1 The Indian Automotive Industry A Perspective

2 Global Auto Industry – An Analysis Indian Auto Industry Two Wheelers Three Wheelers Passenger Cars Commercial Vehicles Indian Auto Component Industry Emerging Opportunities Overview of Indian Economy TATA Motors – Organisation Structure

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

4 Global Auto Industry – An Analysis Indian Auto Industry Two Wheelers Three Wheelers Passenger Cars Commercial Vehicles Indian Auto Component Industry Emerging Opportunities Overview of Indian Economy TATA Motors – Organisation Structure

5 Source : OICA.net Asias share of the world vehicle production is growing significantly.. Data excludes 2-wheelers where Asia is not only the largest producer, but is also the largest market

6 State of the Global Automotive Industry Intense Product & Price Competition Stagnant Sales except in Asia Industry Margins Under Pressure Over Capacity in most Regions Most of Industry EVA negative Global Focus to Asia for growth

7 Global Auto Industry – An Analysis Indian Auto Industry Two Wheelers Three Wheelers Passenger Cars Commercial Vehicles Indian Auto Component Industry Emerging Opportunities Overview of Indian Economy TATA Motors – Organisation Structure

8 INDIA : An Introduction Population :1080 million 296 million States :28 50 (+ 7 Union Territories)(+14 dependent areas) Geographical Area:3.3 mn sq km9.6 mn sq kms GDP - Nominal:US $ 0.67 trillion US $ trillion Per Capita Income - Nominal:US $622US $39,935 Per Capita Income :US $ 3080US $ 39,496 (at Purchasing Power Parity) India USA Estimates for 2004 Sources:– IMF Data, The World Factbook, CIA Current Exchange Rate: 1 USD = INR 45 Exchange Rate (PPP) : 1 USD = INR 10 (approximately)

9 After decades of indifferent growth, Indias economy is accelerating in the new millenium..

10 Rapid increase in population in the last fifty years have negated the impact of economic growth in the past

11 Indian Economy already ranks 4 th 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 GDP Growth Forecast % India Brazil China Russia

12 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 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 Indias Demographic Dividend India has one of the youngest population amongst all nations

13 Sources: Statistical Outline of India India has transitioned from a predominantly agrarian to a service-based economy in line with the growth trajectory followed by major developed economies.. The Indian Economy is now more broad-based and thus resilient..

14 Global Auto Industry – An Analysis Indian Auto Industry Two Wheelers Three Wheelers Passenger Cars Commercial Vehicles Indian Auto Component Industry Emerging Opportunities Overview of Indian Economy TATA Motors – Organisation Structure

15 Automobile production in India has doubled in 4 years, with growth seen across all four major segments.. By numbers, two wheelers are the dominant segment of the Indian Automotive market

16 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.

17 Personal Mobility is positively correlated to per capita GDP

18 India is expected to achieve mass motorization status in 2014 Vehicle Density vs. GDP/capita 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 Inhabitants/Vehicle 10 Per Capita Income (US$ 000) Mature Markets Developing Markets USA Italy Brazil Mexico South Korea Czech Republic Spain China in 2002 India in 2014 UK Australia Sweden Germany Japan Belgium France Austria Canada Poland India in 2002 Argentina $1, China in 2014 Inhabitants/Vehicle 02 India100 China82

19 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 Rising Customer Expectations Product features Quality & reliability Integration with Global Markets Lowering product life cycles Reducing time-to-market for new products Threat of new competition

20 Global Auto Industry – An Analysis Indian Auto Industry Two Wheelers Three Wheelers Passenger Cars Commercial Vehicles Indian Auto Component Industry Emerging Opportunities Overview of Indian Economy TATA Motors – Organisation Structure

21 Within 2-Wheelers, Motorcycles contribute 80% of the segment size CAGR – 15%

22 Indian 2-Wheeler Market Competitive Scenario Motorcycle 50%30%13%4%1%2%<1%- -15%28%-2%46%9% <1% %---8% 10% - India is now the second largest two-wheeler market in the world Figures denote Mkt Share (Apr-Oct 05)

23 The Indian 2-Wheeler Industry Basic transportation necessity as against fun & fashion orientation of the Western Markets. (Primary transportation vehicle for entire families) Product design & execution driven by economy rather performance and power Presence of strong home-grown players competing against Global majors. Dis-similarity with Global Industry Large variety of products & choice for the customer (9 manufacturers, 70+ Models) Similarity with Global Industry CharacteristicsIndian 2-wheeler Industry

24 Key Market Drivers Increasing disposable incomes Low operating cost Higher fuel efficiency of New- generation motorcycles Greater reliability resulting in low maintenance cost Low interest rates translating to low financing and acquisition costs hence greater affordability. Inadequate urban & rural public transportation infrastructure Ease of use in congested city centres Key Trends Eclipse of scooter segment Emergence of new motorcycle sub- segments Economy Executive Performance Shrinking product life-cycles

25 Global Auto Industry – An Analysis Indian Auto Industry Two Wheelers Three Wheelers Passenger Cars Commercial Vehicles Indian Auto Component Industry Emerging Opportunities Overview of Indian Economy TATA Motors – Organisation Structure

26 Predominantly used for commercial purposes, for both Goods Transport (40%) and Passenger Transport (60%). CAGR – 17%

27 Indian 3-Wheeler Market Sub-segments and Competitive Scenario 68%24%2%1%3% 23%40%12%13%7%6% India is the largest three- wheeler market in the world Passenger Goods Scooters India 60% 40% Sub Segments Figures denote Mkt Share (Apr-Oct 05)

28 The Indian 3-Wheeler Industry Product unique to emerging markets in South / South-East Asia & parts of Africa Product design & execution focus on technological simplicity and ease of use. Lesser competitive intensity as compared to other segments. Dis-similarity with Global Industry None. Similarity with Global Industry CharacteristicsIndian 3-wheeler Industry

29 Key Market Drivers Last Mile Transportation needs. 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 Key Trends Goods segment growing at faster clip. Ability of product to meet increasingly stringent emission & safety regulations is doubtful. Market push building up for product upgradation.

