WHY TATA MOTORS SLUMPED TODAY?

By Ruma Dubey

Tata Motors is a big loser on the bourses today. And the one causing all this worry is China and its new stringent fuel economy standards.

For most of us, this may not mean much, except we would have surely drawn the inference that it has got something to do with the emission standards for vehicles. This is equivalent to what we in India call the Bharat Stage norms.

In simple lay man terms, fuel economy standard means the Govt setting emission norm for better fuel mileage and even better for the economy. Like the Govt may state that by 2015 cars should give you a mileage of say, 20 kilometers per litre and emissions should not cross a particular threshold. In India, there is no mandate on mileage but only on emissions while in USA, even the mileage per gallon of fuel is mandated, thereby putting pressure on companies to make more fuel efficient cars.

In India, we follow Bharat Stage emission standards and it aims to reduce air pollution by regulating output of air pollutants. In fact the phasing out of the 2 stroke engines for two wheelers and even production stoppage of Maruti 800 and introduction of electronic controls is all on account of the Bharat Stage Emission standards. In 13 major cities of India, Bharat Stage IV norms are in place since April 2010 and there is talk of newer and more stringent norms coming in place.

So just like Bharat Stage, China too has its set of fuel economy standards and yesterday, it announced a new set of norms wherein it aims to cut passenger cars' average fuel consumption to 6.9 litres per 100 kilometres by 2015 and to 5.0 litres by 2020. These are very strict norms by any count but given the acute pollution China has seen over the past few months, this does not come as a surprise. Its three mains SEZs experienced more than 200 hazy days per year which was mainly on account of rapid urbanization.

These new fuel economy standards, though needed for controlling pollution, are extremely stringent and this is expected to make things very uncomfortable for the domestic small car makers which as such are struggling to compete with international car makers in China. These new norms means car makers will have to invest more in making their cars fuel efficient and that cannot happen over night.By 2015, every new car which hits the street of China will have to make engines which will give a mileage of 6.9 litres per 100 kms.

Tata Motors is especially perturbed by this news as China contributes about 20% to its Jaguar Land Rover (JLR) revenues. This means that the company will have to invest more to comply with these new norms. This is good news for the environment and people of China but not so for the companies.

Let us not think that this is happening only in China as we in India might soon get new stricter emission norms from the Govt of India. India plans to make it mandatory for car makers to improve per kilometre mileage from the current average of 16.6km per litre of fuel to 18.1km/litre by 2015 and 20.79km/litre by 2020. There will be a ‘star’ rating, giving it a one star rating for the least fuel efficient vehicles and five stars for the most efficient in their respective weight class. This is expected to be applicable from 1 April 2013 and those failing to meet these standards will be fined Rs.10 lakh initially and then a penalty of Rs.10,000 a day till their car models meet the norms. These new norms will hike cost of cars but one wonders how many will adhere to these as currently only 7-8 models from the existing 80 models actually abide to these norms.

For now, Tata Motors is down in the dumps and one would need to wait and watch how the company reacts to these changes and makes the required improvisations.