Despite its aggressive EV push, Tata Motors will continue to invest in internal combustion engines, with the 1.5-litre turbo-petrol engine being revived to power a wider range of vehicles.
Tata Motors announced two years ago that it would cut its capital expenditure on product development to Rs 4,500 crore over three years, citing a poor market performance, mounting debt, and what appeared to be a bleak future. This nominal figure was just about enough to cover mid-life cycle facelifts and product upgrades to meet future regulatory requirements, but it wasn’t enough to develop entirely new models and engines. As a result, a number of programmes were put on hold.
However, following a remarkable turnaround that propelled Tata Motors to second place in terms of sales last month, and on the back of a successful outside investment for a new dedicated EV arm – Tata Passenger Electric Mobility Ltd (TPEML) – the company has revived some of its shelved projects, now that it is flush with cash.
“That [CAPEX cut] should be seen in the context of where the company was in a certain situation at the time,” Shailesh Chandra, president – Passenger Vehicles Business at Tata Motors, told Autocar India exclusively. In the last 18 months, there has been a lot of change.”
Before the pandemic, Tata Motors sold around 11,000 cars per month, but now it sells around 30,000 cars per month. “Typically, we would spend 5-8 percent of our turnover on product development each year,” Chandra says, alluding to significantly higher spending on new product development as a result of the company’s three-fold increase in sales.
Tata Motors is now able to spend more on product development due to the turnaround, but it isn’t the only reason. TPEML’s regular passenger vehicle (PV) division has been relieved of financial constraints as a result of the recently secured first round of funding of Rs 7,500 crore, allowing for increased investment in IC engine products.
“While the PV division could fund itself, electric vehicles require a significant investment phase, and thus the company cannot fund both the EV and PV divisions.” “We invited an external investor for EVs because of this,” Chandra explains. TPEML will receive a total investment of Rs 15,000-16,000 crore.
An IC engine is a must-have
Investing in vehicles with IC engines is a must, especially in the Indian market. Despite government support and growing interest in electric vehicles, combustion engines are expected to remain a mainstay in India. Most manufacturers and experts believe that the IC engine market share will remain significant in the near future, at around 70 to 80 percent.
“The problem is in developed countries where demand is saturated,” Chandra explained. As a result, electrification will eat into ICE, and ICE will begin to decline. That is not the case in India; while EVs will grow, ICE will continue to grow significantly.”
With the overall PV market expected to grow from three to seven million units in the next five years, and EVs accounting for 30% of the total, ICE vehicle sales will still be a sizable five million units per year, far higher than they are now. Tata Motors simply cannot afford to ignore such a large market, and as a result, developing engines and launching new IC engine vehicles is a top priority for the company.
According to our sources, the 1.5-litre turbo-petrol, which is essentially a 1.2 turbo with an extra cylinder added, is back on the drawing board, along with other powertrains. Tata Motors currently offers no petrol engines larger than the 1.2 turbo, and the lack of a strong petrol engine portfolio is a major flaw that the company is eager to address, especially since the rapid shift to petrol powertrains will only accelerate once diesels become even more expensive with the next round of emission regulations in 2023.
As a result, the 1.5 turbo-petrol engine, which is expected to produce around 160 horsepower, will be a key powertrain for Tata Motors’ larger vehicles, which will be longer than 4 metres. When can we expect to see this engine in a Tata car? Chandra is hesitant to make a commitment. “Tata Motors has modular engines, allowing us to develop engines with larger capacities, and we will keep all of our powertrain options open if we decide to enter other segments.”