The Indian Automotive Industry A Perspective 1 TATA

The Indian Automotive Industry A Perspective 1

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

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

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

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

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

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

INDIA : An Introduction India USA q Population : 1080 million 296 million q States : 28 50 (+ 7 Union Territories) (+14 dependent areas) q Geographical Area : 3. 3 mn sq km 9. 6 mn sq kms q GDP - Nominal : US $ 0. 67 trillion US $ 11. 73 trillion US $622 US $ 3080 US $39, 935 US $ 39, 496 q Per Capita Income - Nominal: Per Capita Income : (at Purchasing Power Parity) Estimates for 2004 Current Exchange Rate: 1 USD = INR 45 Sources: – IMF Data, The World Factbook, CIA Exchange Rate (PPP) : 1 USD = INR 10 (approximately) 8

After decades of indifferent growth, India’s economy is accelerating in the new millenium. . 9

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

Goldman Sachs predicts India to be third largest economy in the world in absolute terms by 2025 Indian Economy already ranks 4 th in the world in terms of GDP adjusted for Purchasing Power Parity % GDP Growth Forecast India Brazil China Russia 11

India’s “Demographic Dividend” India has one of the youngest population amongst all nations Source: The World Factbook, CIA “Although it is the most populous country, because of Beijing’s long-standing one-child policy, China’s working age population will begin to decline in the next 10 years. Meanwhile, India’s youthfulness - 350 million citizens are under age 15 - ensures its workforce will expand for decades, potentially enabling it to outstrip China’s economic pace through sheer weight of numbers. ” Time Magazine, Issue dated Dec 05, 2005 12

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. . Sources: Statistical Outline of India 2004 -05 13

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

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 15

In many ways, the Indian Automotive Market is unique q Harsher operating conditions pose unique challenges for product conceptualization, design and development: q Road inadequacy and quality q High Traffic density q Poor Fuel quality & variety (Gasoline, Diesel, CNG & LPG) q Manufacturing complexity higher despite lower volumes compared to global standards q Large product portfolios q Product obsolescence policies not articulated and enforced, entailing longer product life. q Firms able to maintain profitability even at low volumes. 16

Personal Mobility is positively correlated to per capita GDP 17

India is expected to achieve mass motorization status in 2014 Inhabitants/Vehicle Density vs. GDP/capita India in 2002 100 Developing Markets Mature Markets Inhabitants/Vehicle ‘ 02 China in 2002 India in 2014 50 China in 2014 10 Mexico South Korea Brazil Poland Argentina Czech Spain Republic 0 2 $1, 000 15 India 100 China 82 Germany Canada Australia Italy 20 Belgium Austria UK Sweden Japan USA France 25 30 35 40 Per Capita Income (US$ 000) Note: The above includes both Passenger Vehicles and Commercial Vehicles Sources: Ward’s Auto Yearbook 2002, EIU, Goldman Sachs BRICs report, DRI 2002, A. T. Kearney analysis 18

Key Challenges facing the industry q Increasingly Stringent Emission & Safety Regulations q Technological capability q Cost q Increase in input prices q Ferrous & Non-Ferrous Metals q Crude oil & derivatives q Natural rubber q Rising Customer Expectations q Product features q Quality & reliability q Integration with Global Markets q Lowering product life cycles q Reducing time-to-market for new products q Threat of new competition 19

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

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

Indian 2 -Wheeler Market Competitive Scenario Motorcycle 50% 30% 13% - 15% 28% - 82% <1 % 4% 1% 2% - 2% 46% 9% - - - 8% - <1% <1 % - 10 % - Figures denote Mkt Share (Apr-Oct 05) India is now the second largest two-wheeler market in the world 22

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

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

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

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

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

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

Key Market Drivers q “Last Mile” Transportation needs. q High product maneuverability & driveability. Ideal for congested Indian roads and tropical conditions. Key Trends q Goods segment growing at faster clip. q Ability of product to meet q Inadequate urban & rural public transportation infrastructure increasingly stringent emission & safety regulations is doubtful. q Low initial ownership cost q Self-employment opportunity for large segment of urban youth q Market push building up for product upgradation. 29

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

CAGR – 17% Unlike the USA, the Indian Passenger Vehicle market is dominated by Cars (79%) (*) MPVs were part of Passenger Car segment till 2000 -01 31

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

The Indian Passenger vehicle Industry Indian Passenger Vehicle Industry Similarity with Global Industry Characteristics • 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) • Market dominated by Mini Cars & Hatchbacks (>80%) • High incidence of taxes in Car Prices. (24% Excise Duty, 12. 5% VAT, Local Taxes as applicable) Dis-similarity with Global Industry • 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. 33

