A Pestle and Swot Analysis of Tata Motors 2018
Tata Motors limited is an Indian multinational automobile manufacturer established in 1945 in India. The company is part of the $100billion Tata group and one of the largest automobile companies in India. As the world’s largest truck manufacturer and the fourth largest bus manufacture (Car Wale 2018), Tata Motors operates in UK, South Africa, South Korea, and Thailand and has a global network of 76 subsidiaries and associate companies including Tata Daewoo in South Korea and Jaguar Land Rover in UK. Tata is India’s market leader in commercial cars and among the top in passenger cars with approximately nine million vehicles only in India. With its designs and R&D centers in UK, South Korea and India, the company has its presence in approximately 175 countries and owns approximately 6,600 sales and service points (Tata Motors 2018). The company’s revenue as of 2017 was $41million increasing from $40 million in 2016 while its profit margin grew form 4.57% in 2016 to 3.45% in 2017 (Orbis 2017). Tata Motors commands 5.3% market shares of the Indian automobile industry after Suzuki with 49.7% ,Hyundai Kia with 16.4%, Mahindra with 6.9% and Honda at 5.6% as of 2017(Statista 2017).
Tata motors pestle analysis 2018 (opportunities and threats)
The Goods and Service Tax (GST) which was introduced in July 2017 is a growth opportunity for the automobile industry (Tata Motors 2017). Whereas the old tax system was levied on the manufacture and on exported vehicle leaving the consumer to bear the burden in buying, in the new system the tax is charged at the point of supply. With the government taxing the automobile 28% and a sizable reduction in small cars and SUVs, this will positively impact on the buyer as the taxation impact will be passed on to the consumer in form of cheaper cars which will in turn boost manufacturing growth.
The high barriers of trade by the Indian government which include the new tariffs aimed at helping flagship make-in-India drive are both an opportunity and a threat to the automobile industry. These tariffs are however an opportunity for Indian companies like Tata Motors as it favors them over foreign companies like Ford(Miglani et al 2018).
One of the major trends affecting the Indian car market is the demonetization policy. In November 2016, India introduced a law that bans all high value notes that accounted for 86% of the currency in circulation in a bid to root out counterfeit currency,fix tax evasion, carb inflation, eliminate black money and promote a cashless economy (Thoppil 2017;Krishnan2017). This has largely affected the economic growth and cash intensive industries like manufacturing due to less cash availability.
Tata Motor’s UK operations have been negatively impacted by the Brexit. The Move by UK to leave the EU has resulted into both economic and political uncertainties which have resulted into a price hike and less demand for cars (Conn 2017). This partly resulted into a decline of Tata Motors sales in UK in 2017 with Jaguar Land Rover selling 7,097 units in October 21.5% lower than a year ago.
India’s growing economy is a major trend that will impact positively on automobile manufacturers like Tata Motors. After months of suffering from the Demonetization effects, India’s GDP grew by 7.2% in the third quarter of 2017 beating the fastest growing economy of China at 6.8% (The Economic Times 2018). India’s GDP is forecast to grow 7-7.5% in 2018-2019 with the end of the negative effects of Demonetization (Business Today 2018). This high GDP is a great opportunity for automobile industries like Tata Motors as it is consistent with robust growth in the consumer spending power.
Intensive competition in the global automobile industry is a major trend that is impacting negatively on companies like Tata Motors. Brand positioning is becoming more challenging due to the competitive pressure from existing manufactures like Hyundai and new disruptive entrants like Volvo due to globalization(Annual report 2017).
As a multinational company operating in the UK, Tata Motors has been negatively impacted by the UK slow economic growth post Brexit. As the result of the devalued pound, inflation has risen from deep to high inflation causing economic volatility which has placed pressure on customers and a squeeze on household income (Bruce 2018). This has resulted into a decline in Tata Motors sales in UK with Jaguar Land Rover selling 7,097 units in October 2017 which was 21.5% lower than sales a year ago (India Infoline News 2017).
The changing life style of the millennials will impact the automobile industry negatively. Unlike those days when cars were seen as a status symbol by the millennials, these days the buying trend is shifting from ownership to access and buying a car is becoming less on the millennials list. With car services like Uber and Ola offering almost the convenience of a personal car, most millennials find buying a car unnecessary (Jain 2017; Saint 2018). With India expected to become the youngest country with a median age of 29, car manufacturers like Tata Motors should look out for this trend as it will affect the car demand in India.
