Domestically, softening sales in the medium & heavy commercial vehicle (M&HCV) segment and intensifying competition in passenger and electric vehicles (EVs) have further dented investor sentiment. As the stock struggles to find a bottom, the key question remains: Is the worst over, or is there more downside ahead?
What Led to the Massive Correction?
A combination of global and domestic headwinds has rattled investor confidence in Tata Motors. The company’s UK-based subsidiary, Jaguar Land Rover (JLR), has struggled with weak demand in key markets such as China, the UK, and the EU. Additionally, the looming risk of U.S. import tariffs on European automobiles—of which JLR is a significant player—has further clouded the outlook.
According to CLSA, JLR is currently trading at 1.2x FY27 estimated EV/EBITDA, significantly below its historical valuation multiple of 2.5x. This suggests that the market has already priced in a 10% volume decline in FY26 and an EBIT margin drop to sub-8% levels. CLSA believes that these adversities are overdone and sees the current correction as a potential entry point for long-term investors.
Also read | CLSA upgrades Tata Motors to high-conviction outperform, sets Rs 930 target price
The pessimism surrounding Tata Motors is not unfounded. BNP Paribas, while maintaining an ‘Outperform’ rating with a target price of Rs 935, acknowledges that the stock lacks positive catalysts in the near term. The brokerage highlights that Tata Motors is in a consolidation phase and could remain subdued throughout 2025.Some of the key risks cited by analysts include weak demand for JLR in China and the UK, rising competitive intensity in India’s passenger vehicle (PV) and electric vehicle (EV) segments, continued softness in domestic medium & heavy commercial vehicle (M&HCV) sales and margin pressures due to high warranty and emission compliance costs.Threat from Tesla’s Entry to India
With Tesla gearing up for its India debut, concerns have risen about its potential impact on domestic automakers, including Tata Motors. However, leading brokerage firms suggest that Tesla’s entry may not pose a significant threat. Nomura analysts note that Tesla’s expected pricing of over Rs 4 lakh would limit its competition with Indian EV makers, including Tata Motors. While Tesla’s brand appeal and technology may attract some customers, analysts remain confident that domestic automakers will continue to dominate the mass-market EV segment.
Also read | Tesla India entry sparks panic, but are Indian auto stocks really in trouble?
Is There Light at the End of the Tunnel?
Despite these near-term concerns, Tata Motors has some silver linings. CLSA recently upgraded the stock to ‘High Conviction Outperform’, citing an attractive valuation and potential for a strong cyclical recovery. The firm has set a 12-month target price of Rs 930, implying 40% upside from current levels.
JLR’s pivot to a modern luxury brand is a crucial long-term strategy that, if executed well, could drive margin and free cash flow (FCF) expansion. The upcoming launch of Range Rover EV in FY26 is expected to boost volumes, albeit with short-term cost pressures.
CLSA notes that Tata Motors’ FCF yield is set to improve, with JLR’s FCF expected to rise to GBP 1.7 billion in FY27 from sub-GBP 1 billion levels currently. The company is also on track to turn to net cash by FY26, a significant improvement from past downturns when JLR was burdened with GBP 3-4 billion in net debt.
Tata Motors has been aggressively expanding its passenger vehicle portfolio, especially in the SUV and EV segments. The firm’s EV business is currently valued at a 30% discount to its last funding round, factoring in the global correction in EV stock valuations.
Should Investors Buy the Dip?
With a 44% market cap erosion, Tata Motors’ steep correction has undoubtedly shaken investors. However, analysts believe that most of the negatives are already priced in. The stock’s underperformance presents an opportunity for long-term investors, particularly given its improving financials and potential JLR recovery.
In the short term, volatility may persist due to macroeconomic challenges, but Tata Motors remains a compelling bet for those willing to ride out the rough patch. With a target price of Rs 930 from CLSA and Rs 935 from BNP Paribas, the stock could offer significant upside in the coming quarters if JLR’s recovery and domestic demand materialize as expected.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
