Tata Vs Hyundai: The Tale Of Two Auto Giants Who Believed In The India Story

While Hyundai has held the number 2 position in the Indian auto sector for over two decades, Tata Motors catapulted to it by completely reinventing itself. 

2 April 2024 12:00 PM GMT

This is part one of a two-part series on the growth of Tata Motors and Hyundai Motor India. 

In August 1998, a new series of advertisements hit Indian TV screens. They showed a mysterious Asian man, ?Mr Kim?, trying to convince actor Shah Rukh Khan to advertise his company?s new car in India. ?Why me?? asks Khan in the first part of the four-part ad series. Mr Kim replies, ?Because Hyundai settles on nothing but the best.? By the fourth part Khan, then on a path to becoming a superstar, is on board,  won over by Kim's persistence, the company?s technology and its dedication to the Indian market.

Cut to September 1998, the South Korean automaker launched the Santro ? its first ?made in India? car, an entry-level hatchback with a unique design, manufactured at its plant in Sriperumbudur, Tamil Nadu. Two years later, the Santro was zipping through sales, averaging 1 lakh sales every year for the next decade. 

During the same time, a legacy company known for its trucks, launched its first fully indigenous passenger car, the Tata Indica. The car made a big splash and received over 1 lakh bookings in the first few weeks. Back then, both Tata Motors and Hyundai Motor India saw Maruti Suzuki, and its hatchback bestseller Zen, as their main competitor.  

This is part one of a two-part series on the growth of Tata Motors and Hyundai Motor India. 

In August 1998, a new series of advertisements hit Indian TV screens. They showed a mysterious Asian man, “Mr Kim”, trying to convince actor Shah Rukh Khan to advertise his company’s new car in India. “Why me?” asks Khan in the first part of the four-part ad series. Mr Kim replies, “Because Hyundai settles on nothing but the best.” By the fourth part Khan, then on a path to becoming a superstar, is on board,  won over by Kim's persistence, the company’s technology and its dedication to the Indian market.

Cut to September 1998, the South Korean automaker launched the Santro — its first ‘made in India’ car, an entry-level hatchback with a unique design, manufactured at its plant in Sriperumbudur, Tamil Nadu. Two years later, the Santro was zipping through sales, averaging 1 lakh sales every year for the next decade. 

During the same time, a legacy company known for its trucks, launched its first fully indigenous passenger car, the Tata Indica. The car made a big splash and received over 1 lakh bookings in the first few weeks. Back then, both Tata Motors and Hyundai Motor India saw Maruti Suzuki, and its hatchback bestseller Zen, as their main competitor.  

While both the Santro and Indica were popular cars, Hyundai quickly rose in the ranks to clinch second place in the Indian car market. 

Twenty-five years on, India’s car market has changed significantly in its preferences. One thing that hasn’t changed is that Maruti Suzuki is still the number one car manufacturer in the country, in terms of sales volume. But Hyundai (which held on firmly to the number two position for over two decades) and Tata Motors are now caught in a tight race for the second spot before they go for the behemoth. Each month is a new challenge between the two automakers. 

In February, Tata Motors, which has seen its fair share of slumps and rebounds, beat Hyundai in domestic vehicle sales by a sliver. However, Hyundai not only took over as number two in March sales again but also posted its best-ever annual domestic sales at 6,14,721 units. Tata Motors, meanwhile, also posted its highest-ever annual sales at 5,73,495 units.

Plus, the company is on its way to setting up a new manufacturing facility worth Rs 9,000 crore in Ranipet, Tamil Nadu. Quite literally on the heels of Hyundai. 

So what happens now? 

This tale is of two giants steadfast in their belief in the 'India story'. One with a legacy spanning more than a century, who knew the Indian market, but took a while to figure out cars. The other, a South Korean upstart, that had entered the US market barely a decade before its ambitious plans to enter the nascent Indian market and capitalise on it. 

Setting The Stage

Earlier this month, Tata Motors announced the demerger of its commercial vehicle and passenger vehicle (PV) businesses. The company called this a “logical progression” since the businesses have had separate CEOs since 2021 and were subsidiarised in 2022. 

Tata’s PV business includes traditional passenger cars, electric vehicles (EVs), and luxury cars under the Jaguar-Land Rover division, with the company heavily betting on its EV segment. Four years since Tata launched its first EV for private use, it has managed to snag almost three-quarters of the EV market share in India. 

The demerger underlines Tata’s confidence in its ability to expand in the PV segment. The Tatas have now become the pioneers of India’s transition to EVs. Word is that the company’s EV subsidiary, Tata Passenger Electric Mobility Limited, is gearing up for an IPO in the financial year 2025-26.  

As a senior auto columnist, who wished to remain anonymous, put it — Tata Motors is definitely winning the perception war regardless of other considerations. In the last decade, it has managed to shed its image as just a truck company and is now being associated with EVs – widely seen as the future of automotive technology. 

Where is Hyundai, you ask? Not far behind. The South Korean giant is planning to list its Indian unit for an initial public offering worth $3 billion this year, making it the largest in India. It is reportedly planning to file draft IPO papers by May-June for approval, and the issue may be launched by October-November. The fundraising would put its Indian unit’s valuation at more than half its market capitalisation of $47 billion in Seoul, according to a Reuters report. 