30 Global Auto Industry – An Analysis Indian Auto Industry Two Wheelers Three Wheelers Passenger Cars Commercial Vehicles Indian Auto Component Industry Emerging Opportunities Overview of Indian Economy TATA Motors – Organisation Structure

31 Unlike the USA, the Indian Passenger Vehicle market is dominated by Cars (79%) CAGR – 17% (*) (*) MPVs were part of Passenger Car segment till

32 Indian Passenger Vehicle Market – Competitive Scenario Passenger Cars 52%17%19%-1%5%2% 1%-<1% Utility Vehicles 2%18%1%42%21%1%10%1% <1% -4%-<1% Multi Purpose Vehicles 100% <1% 4 th largest Passenger Vehicle Market in Asia Figures denote Mkt Share (Apr-Oct 05)

33 The Indian Passenger vehicle Industry Market dominated by Mini Cars & Hatchbacks (>80%) High incidence of taxes in Car Prices. (24% Excise Duty, 12.5% VAT, Local Taxes as applicable) 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. Dis-similarity with Global Industry 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) Similarity with Global Industry CharacteristicsIndian Passenger Vehicle Industry

34 Passenger Car Penetration is low in India The low penetration presents an opportunity for industry players to offer an affordable four- wheeled alternative to the mass of 2-wheeler customers Cars per thousand population

35 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

36 Global Auto Industry – An Analysis Indian Auto Industry Two Wheelers Three Wheelers Passenger Cars Commercial Vehicles Indian Auto Component Industry Emerging Opportunities Overview of Indian Economy TATA Motors – Organisation Structure

37 Unlike most developed markets, Indian Market has seen dominance by Medium Commercial vehicles CAGR – 22%

38 Indian Commercial Vehicle Market – Competitive Scenario Medium & Heavy CV - Trucks 64%24%-8%-3%-<1% Buses – L, M & HCV 40%30%7%5%10%6%1% - Light & Small Comm Veh – Trucks 59%<1%32%4%3% <1% -- TATA Motors dominates over 60% of the Indian Commercial Vehicle Market. It is also the Worlds fifth largest Medium & Heavy commercial vehicle manufacturer. Figures denote Mkt Share (Apr-Oct 05)

39 The Indian 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 Dis-similar to Global CV Industry CyclicalSimilar with Global CV Industry CharacteristicsIndian CV Industry CAGR: 5%

40 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

41 Impact of Road development Source: VDA (German Automotive Association), Worldbank, DRI Automotive report Truck penetration MHCV / m population Germany France UK Spain Portugal India Indonesia South Africa Argentina Brazil China Romania Hungary Mexico Stage GDP per capita 1000 US$ / head Truck penetration MHCV / m population Germany France UK Spain Portugal Turkey Australia India Indonesia South Africa China Brazil Argentina Russia Stage Road Density Paved Highway (km) / Area (km 2 ) Dramatic impact in initial stage of road development Gradual impact Indian CV Industry: Trucks Impact of GDP Growth. The growth of the Commercial vehicle industry is critically dependent on Infrastructure development & economic activity India (AL)

42 Road network development in India Golden Quadrilateral N S E W Corridors Feeder Roads Source: CrisInfac, NHAI Year-wise completion schedule of NHDP Planned length – 14,000 km Between to each year ~2000 Kms of 4-laned highways will be added Impact on Domestic CV Industry Faster turnaround Increased freight movement Lower operating cost of vehicles Replacement demand Between , 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

43 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 Europe Japan Brazil India Average Power To Weight Ratios Of Selected Countries China Truck market sophistication

44 Global Auto Industry – An Analysis Indian Auto Industry Two Wheelers Three Wheelers Passenger Cars Commercial Vehicles Indian Auto Component Industry Emerging Opportunities Overview of Indian Economy TATA Motors – Organisation Structure

45 The growth rate in Auto Components business has kept pace with OEM growth CAGR – 22%

46 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 after- market 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)

47 Rotating Auto Electricals Tyres & Tubes Heavy Forgings Wheel Rims Small Castings & Forgings Plastic Components Hand Tools Metal bonded & Moulded Rubber Parts Aftermarket Customer complexity Tier 2-n supplierTier 1 supplier Low Medium High Product Complexity Transition Path The Indian Auto component industry is now transitioning from being a supplier for the global aftermarket to becoming a full- scale global Tier 1 supplier

48 Indian Component suppliers are adopting different approaches for Global expansion & growth Exports from India Suppliers of: Castings Forgings Machined Items Rubber Items Wheel Rims Greenfield Overseas Locations Sundaram Fasteners: China Minda Group: Indonesia Overseas Acquisitions Bharat Forge (CDP-Germany; Federal Forge- USA) Sundaram Fasteners (Cramlington Precision, UK; Peiner-Germany)

49 Global Auto Industry – An Analysis Indian Auto Industry Two Wheelers Three Wheelers Passenger Cars Commercial Vehicles Indian Auto Component Industry Emerging Opportunities Overview of Indian Economy TATA Motors – Organisation Structure

50 CAGR Overall – 22% Passenger Veh – 57% 2-Wheelers – 35% International Business growth presents a huge opportunity, as well as a challenge for the Indian Automotive Industry

51 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 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 Engineering Services: Indian IT Majors offering on-shore and off-shore engineering services to Global IT players. (e.g. TCS, TATA Technologies, Infosys, Satyam) 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)

52 Thank You