Markets
Tata Motors Tanks 44%: Is The Worst Over Or More Pain Ahead?
Tata Motors is having a nightmare run on the stock market, and investors are feeling the heat. The auto giant has officially taken the crown for being Nifty 50’s worst-performing stock, with its share price crashing a staggering 44% from its July 2024 peak of Rs 1,179 to the current Rs 661.75. That translates to a jaw-dropping Rs 1.9 lakh crore in market cap wiped out! The question on everyone’s mind—has the worst passed, or is there more pain ahead?
JLR Woes & Global Headwinds
A major chunk of Tata Motors’ woes stem from its UK-based luxury car subsidiary, Jaguar Land Rover (JLR). Demand has weakened in key markets like China, the UK, and the EU. Adding to the trouble, the looming risk of U.S. import tariffs on European-made cars has created further uncertainty. Since JLR is a significant player in the European automobile space, any trade barriers could severely impact its sales and profitability.
Analysts at CLSA point out that JLR is currently trading at 1.2x its estimated EV/EBITDA for FY27, a far cry from its historical valuation multiple of 2.5x. This means the market has already factored in a 10% volume decline for FY26 and an EBIT margin drop to below 8%. However, CLSA believes that this negativity is overdone and views the current dip as a potential entry point for long-term investors.
Domestic Struggles Weighing Heavy
While global challenges are a big part of the story, Tata Motors isn’t exactly cruising along smoothly on home turf either. The company is battling softening sales in the medium and heavy commercial vehicle (M&HCV) segment. At the same time, competition in the passenger vehicle and electric vehicle (EV) markets is getting fierce. With rivals stepping up their game, Tata Motors is feeling the pressure, and investor sentiment has taken a hit.
What’s Next for Tata Motors?
The bearish sentiment surrounding Tata Motors isn’t entirely misplaced. BNP Paribas, while maintaining an ‘Outperform’ rating with a target price of Rs 935, acknowledges that the stock lacks any strong positive triggers in the near term. The brokerage suggests that Tata Motors is stuck in a consolidation phase and could remain sluggish throughout 2025.
So, where does that leave investors? For those with a high-risk appetite, analysts like CLSA see the current correction as an opportunity. But for others, the road ahead remains uncertain, with macroeconomic and competitive challenges continuing to pose hurdles.
Threat from Tesla’s Entry to India
With Tesla gearing up for its India debut, concerns have risen about its potential impact on domestic automakers, including Tata Motors. However, leading brokerage firms suggest that Tesla’s entry may not pose a significant threat. Nomura analysts note that Tesla’s expected pricing of over Rs 40 lakh would limit its competition with Indian EV makers, including Tata Motors. While Tesla’s brand appeal and technology may attract some customers, analysts remain confident that domestic automakers will continue to dominate the mass-market EV segment.
Despite these near-term concerns, Tata Motors has some positives to look forward to. CLSA recently upgraded the stock to ‘High Conviction Outperform,’ citing an attractive valuation and potential for a strong cyclical recovery. The firm has set a 12-month target price of Rs 930, implying a 40% upside from current levels.
JLR’s pivot to a modern luxury brand is a crucial long-term strategy that, if executed well, could drive margin and free cash flow (FCF) expansion. The upcoming launch of the Range Rover EV in FY26 is expected to boost volumes, albeit with short-term cost pressures.
CLSA notes that Tata Motors’ FCF yield is set to improve, with JLR’s FCF expected to rise to GBP 1.7 billion in FY27 from sub-GBP 1 billion levels currently. The company is also on track to turn net cash positive by FY26, a significant improvement from past downturns when JLR was burdened with GBP 3-4 billion in net debt.
Tata Motors has been aggressively expanding its passenger vehicle portfolio, especially in the SUV and EV segments. The firm’s EV business is currently valued at a 30% discount to its last funding round, factoring in the global correction in EV stock valuations.
Should Investors Buy the Dip?
With a 44% market cap erosion, Tata Motors’ steep correction has undoubtedly shaken investors. However, analysts believe that most of the negatives are already priced in. The stock’s underperformance presents an opportunity for long-term investors, particularly given its improving financials and potential JLR recovery.
Volatility may persist due to macroeconomic challenges, but Tata Motors remains a compelling bet for those willing to ride out the rough patch. With a target price of Rs 930 from CLSA and Rs 935 from BNP Paribas, the stock could offer significant upside in the coming quarters if JLR’s recovery and domestic demand materialize as expected.
