May 06, 2022

Why is Tata Motors buying Ford Motors India Factory?

 After Ford motors stopped manufacturing in India. There was news from the last 3-4 months that TATA motors are about to acquire the Sanand Plant of Ford. TATA Motors will buy the Ford plant to increase business in the EVs segment. The question is that what is the use of this deal, and what kind of benefits will get both parties?

Tata motors | Tata EV's | Ford Motor Company | Sanand Plant

So to understand this deal, we have to peek into the sales of TATA motors in the passenger vehicle segment in India. It is divided into two different segments. First is passenger vehicle IC in which petrol, diesel, and CNG cars belong in this segment and second is the passenger vehicle EV which belongs to all the electric cars for example - Nexon Ev, Tigor Ev, Tigor express T. If you see the passenger department of this brand. Then in 2019, its total sales were around 202000 cars and this brand used to under-utilize its factory. This brand had more capacity to manufacture the cars but it had low demand to sell the cars due to this, it had to manufacture fewer cars. But In FY 2021, it sold around 37 million cars. So sales have increased almost 60% in this brand that's why this brand has to increase the utilization of the factories which means they manufactured more cars in their factory and it is good for their business. Everything is going well.

Tata Motors Facing problems to manufacture cars

At the start of 2021, this brand had around 30 k cars manufacturing capacity every month. and from the second quarter of 2021, the demand for this brand increased that's why the production capacity of this brand increased from 30K to 35K then the demand increased a little more and again this brand increased the production capacity from 35K to 40k. But now the problem is if it is manufacturing 40K cars in a month. So it becomes 48 million cars a year and its capacity has almost reached In this 40K capacity, I haven't included the electric cars but I'm including the engines cars of this brand only.

Pre-Booking of Tata Car’s

But now the craze for this brand has increased very high among the people and its business is going well. So now this brand has around 50K demand for the passenger vehicle for a month but it has only 40K capacity to manufacture the cars. Now, this brand doesn't have much margin to increase the capacity in their factories, and because TATA Motors is not able to fulfill this demand this brand has around 100K pre-ordered cars which they've to deliver whose booking has been done but it has not been delivered yet and now the backlogs of EVs have increased very much in this brand and EVs demand is increasing because the petrol price has hiked so much and price of the CNG cars has also increased and our government is also increasing the price of CNG fuel constantly that's why consumers are not finding extra benefits in purchasing CNG cars. The running of EVs is very efficient that's why customers are opting to purchase EVs TATA Motors has a huge stake in the EV department and If 10 electric cars are being sold in a month then nine are from TATA that's why TATA Motors is facing problems to manufacture EVs. 

This brand had 600 car capacity per month but the demand was for 1500 cars to come. Then this brand increased their capacity. and when they took the capacity of 1500 then they start getting orders of around 3K cars and then again this brand increase their capacity to 3K cars but now this brand is getting orders for around 6k cars per month. But the delivery output of this brand is only 3500 cars per month. So the estimate of the EVs segment of this brand is increasing to around 2K cars per month. So its demand is increasing but cars are not able to be manufactured. If we see according to the 6K units, this brand has around 70K EVs demand. But its production capacity is around only 30K and now the problem is that it is difficult to increase production capacity because this brand's EVs are manufactured in two different factories.

Where are Tata EVs manufactured?

One is in Sanand, In which this brand has around 10K capacity to manufacture the cars per year which is very less. 

And 2nd is in Pune which has a little additional capacity and almost fulfills its requirement. For example, A student has to top the paper but can't do self-study for more than 2 hr so how will he top, it doesn't mean that you can't study.

A Great deal for TATA Motors and Ford Motors

Now TATA Motors is facing challenges for this capacity issue and they are trying to get rid of this now they can implement 2 to 3 things. 1st thing is that they can make a new factory where they'll manufacture the cars and they've to spend some time buying land for the factory. Then they've to set up the factory and also they've to hire employees but it is very long and time-consuming and 2nd is that they can increase the capacity of the existing factory but it has a limit that has already been reached. So they need a solution where they can get pre-made factories and they can manufacture the cars in a very short time then good news came out that ford has exited from India and this brand has two different factories in India.

In which the 1st is in Sanand and 2nd is in Chennai and because this brand has gone. So this brand needs a buyer for its factories. So that their debt gets decreased a little bit. So, Ford started a factory in Chennai in the early 20s in India. This brand had manufactured a good amount of cars but the problem is that it is a very old factory and it has very less automation as well as you can manufacture only two models at a time in this factory. Whereas, in the Sanand factory everything is in good condition and it has 90% of automation. Ford inaugurated this factory around in the year 2015 ford made this factory with very good automation and they spent Rs. 45 billion and you'll find big robots in this factory that do 90% of the work. So this would increase the speed of making vehicles and manufacturing very good cars which will benefit TATA's Sanand Factory and brand manufacturers Tiago, Tigor, and electric cars as well and there is only 4.6 Km of the distance between TATA's factory and Ford's Sanand factory. So, there is very less distance between these factories. So you can take your forgotten things from another factory or it will help the company while transportation. for example, if the car's roof is being made in the 1st factory and through transportation, they've to take it to the 2nd factory. so it will become very easy for them. I am just giving an example. and there is a 24 million per year car manufacturing capacity in this ford's Sanand factory.

How will the workers be benefitted if Tata acquires the ford factory?

If TATA motors purchase this factory because Ford has left India. TATA Motors will be of benefit. That is why Tata Motors is taking over this factory and In this deal, they are getting one more benefit is that there are 23K workers in ford's Sananda factory and when Ford announced to leave India then their workers started protesting because they will lose their job if this factory will close and also appealed to the Gujrat Gov. If this factory will be in working condition then their jobs will be stay secured. So in this TATA Motors has claimed to the Gujrat Gov that they will reappoint all the 24K workers and no layoff will be done. So every worker will get their job back and there will be no protest. So this deal is beneficial for both parties. Ford will get the money for their factory and TATA Motors will get a factory to manufacture more cars and they will get 23K well-trained employees and employees will get their job back. that's why It's a great deal.

Tata investments to boom the Ev Sector India

And there is one more reason behind this deal. If you've remembered recently Tata Motors took a 1 billion $ investment from an investment firm TGP rise for their EV arms with a valuation of around 700 billion. In which a target has been given to this firm by Tata Motors that in this year, they’ll manufacture or sell this many cars and market cap which will increase our EV firm and they will get a better return on your investment and capacity will also boost.

Tata EV’s new launches

Also, Tata Motors has claimed that it will launch 10 EVs in India by 2026. and they will invest around Rs.150 billion in their EV firm. So to manufacture 10 different EVs, this brand needs factories, and to acquire this deal, Tata Motors has been showing more EV concepts in the last 2 weeks. For example - the concepts of Curvv and Avinya. and on May 11, Tata Motors is going to launch a long-range version of the Nexon EV. That is why a factory is needed to manufacture the cars and Ford's factory will be better for them. In which the experts are saying that this brand is about to invest around 20 billion in this factory through which the manufacturing capacity of this factory will become around 200K by 2026 which is a very good thing. 

Therein Tata Motors will be able to manufacture IC engine cars in their other factories and in this factory, they will be able to make EVs solely. So that's why Tata Motors will be in benefit if they purchase Ford's factory because it is very close and as well as the factory is in very good condition and as well as they'll get 90% automation with a good amount of workers. So in recent months, Tata Motors will launch a lot of EVs and if you don't know, then EV cars will be launched in the size of Harrier and Safari in India till 2025 and Tata Motors has started working on this project. 

So, let's see how this car will be. Please let me know what you think about this.

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