Internet of things. The development of Intelligent connected cars will be a major global trend. The global connected car market is expected to be $72.89 billion in 2017 and expected to reach $219.21 billion by 2025(Global News Wire 2018). These intelligent cars will be able to react to dynamic changing situations such as a vehicle automatically collecting information on its sensors, processing it and issuing instructions for action depending on the situation. These cars are also able to connect with each other with a system to help cars understand traffic and help control it(Yan 2017). Tata Motors in collaboration with Microsoft India is among the companies in India who have taken the initiative to join the trend of intelligent connected cars (Rajan 2018).
The Legal environment
The Goods and Services Tax is a great opportunity growth for companies like Tata. with the government taxing the automobile 28% and a sizable reduction in small cars and SUVs, this will positively impact on the buyer as the taxation impact will be passed on to the consumer in form of cheaper cars which will in turn boost manufacturing growth.
The Indian government has toughened its emission norms on automobile manufacturers where by all manufacturers have to give a declaration about the emission levels of cars they manufacture starting from April 2020(Dashi 2018). The road transport ministry has amended the form 22 under the motor vehicles act where by all cars have to comply with the pollution standards, components quality, safety standards and road worthiness certificates for all vehicles(Dashi 2018). In response, Tata motors has planned on adopting EGR (Exhaust Gas Recirculation) and SCR(Silicon Controlled Rectifier) in order to be at the forefront to meet emission regulations before 2020(The Hindu 2017). The company has also created a climate change agenda where by it has adopted energy efficient systems like variable frequency drives for motors, 20% power use by the company is from renewable resources as well as the greening of its Tata building in a bid to cab emissions(Tata sustainability group 2018).
Figure 2: TATA Motors pestle analysis 2018
Tata motors Swot analysis 2018
Strong R &D.
The company has a strong R& D network in all its subsidiaries which has supported it and kept it on top of the game when it comes to innovativeness. This has helped it invest in new technologies and in development of new products that have helped it meet both the challenges and opportunities in the market.( Annual report 2017).
Strong brand name.
The company has managed to strengthen its brand name through creating greater brand associations, innovation and technological advancements (Annual report 2017). Tata Motor’s strong brand name has managed to stay on top of the 10 top brands list with $13.1billion (Pinto 2017).
Tata Motors has diversified and expanded its global presence in approximately 175 countries across the globe which has helped it reach more people. This has created opportunities for Tata Motors to extend its sales globally and improve its balance sheet (Tata Motors 2018).
Decline in Jaguar Land Rover deliveries in US and Europe.
The company experienced weak returns because of the slow Jaguar Land Rover deliveries at 3.5% pace due to weak demand in North America and Europe. Profits before tax at its Jaguar Land Rover unit fell by 25% to 192 million pounds($271m) (Sanjai 2018);Kapoor 2018). Jaguar Land Rover deliveries declined to 2.4% in North America, 3.4% in Europe while sales in its biggest market China expanded at a slow 15% pace(Sanjai 2018).
Tata Motors’ decline in sales and weak financial position.
The commercial vehicle division in India is making losses partly due to the competition in the market, the company is suffering in the market as European OEMs up their investment. Tata Motors is not only facing sale decline and losses in India but also in Europe and US which has affected the company’s profit margin and a loss of market shares(Leggett 2017).
Tata Motors has experiences a decline in the market shares of both commercial and passenger vehicles in its domestic market. The market share of the commercial segment has declined to 44.4% from 59.4% while the market shares of passenger vehicles fell to 5.2% from 13.1% in due to the competition, unstable cost structure and delays in product launch (Annual report 2017).
The untapped rural market.
The Indian rural market is the most untapped yet holds great potential for automobile industry (Nishith Desai Associates na). The rural market is forecast to expand due to the favorable monsoon and faster economic growth which will boost agriculture (Kotecha and Ghosh 2018).. This would be a great opportunity for the company to tap the rural market most with its trucks as most of these people are farmers and they could make use of them.
Growing economy of India is a major opportunity for the company as it is consistent with robust growth in the consumer spending power.
