Source – Economic Times
Shares of Tata Motors experienced a significant decline of nearly 6%, reaching a low of Rs 975 on the National Stock Exchange (NSE), which is below its 50-day simple moving average (SMA) of Rs 1,056. This downturn reflects a negative short-term trend, with the stock correcting approximately 10% over the past week.
Key Factors Behind the Decline
- Price Cuts on Vehicles: Tata Motors announced substantial price reductions on its electric vehicles (EVs) and popular internal combustion engine (ICE) cars, with discounts reaching up to Rs 2.05 lakh. This strategy, part of the “Festival of Cars” campaign, aims to stimulate sales amid a significant inventory buildup at dealerships. However, it also signals potential weaknesses in growth prospects, as evidenced by a 4.5% drop in car sales in August, marking the third decline in the current financial year.
- Brokerage Downgrades: The stock’s fall was exacerbated by a bearish outlook from global brokerage firm UBS, which maintained a ‘sell’ rating with a target price of Rs 825, indicating a potential downside of over 20% from previous levels. UBS highlighted concerns regarding margin pressures at Tata Motors’ luxury division, Jaguar Land Rover (JLR), and noted that the order backlog for JLR models has fallen below pre-COVID levels, suggesting a need for increased discounts on premium vehicles.
- Inventory Levels: Current inventory levels in the auto market are reported at 75 days of sales, significantly higher than the normal threshold of 30 days. This excess inventory is concerning for Tata Motors as it could lead to further margin pressures and impacts on profitability.
- Market Conditions: The broader market conditions, including rising discounts and a lack of new launches in the ICE/hybrid segment, contribute to a cautious outlook for Tata Motors. UBS anticipates that these factors could result in weaker financial performance for FY26.
Conclusion
The combination of aggressive pricing strategies, bearish analyst ratings, and elevated inventory levels has led to a marked decline in Tata Motors’ stock price. Investors are advised to monitor these developments closely, as the company’s ability to navigate these challenges will be crucial for its future performance.
