Tata Motors weighs further car price hikes as commodity costs bite; increases to be gradual

Tata Motors Passenger Vehicles is considering further price hikes for its cars as rising commodity costs squeeze margins, with Managing Director Shailesh Chandra saying any increases would be introduced gradually to avoid hurting demand.

The automaker has already raised prices once in September, but continues to absorb a significant portion of higher input costs. Chandra said the company is reviewing the situation every month while simultaneously stepping up efforts to reduce costs.

Also Read: Tata.Cars launches Aeris compact sedan at starting price of Rs 5.29 lakh


"Still, there is a significant residual part of the commodity increase that we are absorbing, which has been hitting our markets, but at the same time we have been pacing our effort on the cost reduction side. We are reviewing every month in terms of when we'll have the opportunity to take a certain level of price increase," he told PTI.

Rather than passing on the increase to buyers in one go, Tata Motors plans to spread any future hikes over time, Chandra said.

"But whenever we take the price increases, it will be in smaller escalations, so that it does not immediately impact the demand. So, it will be progressive, incremental price increases that we'll take over a period of time. We have taken one price increase in September itself, so the next price increase is too premature to tell you because we have to review when we can do the next price increase," he said.

Earlier this month, Tata Motors announced that prices across its commercial vehicle portfolio would rise by up to 1% from October 1.

Commodity costs squeeze margins

Chandra said automakers have so far kept price increases below 5% since the implementation of GST, even as higher commodity costs have added pressure on the industry.

At the same time, discounts have started disappearing as supply trails demand slightly, giving manufacturers some room on pricing.

"It could be a sub-5 per cent price increase so far by any manufacturer, from the time of GST. Even after GST, opportunistically OEMs (original equipment manufacturers) could have taken a price increase more aggressively, right? But rather, after GST there were more discounts also in the market. I think the first thing which has gone away is the discount because of the supply being more or less slightly behind the demand," he said.

The bigger challenge, according to Chandra, is that vehicle prices cannot be raised as quickly as commodity costs are increasing. That gap is putting pressure on margins and forcing manufacturers to find savings elsewhere.

"It is not possible to pass on these increases to the market at the speed at which prices have been used on that side. So that remains a matter of concern, which creates immense margin pressure and immense effort from a cost reduction perspective," Chandra said.

Uncertainty over the direction of commodity prices remains another concern, although Chandra said there was currently no major alarm on the production or supply side.

Tata bets on compact sedans

The comments came as Tata Motors Passenger Vehicles launched the all-new Tata Aeris on Friday, starting at Rs 5.29 lakh for the petrol version and Rs 6.29 lakh for the iCNG variant, ex-showroom.

The compact sedan has been developed exclusively for personal buyers rather than the fleet market.

Chandra said compact sedans have been gaining volumes despite their declining share within the broader sedan category, pointing to growth of around 25-26% over the past year.

"In just the last one year itself, it has grown by about 25-26 per cent, so it is a growing segment in terms of size. It also has a GST impact. So there is a clear section of customers who are looking for a compact sedan," he said.