The new taxation system is also a major opportunity since it will impact positively on the buyer with cheaper costs and in turn boost the company’s sales.
The changing life style of millennials is most likely going to impact the company negatively since it is estimated that India’s median age will be 29 by 2022(Jain 2017). Millennials are changing their preferences from car buying to car sharing, this trend will greatly affect car manufacturers. With India forecast to become the world’s youngest country, Tata Motors should watch out for this trend as it will have massive influence on businesses and how they are run(Jain 2017).
Demonetization is another threat which has impacted the company profits as it has affected the economic growth and affected cash intensive industries due to less cash availability.
The UK post Brexit economic and political uncertainties have also affected the company’s performance in the UK mostly due to inflation that has put a squeeze on customer spending.
The company is facing increasing competition in India from Volvo and Daimler tracks. As a result, Tata Motors has not only suffered losses in India but is fighting to maintain its market shares as well (Legget 2017;Thoppil 2017).
The evolving regulatory landscape around environmental issues is a threat to the company as the impact the company’s products and manufacturing facilities for instance the migration to BS IV in India from April 2020(Annual report 2017).
Figure 3: TATA Motors SWOT analysis 2018
Tata Motors SWOT analysis 2018
In conclusion, the environmental analysis has revealed a number of trends in India that are likely to impact Tata Motors Limited. One of the major trends is the goods and services tax as it will impact both the company and buyer positively,this will be a great opportunity for the company, another major trend is the growing economy of India as it will boost the growth of the industry with buyers having more purchasing power. However, Tata Motors should watch out for the changing lifestyle of millennials as they will greatly impact the industry, the company should also watch out for the evolving regulatory landscape around environmental issues as it will negatively impact the industry at large.
Annual report (2017) “72nd annual report 2016-2017” Tata Motors [online] at http://corp-content.tatamotors.com.s3-ap-southeast-1.amazonaws.com/wp-content/uploads/2017/08/01105648/annual-report-2016-17.pdf
Bruce Andy (2018) “Brexit vote impact felt throughout UK’s economy” Reuters [online] at https://www.reuters.com/article/us-britain-economy/brexit-vote-impact-felt-throughout-uk-economy-idUSKCN1GB1BY
Business Today (2018) “Economic survey 2018: Demonetization negative impact over; GST has led to increase in Tax Payers” Business today [online]at https://www.businesstoday.in/union-budget-2018-19/news/economic-survey-2018-demonetisation-gst-tax-budget/story/269013.html
Car Wale(2018) “Tata cars in India” Car Wale[online]at https://www.carwale.com/tata-cars/
Conn David(2017) “UK car industry facing an utterly demoralizing Brexit” The Guardian[online]at https://www.theguardian.com/business/2017/aug/04/uk-car-industry-facing-an-utterly-demoralising-brexit
Dashil Dipak k (2018) “Government toughens emission norms for auto manufacturers” Times Of India [online] at https://timesofindia.indiatimes.com/auto/miscellaneous/Auto-manufacturers-to-declare-emission-levels-of-new-vehicles/articleshow/54917794.cms
Dovall Pankaj (2017) “India is now the world’s biggest two wheeler market” The Times of India[online]at https://timesofindia.indiatimes.com/auto/bikes/india-is-now-worlds-biggest-2-wheeler-market/articleshow/58555735.cms
Global News Wire(2018) “Connected cars 2018-Global forecast to 2025”Global News Wire[online]at https://globenewswire.com/news-release/2018/02/19/1361378/0/en/Connected-Car-Market-2018-Global-Forecast-to-2025.html
IBEF(2018) “Automobile industry in India” India Brand Equity Foundation[online]at https://www.ibef.org/industry/india-automobiles.aspx
India Infoline News (2017) “Tata Motors may fall as JLR UK October sales down 21% YoY” India Infoline News[online]at https://www.indiainfoline.com/article/news-top-story/tata-motors-may-fall-as-jlr-uk-oct-sales-down-21-yoy-117110700396_1.html
Jain Harshita (2017) “What the Millennial Indians want: Not cars or houses, just fun and convenience” The Economic Times [online] at https://economictimes.indiatimes.com/markets/stocks/news/what-the-millennial-indian-wants-not-cars-houses-just-fun-convenience/articleshow/61452052.cms
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