Tata Motors Absorbs 60% of Commodity Cost Hit as PV Margins Remain Under Pressure

Tata Motors Passenger Vehicles (TMPV) is absorbing around 60% of the increase in commodity costs, offsetting the remainder through calibrated price hikes and cost-reduction measures. The pressure is expected to persist through Q3, with the company considering steeper price increases in Q4 to protect margins, according to Dhiman Gupta, CFO, Tata Motors Passenger Vehicles. “Of the commodity hit that we've seen, 40% we've been able to offset through the calibrated price increases and cost actions that we've taken. The balance, we continue to absorb in our P&L,” he said.

TMPV reported its highest-ever quarterly revenue of Rs 20,423 crore in Q2 FY27, up 50.9% year on year, supported by record volumes of over 2 lakh units, a 40% increase over the corresponding quarter last year. However, EBITDA margin declined 180 basis points to 4%, while EBIT margin fell 50 basis points to negative 0.3%. Profit before tax and exceptional items stood at Rs 25 crore, against Rs 156 crore in Q2 FY26. “Commodity inflation had significantly eroded the benefits of operating leverage, pricing actions and cost reductions. Steel, rubber and copper remain key sources of cost pressure and we expect these headwinds to continue into Q3. While steep commodity cost pressures remained a headwind, we responded through calibrated pricing and focused cost actions,” Shailesh Chandra, managing director and CEO of TMPV, said. The company expects to maintain profitability around current levels in Q3, with some improvement in Q4 through a combination of higher price increases and deeper cost-reduction efforts, Chandra added.

Demand Continues to Outstrip Supply

The margin pressure comes at a time when Tata Motors is witnessing strong demand across its portfolio, with the company saying demand continues to exceed supply in certain models and powertrains. Its domestic market share stood at 14.3% in Q2, consolidating its position as India's second-largest passenger vehicle manufacturer. The company also recorded a strong festive performance, with volumes of 75,000 units in August and market share rising to 14.8%. Retail sales during the festive period increased nearly 10% over an already high base in the previous year.

“We are not pursuing market share gains by deliberately holding back price increases, but are focused on fulfilling existing demand and expanding supply. Market share for us is consequential because here we are not trying to buy market share because we are in a situation where demand is significantly exceeding supply and it is about fulfilling the demand,” Chandra said.

Tata Motors plans to scale up production through internal capacity measures and closer coordination with suppliers. However, Chandra said the constraints had not resulted in production losses so far. “There is definitely some level of stress that we have on the semiconductor side, electronic parts. But we are securing the supply or we are paying higher cost for that,” he said.

On the electric vehicle side, the company ended last year at around 14% penetration, he added. “Last quarter, we were at 23% penetration and as you know, we are significantly behind the demand. We are at 10 days of inventory and with significant pending bookings. So the effort is on the supply side. So as we improve the supply in the next two to three months, the share of electric vehicles will also go up,” he said.

EV supply remains a key constraint, with demand significantly outstripping the company’s ability to fulfil orders. Tata Motors is currently meeting only 60-65% of EV demand, despite ramping up monthly supplies from around 9,000 units in March-April to 16,000 units. “All our factories are running at full capacity, if not more, with some plants operating for additional days. In terms of meeting demand, we are currently able to serve only about 60-65% of the total demand for EVs, which is why dealership inventory levels remain very lean. We have significantly ramped up supplies from around 9,000 units a month in March-April to 16,000 units currently, and hope to get closer to 20,000 units a month over the next two to three months. However, demand continues to exceed supply. While our in-house capacity is fungible and we can shift capacity from ICE vehicles to EVs, we are closely working with suppliers on around 26 critical parts to further ramp up supplies,” Chandra added.

Greener Powertrains Cross Half of Sales

The company's electric vehicle business delivered its strongest-ever quarterly performance, with volumes exceeding 47,000 units, up 90% year on year. Tata Motors strengthened its EV market share by 380 basis points sequentially to around 43%, retaining its leadership despite increasing competition and the entry of more manufacturers into the segment.

CNG also recorded its highest-ever quarterly volumes, supported by the company's twin-cylinder portfolio. Together, EVs and CNG accounted for more than half of Tata Motors' overall passenger vehicle volumes.

The shift towards alternative powertrains is gathering pace across the industry. India's passenger vehicle market grew around 29% year on year to approximately 1.36 million units in Q2 FY27. CNG penetration rose to around 25%, while EV penetration reached approximately 8%, taking the combined share of greener powertrains to nearly one-third of industry volumes.

Chandra said the combined share of CNG and EVs had increased from around 20-22% in FY25 to 32-33% currently, largely at the expense of petrol vehicles. Diesel has so far remained relatively stable at 17-18%. The company expects the transition towards greener powertrains to continue, supported by new launches, wider OEM participation and regulatory measures, including the recently notified CAFE III policy.