entire Vehicle Programs (e.g. Transmissions for Toyota IMV)
Globalisation opportunities for Indian Manufacturers

Increasing exports of Made In India vehicles Establishing manufacturing facilities at foreign locations (e.g. TVS Indonesia) Contract Manufacturing (e.g. Sub-150cc Bajaj motor cycles for Kawasaki) Growth through Mergers & Acquisitions (TATA Motors acquisition of Daewoo Commercial Veh, Korea & Hispano, Spain
Global Auto & Auto component majors putting up Development Centres in India, either on their own or in partnership with local players
(e.g. General Motors, Daimler Chyrsler, Johnson Controls, Delphi, Bosch)
Independent Indian OEMs focusing on upgrading their design & engineering capabilities.
(e.g. TATA Motors European Development Centre & Acquisition of INCAT plc, UK)
51
Thank You
52

The Indian Automotive Industry A Perspective

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The Indian Automotive Industry

TATA Motors Organisation Structure Global Auto Industry An Analysis

Overview of Indian Economy

Organization Structure TATA Motors Senior Management Team

A P Arya (President Heavy and Medium Commercial Vehicles

P M Telang (President Light and Small Commercial Vehicles)

P P Kadle (ED Finance & Corporate Affairs)

Rajiv Dube (Sr Vice President Passenger Cars)

Engineering Research Centre

TATA Motors Organisation Structure Global Auto Industry An Analysis

Overview of Indian Economy

World Vehicle Production Trends (in '000s)

Asias share of the world vehicle production is growing significantly..

State of the Global Automotive Industry

Stagnant Sales except in Asia

Over Capacity in most Regions

Global Focus to Asia for growth

TATA Motors Organisation Structure Global Auto Industry An Analysis

Overview of Indian Economy

USA 296 million 50

5.4% 473 5.8%

3.2% 4.2% 118 60 86 1980

3.6% 511 466 3.6% 0.7% 328

2.2% 199 164

GDP Growth Forecast

(*) Estimates for 2004 Source : The World Factbook - CIA

Indias Demographic Dividend

42.16 38.99 38.85 36.27 32.26 27.81 27.60

India has one of the youngest population amongst all nations

Source: The World Factbook, CIA

The Indian Economy is now more broad-based and thus resilient..

41.1% 48.5% 51.4%

24.2% 55.8% 45.8% 45.2% 38.1% 34.0% 27.3%

TATA Motors Organisation Structure Global Auto Industry An Analysis

Overview of Indian Economy

9,000,000 8,000,000 7,000,000

723,330 162,508 669,719 212,748 276,719

6,526,547 5,076,221 4,271,327 5,622,741

In many ways, the Indian Automotive Market is unique

Manufacturing complexity higher despite lower volumes compared to global standards

Personal Mobility is positively correlated to per capita GDP

India is expected to achieve mass motorization status in 2014

India in 2014 China in 2014

Per Capita Income (US$ 000)

Key Challenges facing the industry

Increase in input prices

Emission Regulation Metro Cities Rest of Country BS 2 (Euro II) BS 1 (Euro I)

Rising Customer Expectations

Integration with Global Markets

TATA Motors Organisation Structure Global Auto Industry An Analysis

Overview of Indian Economy

2-Wheeler Production & Market Sub-Segments (Nos.)

Within 2-Wheelers, Motorcycles contribute 80% of the segment size

5,193,752 4,355,168 3,876,175 2,906,323

2,000,000 2,183,785 1,000,000

0 2000-01 2001-02 2002-03 Year 2003-04 2004-05

Indian 2-Wheeler Market Competitive Scenario

13% 28% 82%

Figures denote Mkt Share (Apr-Oct 05)

India is now the second largest two-wheeler market in the world

The Indian 2-Wheeler Industry

Indian 2-wheeler Industry