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

Key Market Drivers q Increasing disposable incomes q Rising aspirational levels q Low interest rates. Wide variety and easy availability of Financing options. Key Trends q Market evolution from Mini cars to Hatchbacks to Compact Sedans now evident q Increasing customer emphasis q High sensitivity to Fuel prices q Lack of urban & rural public transportation infrastructure on aesthetics and comfort. q Shrinking product life-cycles q Flourishing Service Sector 35

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

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

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% 1% - Light & Small Comm Veh – Trucks 59% <1% 32% 4% 3% 3% <1% - - Figures denote Mkt Share (Apr-Oct 05) TATA Motors dominates over 60% of the Indian Commercial Vehicle Market. It is also the World’s fifth largest Medium & Heavy commercial vehicle manufacturer. 38

The Indian CV Industry Similar with Global CV Industry Characteristics Indian CV Industry • Cyclical CAGR: 5% Dis-similar to Global 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 39

Key Market Drivers q Growth in Economic Activity q Road Network Development q Low interest rates. Wide variety and easy availability of Financing options. q High sensitivity to Fuel prices 40

Indian CV Industry: Trucks The growth of the Commercial vehicle industry is critically dependent on Infrastructure development & economic activity Impact of Road development Dramatic impact in initial stage of road development Impact of GDP Growth. Stage Gradual impact Stage Germany Turkey Spain 4 Australia Russia Argentina Portugal Brazil China South Africa India (AL) Indonesia India 3 2 1 Truck penetration MHCV / m population France UK Portugal Spain 4 Argentina Brazil Hungary Mexico Romania China South Africa Indonesia India Road Density Paved Highway (km) / Area (km 2) 3 2 1 GDP per capita 1000 US$ / head Source: VDA (German Automotive Association), Worldbank, DRI Automotive report 41

Road network development in India Between 2003 -04 to 2007 -08 each year ~2000 Kms of 4 -laned highways will be added Golden Quadrilateral Year-wise completion schedule of NHDP Planned length – 14, 000 km NSEW Corridors Feeder Roads Source: Cris. Infac, NHAI Impact on Domestic CV Industry n Faster turnaround n Increased freight movement n Lower operating cost of vehicles n Replacement demand Between 1997 - 2002, Highway length in China increased by around 15, 000 km and CV volumes nearly doubled from 1. 2 mn to 2. 1 mn … …. . Indicative of future likely directions in Indian market 42

Key Trends q Migration from erstwhile “Basic MCV Workhorse” to “Hub & Spoke” Model q Increasing Power to weight ratio Average Power To Weight Ratios Of Selected Countries Europe Japan Brazil q Increasing customer emphasis on aesthetics and comfort. China India t ke n r a io m cat k i uc ist r T ph so q Arrival of Global Players q Divergence in Truck and Bus Technology q Focus on Fully Built Transport Solutions 43

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

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

Key Market Drivers q Linked to growth of OEM Industry q Highly sensitive to input cost escalation. Key Trends q India’s emergence as low cost global sourcing destination. q Indian ancillary manufacturers are shifting focus from global after- q Competitiveness driven by q Manpower – Large pool of qualified engineers & skilled technicians at lower cost q Lower investment cost – Through appropriate, low cost automation. market to global OEM supplies. q Firms focus on operational excellence to improve quality & reliability of products. (8 Deming Award winners) q Increasing relevance of Global Tier 1 suppliers (Bosch, Denso, Visteon, Delphi) 46

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

Ex p or ts fr o Suppliers m of: In • Castingsdi • Forgingsa • Machined Items • Rubber Items • Wheel Rims Indian Component suppliers are adopting different approaches for Global expansion & growth Gr ee nf iel Sunda d ram O Faste ve ners: rs China ea Minda s Group L : oc Indon ati esia o ns O ve rs ea s A cq Bharat Forgeui sit (CDP-Germany; io Federal Forge- USA)ns Sundaram Fasteners (Cramlington Precision, UK; Peiner-Germany) 48

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

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

Opportunities for the industry are emerging both in the areas of Automotive Manufacturing and Engineering Services Manufacturing: q Emerging World hub: q Small Cars (Suzuki, Hyundai) q Castings & Forgings q Regional Sourcing base q Aggregates for Entire Vehicle Programs (e. g. Transmissions for Toyota IMV) q Globalisation opportunities for Indian Manufacturers q Increasing exports of “Made In India” vehicles q Establishing manufacturing facilities at foreign locations (e. g. TVS Indonesia) q Contract Manufacturing (e. g. Sub-150 cc Bajaj motor cycles for Kawasaki) q Growth through Mergers & Acquisitions (TATA Motors acquisition of Daewoo Commercial Veh, Korea & Hispano, Spain Engineering Services: q Indian IT Majors offering on-shore and off-shore engineering services to Global IT players. (e. g. TCS, TATA Technologies, Infosys, Satyam) q 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) q Independent Indian OEMs focusing on upgrading their design & engineering capabilities. (e. g. TATA Motors European Development Centre & Acquisition of INCAT plc, UK) 51

Thank You 52