3 Reasons behind Tata Motors' Rally!

Tata Motors has risen sharply in the previous two days. On 11th January 2020, it ended the day 11.36% higher. The next day, it went up by another 8%. For two consecutive days, it has been the top gainer in the Nifty 50 index. In just two days (11th & 12th January), shares of Tata Motors has risen from Rs 199.60 to Rs 237.80. On 13th January, it even touched Rs 252 which was last seen in September 2018. How amazing is that? This amazing rally forced us to analyse what is actually happening with Tata Motors. 

Rumours of Tata Motors - Tesla Deal 

Tesla is the biggest auto company in the world. In 2020, when all companies were suffering due to coronavirus effects, Tesla's share rose by nearly $80 to more than $800. This unprecedented rally made Tesla's CEO, Elon Musk, the richest person in the world with almost $200 billion net worth. You can read about it here. In October last year, Tesla Club India tweeted and asked when we can expect Tesla to come to India. Elon Musk replied, "Next year for sure." You can view the tweet below.

The Union Minister of India, Nitin Gadkari, confirmed that the American electric vehicle company, Tesla, will be coming to India in the first half of 2021. MarketFeed did a complete analysis of Tesla coming to India. Click here to read about it. Since Monday morning, rumours in the market started flowing that Tesla may partner with Tata Motors to manufacture and sell their vehicles in India.

This was a big update to the Indian market. Tesla, being a massive company with the visionary CEO at their helm, might disrupt the electric vehicle market in India. Thus, investors do not want to lose any opportunity and started buying Tata Motors' share in high quantities. This drove up Tata Motors' share price from Rs 199 to Rs 220.65 in just one trading session!

By the evening that day, the news came out that Tata Motors has denied any such collaboration with Tesla. You can refer to CNBC-TV18's tweet below.

https://twitter.com/CNBCTV18Live/status/1348596510179565568

Many expected that this might bring some correction in Tata Motors' share price the next day. But, the opposite of that happened. Why? Find it below.

Jaguar Land Rover (JLR) Getting Back on Track?

Tata Motors Ltd.-owned Jaguar Land Rover has been giving huge losses to the company over the past few quarters. In fact, this was the segment due to which the numbers were often found to be reduced. Jaguar Land Rover (JLR) declared their results for the year 2020 on Monday (11th January). The market expected the results to be very poor but the numbers showed that the entity has recovered well from the impact of the pandemic. The new Land Rover Defender is also said to be having very good sales numbers.

Especially, the sales data coming from China is very encouraging. The company's sales in China have increased by 20.2% (quarter-on-quarter) and 19.1% (year-on-year). Total sales for Jaguar Land Rover has risen by 13.1% as compared to the previous quarter. But, at the same time, it has slipped by 9% when compared from the previous year. 

The reduction in the sales number as compared to 2019 is mostly due to the lockdown induced by Covid-19. The demand fell to almost zero. Also, the manufacturing plants were forced to be shut. A dip in yearly sales was surely expected but back-to-back quarterly strong performance speaks volumes about their strong recovery.

One point to notice is that the sales in other regions are yet to get back to the pre-covid levels. In North America, Europe, the UK and Overseas the sales are down by 17.2%, 16.3%, 8.9% and 20% respectively when compared to that of 2019. But the quarterly results in all of these regions have been positive. In fact, sales in Europe, North America and Overseas have reported a rise of more than 20% each. The positive results flowing from one of the weaker segments has infused confidence in the investors.

Imminent Scrappage Policy Driving Optimism?

According to a few of the reports, long-awaiting vehicle scrappage policy might be a part of the Union Budget 2021-22. The final decision on this will be taken by the Finance Ministry and the Prime Minister's Office (PMO). We had talked about this upcoming policy over two months ago, here. This policy states that commercial vehicles and private vehicles which are older than 15 and 20 years respectively will be considered for scrapping. The question is, how will it benefit the Indian automobile industry?

The auto sector of our nation is struggling to generate new demand in the market. Due to this, the sales of the companies were not increasing as they had expected. Also, the cost of production has increased because of regulation and BS-VI regulations. Vehicle Scrappage Policy, if implemented, will allow people to give their cars for scrap. Thus, the demand for new vehicles will increase in both the short and long term.

If this policy is so good, why has it taken years to be launched? This is because people will react or come forward to scrap their vehicle only if some incentives are offered to them. Without incentives, they will probably look to continue with the car they own for a few more years. This incentive has to be provided by the original equipment manufacturers (OEMs). But, this part of the deal was not reaching its conclusion between the government and the OEMs. Now, it looks like both the parties have agreed to some sort of deal. Thus, giving a green light the vehicle scrappage policy.

These are the main reasons why Tata Motors shares have rallied in the past week. FIIs non-stop buying in the cash market could also be a factor in the rally. What are your opinions on Tata Motors? Let us know in the comments section.