Tata Motors (TTM): Why Exactly Is It An Interesting Play on the Auto Industry?

Tata Motors Limited (ADR) (NYSE:TTM) has been manufacturing automobiles in India since 1954, however over the past several years they have become a major player in the global automaker landscape.  So far in 2013, shares of the company have fallen by over 23% at a time when most other stocks seem to be making new highs daily.  The main reason for the decline is the news that India’s auto sales are now projected to fall in 2013 for the first time in a decade.  With a great market share and an expanding range of vehicles, is this a good time to get into Tata Motors Limited (ADR) (NYSE:TTM) at a bargain, or should investors wait out the economic slowdown in India before jumping in?

Tata Motors Limited (ADR) (NYSE:TTM) has historically been a manufacturer of commercial vehicles; however its recent notoriety has come from its passenger vehicle division.  For those who are not too familiar with Tata Motors Limited (ADR) (NYSE:TTM)’s lineup, they currently produce 14 models of passenger vehicles, including the Nano, which catapulted Tata Motors Limited (ADR) (NYSE:TTM) to relevance.

The Nano: Game Changer

Introduced in 2008, the Nano was the least expensive production car in the world at under $3,000 U.S.  The current base price for the Nano is around 150,000 rupees, or about $2,750. Tata Motors Limited (ADR) (NYSE:TTM) intended for the Nano to do for the Indian middle class what the Ford Motor Company (NYSE:F) Model T did for the middle class of the United States when it was introduced.  Although sales of the Nano were slow at first, the increase in emphasis on affordable passenger cars has been a success, as evidenced by Tata’s revenues, and the company has a nice 25.2% market share of all four-wheeled vehicles sold in India.

In my humble opinion, since the Nano is still the cheapest new car available in India, Tata is in a great position to capture new market share despite the slowing new vehicle sales in India.  The slowdown is due to a combination of an economic slowdown in India combined with high loan interest rates.  In an environment like this, the lowest cost options usually win.  This is the same reason that Wal-Mart Stores, Inc. (NYSE:WMT) was one of the best performers during the U.S. financial crisis.

Growth

Tata has grown tremendously over the past decade, largely as a result of acquisitions, in addition to the success of their own passenger car division.  The most notable of these, especially for U.S. investors, is Tata’s acquisition of the Jaguar and Land Rover brands from Ford Motor Company (NYSE:F) in 2008.  Since taking over the brands, Jaguar Land Rover (the subsidiary’s name) has produces such new vehicles as the Range Rover Evoque and Jaguar F-Type.