- Tata Motors PV plans further price hikes through FY27 due to rising commodity costs
- Commodity costs rose 4.5 percent in Q1 with a 3 percent increase expected in Q2
- Company combines price rises with cost cuts to protect margins and demand
Tata Motors Passenger Vehicles Ltd. plans further calibrated price increases through FY27 as rising commodity costs put pressure on margins, with the company expecting another 3% increase in commodity costs in the second quarter after a 4.5% increase in Q1. The company said it will combine price increases with cost reductions to offset the pressure while protecting demand and volume growth.
The July price increase has not yet been reflected in the June-quarter financials, giving the company some benefit from the higher prices in Q2. Management also expects further cost savings during the quarter and said the absence of a seasonal cost impact seen in Q1 will provide an additional offset.
The pricing strategy comes as Tata Motors PV enters FY27 with strong volume momentum. The company grew volumes 46% year-on-year in Q1, compared with 24% growth for the industry, and management said it is targeting higher double-digit growth for the full year.
More Hikes
Tata Motors PV has already raised prices by 0.5% in April and another 0.5% in July. The July increase was not reflected in the Q1 financial results, according to management.
The company now plans further increases through the year, although it has not specified the size or timing of the next hike.
"We'll be taking further calibrated increases through the year," Dhiman Gupta, chief financial officer of Tata Motors Passenger Vehicles, said during the Q1 earnings call.
The company is taking a measured approach to pricing as it seeks to protect margins without affecting the value proposition for customers. Management had also said in the Q4 FY26 call that any price increases would depend on how the market evolves.
Rival Mahindra & Mahindra Ltd. has also raised vehicle prices as commodity costs increase. The automaker increased SUV prices by an average 2.7% and commercial vehicle prices by 2%, effective July 10, citing higher commodity costs.
ALSO READ: Tata Motors PV's Margin Recovery Hits A Roadblock As Commodity Costs Rise Again
Cost Pressure
The latest price strategy follows a further increase in commodity costs.
Commodity pressure was 4.5% in Q1, while management expects another 3% increase in Q2. Despite the additional cost pressure, Tata Motors PV expects margins in Q2 to remain broadly flat from the June quarter.
The company expects cost reductions to provide another offset. It delivered a 1.5% cost reduction benefit in Q1 and expects incremental benefits in Q2. It also expects a 1% benefit from the absence of the seasonal IPL-related impact recorded in Q1.
The commodity outlook has worsened somewhat from the expectation outlined at the end of FY26. In the Q4 earnings call, management had estimated a 3.5%-4% increase in commodity costs for the following quarter. It had also said it would use measured price increases and cost reductions to manage the impact.
The latest commentary indicates that Tata Motors PV is relying on a combination of pricing and cost measures rather than passing the entire increase in input costs to customers at once.
ALSO READ: Tata Motors PV Q1 Results: Profit Slumps 80% Even As Revenue Rises
Demand Balance
The company is raising prices even as demand remains strong across its passenger vehicle portfolio.
Tata Motors PV reported 46% year-on-year volume growth in Q1, more than twice the industry's 24% growth. Shailesh Chandra, managing director and chief executive officer of Tata Motors Passenger Vehicles, said the company wants to maintain that momentum.
"I would definitely be targeting higher double-digit growths in FY27," Chandra said during the earnings call.
Electric vehicle demand has also strengthened. EV volumes rose 112% year-on-year in Q1, while management said EV bookings had increased to nearly 3.5 times the average level before the Middle East crisis. Tata Motors PV has been increasing production to narrow the gap between demand and supply
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