Why Tata Motors Shares Are Falling: Comprehensive Insights

Published by: CMAknowledge.in

Last Updated: June 2025

Introduction

Tata Motors, a flagship company of the Tata Group and a key player in both commercial and passenger vehicle segments, has witnessed a significant correction in its stock price over the past year. With a drop from around ₹1,180 in mid-2024 to ₹620 by June 2025, the share price decline raises questions about the company’s near-term prospects and strategic positioning. This article delves into the multi-faceted reasons for this fall and explores potential paths to recovery.

1. Jaguar Land Rover (JLR) Profitability Concerns

1.1 Margin Revisions and Cash Flow Guidance

JLR trimmed its FY2026 EBIT margin guidance to 5–7% from nearly 10% projected earlier, citing higher raw material costs, product mix shifts, and tariff uncertainties. The warning of near-zero free cash flow compounded investor worries, considering prior forecasts assumed positive inflows.

1.2 Product Mix and Model Refresh Cycles

JLR’s core luxury models—Range Rover, Defender, Evoque—are due for mid-cycle refreshes. Delays in launch schedules and development cost overruns of new electric models (e.g., Range Rover EV) have increased R&D spend by 18% YoY, squeezing margins further.

1.3 U.S. Trade Tariffs

The 25% U.S. import tariff on non-North American-made vehicles has hit JLR’s profitability hard. Unlike European rivals with U.S. plants, JLR exports finished units, making each vehicle less competitive. While a limited UK–US trade deal could reduce tariffs to 10% on 100,000 cars annually, implementation timelines remain uncertain.

2. Shifts in Domestic Demand

2.1 Passenger Vehicle Slowdown

In FY2025, Tata Motors’ domestic passenger vehicle sales fell by 9% YoY, underperforming the industry growth of 3%. Factors include pent-up demand normalization post-pandemic, rising fuel prices, and increased competition from Maruti Suzuki’s CNG variants.

2.2 Commercial Vehicle Cyclicality

Commercial vehicle (CV) sales are closely tied to infrastructure and logistics growth. A slowdown in government capex spend and weak freight volumes led to a 7% YoY decline in CV segment volumes, affecting revenues and operating leverage.

2.3 Spillover Effects of Rising Input Costs

Steel, aluminum, and semiconductor costs rose by 12–15% in the past year. Although price hikes were passed on to customers, demand elasticity limited full recovery, compressing operating margins by 150 basis points.

3. Intensified Competition in Electric Vehicles (EVs)

3.1 Market Share Erosion

Tata Motors once led India’s EV market with a 75% share, driven by the Nexon EV. As of mid-2025, its share slipped to 58%, with new entrants like MG ZS EV, BYD Atto 3, and Hyundai Kona capturing consumer attention.

3.2 Charging Infrastructure and Range Anxiety

Despite expansion of charging stations, urban coverage remains patchy. Consumers cite insufficient fast-charging options and battery degradation as key deterrents, pushing them towards established players with better after-sales networks.

3.3 Battery Supply Constraints

Global lithium-ion battery shortages have escalated costs by 20%. Tata’s joint venture with Tata Chemicals for battery cells aims to secure local supply by 2026, but interim reliance on imports burdens margins.

4. Quality Issues and Customer Feedback

• Software Glitches: OTA updates for infotainment systems faced delays, causing user frustration.
• Battery & Motor Failures: Reports of degraded range and motor stalling on high-mileage Nexon EVs.
• Service Network Strain: Extended wait times for parts in tier-2 and tier-3 cities.

Brand sentiment analytics show a 10% drop in Net Promoter Score (NPS) for Tata Motors EVs, signaling potential churn risks.

5. ESG and Corporate Governance Factors

Investors increasingly consider environmental, social, and governance (ESG) metrics. Tata Motors scored 52/100 on the latest ESG index, below the sector average of 65. Concerns revolve around:

• Emission Norm Compliance: Transition to BS-VI norms strained legacy ICE models.
• Labor Relations: Occasional strikes in UK plants (JLR) affecting output.
• Board Oversight: Calls for greater independence among board members.

Improving ESG scores could attract sustainable funds and long-term institutional capital.

6. Analyst Ratings and Institutional Flow

Major brokerages have revised earnings estimates downward by 15–20% for FY2026. Key points:

• CLSA: Downgraded to ‘Underperform’, TP cut to ₹580.
• Jefferies: ‘Hold’ rating, cautioned on value-trap risk.
• Goldman Sachs: Cut EPS estimates by 18%, citing weak JLR outlook.

Foreign institutional investors (FIIs) reduced holdings from 23% to 18% over the last six months, reflecting risk-off sentiment.

7. How Tata Motors Stacks Up Against Peers

Metric	Tata Motors	Mahindra & Mahindra	Maruti Suzuki
FY25 ROE	5.8%	10.2%	14.5%
EV Market Share (India)	58%	12%	5%
Net Debt/EBITDA	3.1×	2.2×	1.8×
ESG Score	52/100	60/100	68/100

8. Stock Performance and Technical Indicators

Technical charts show Tata Motors breached key support at ₹700 in May 2025, with moving averages forming a bearish crossover. Relative Strength Index (14-day) reads 35, indicating the stock is nearing oversold territory, potentially setting up a short-term bounce.

9. Potential Recovery Catalysts

1. Trade Deal Finalization: A UK–US agreement reducing tariffs on JLR exports could restore margin optimism.
2. New Product Launches: Timely rollout of Range Rover EV and updated Defender could drive premium segment sales.
3. Domestic Stimulus: Government incentives for EV adoption and rural infrastructure spending could lift volumes.
4. ESG Improvements: Higher sustainability scores may unlock ESG-dedicated funds.

Execution against these levers will be critical to reversing the downtrend.

Conclusion

The recent fall in Tata Motors shares is the result of a confluence of factors: underperformance at JLR, rising trade barriers, domestic market headwinds, intensifying EV competition, quality and ESG concerns, and cautious analyst sentiment. While the shares have already corrected significantly, future recovery will depend on successful mitigation of these challenges through strategic initiatives, operational excellence, and pro-active stakeholder engagement.

Long-term investors should monitor key indicators—JLR margin updates, tariff negotiations, EV market share trends, and ESG score improvements—to assess the turning point. With prudent execution, Tata Motors has the potential to regain lost ground and deliver sustained value.

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