The company will likely scale up its EV operations after the IPO. Hyundai Motor India’s COO Tarun Garg said earlier this year that battery electric vehicles were the “ultimate destination” for the Indian auto industry, adding that while its hybrids were doing well in the US and Europe, they don’t make sense here given the current tax structure. 

“They (Hyundai) wouldn’t like to bring their money from Korea at this stage. So they would like to basically earn money from India and reinvest in India,” Puneet Gupta, director of Indian Automotive Market at S&P Global Mobility, told The Core. 

hyundai tata

The Origin Story 

The Santro, which in hindsight can be called a raging success, wasn’t well-liked by everyone at first sight. “When we saw the Hyundai Atos (rebranded as Santro), our hearts sank,” recalled Subhabhrata Ghosh, who was then-executive director of Saatchi & Saatchi, the agency tasked with launching the Santro in India. “It was exactly the opposite of the car that was in vogue those days, which was a small sleek hatchback called the Maruti Zen,” Ghosh said. 

The Santro came with a “tall boy design”, originally a Japanese concept (Maruti Suzuki came out with the original tall boy, the WagonR, a year later). This was widely mocked by the Indian audience it was tested on. Modifications were made to soften and round the back of the car. Still, the challenge was getting the audience to change their perception. 

The Core reached out to Hyundai Motor India and Tata Motors and will update the story when they respond. 

The car is now almost synonymous with Hyundai for a generation of Indians, exactly the way the car maker wanted it to be. “Hyundai was very clear and we were very clear that communication has to play a major role in building the story and the image of Hyundai… and the image of Hyundai would be built around the image of Santro,” Ghosh said. That’s where Shah Rukh Khan came in. Who better to sell the car to lakhs of India than the superstar, who at the time was at the peak of his career? Ghosh credits the decision to get him on board to BVR Subbu, an auto industry stalwart and then-president of Hyundai Motor India. 

The pre-launched advertisement portrayed Khan as almost a proxy for an Indian customer planning to buy a car. He was made to ask the right questions — from how to pronounce the company’s name to what kind of features it was offering, and what set it apart.  Amit Mukherjee, then-associate creative director at Saatchi & Saatchi, who also worked on the campaign, said. “On a scale of 1-10 on what helped launch the Santro, I think I would give the ad campaign and Shah Rukh being the ambassador an 8.” 

While the launch helped build curiosity and also familiarity, what established Santro were the features and quality that it offered. It was, in many ways, India’s first feature-rich car. Instead of a carburettor, it offered a multi-port fuel injection engine with three valves in the entry-level segment for the first time. “It always positioned itself as more premium than Maruti Suzuki,” Gupta said. 

Santro didn’t take off immediately. It took some time and convincing to convert bookings into actual deliveries and sales, Manish Nair, then-sales manager for Hyundai Motor India in Rajasthan, and now market CEO of Mercedes-Benz India told The Core. Compare this to the Indica, which was launched a few months later, and opened to over 1 lakh bookings. But for the Indica, those couldn’t all be converted into sales and deliveries. 

Not only did Hyundai use the charm of ‘King Khan’, they focused their energies on building relationships with their customers and getting solid feedback from them. Early car buyers were asked for feedback and used as references or local brand ambassadors. BVR Subbu built a network of dealers who had no prior experience selling cars. “Many of them came from two-wheeler dealerships… they had the hunger to establish this car and get sales,” Nair said. The team also focused on penetrating the market beyond the urban areas as well, something that Maruti had already established. 

“But what really built the brand was that the Koreans had a very smart refresh and relaunch programme,” said Ghosh. 

Within a year of launching, the Santro received its first update called the Zipdrive, with a first-in-segment power steering, a new radiator grille and a sporty rear spoiler. The Santro Zip Plus was soon introduced, and then the Santro Xing by 2003. “By then, Santro was a darling,” Ghosh said. 

What Hyundai Got Right 

When Hyundai entered India, it wasn’t the only one trying to cash in on the country’s promising auto market. However, most others played it safe and entered the market with joint ventures. They also started with launch-pad models to assess the market. There was General Motors with the Opel Astra, South Korean competitor Daewoo with the Cielo, and Ford entering into a JV with Mahindra. 

None of these automakers have stuck around. Ford exited the country in 2021, GM in 2017 and Daewoo was gone by 2003. How did Hyundai manage to stay put? 

“It always had a first mover advantage,” Gupta explained.

Santro established a strong foundation for the company, and it didn’t waste any time building on it. In 1999, it launched the Hyundai Accent, for India’s still nascent sedan market, and soon after, the Sonata, for a more premium sedan segment. 

The Accent was priced starting at Rs 5.35 lakh, giving it an edge over competitors in the mid-size sedan segment. Hyundai officials even claimed that it would have the technology and luxury of a Mitsubishi Lancer, then priced at a base model level of Rs 7.80 lakh. The Accent’s main competitor was Maruti’s Esteem, priced slightly lower at Rs 4.76 lakh. Accent overtook in only four months after launching, clocking over 2,500 sales a month. 

The Sonata was priced between Rs 11-13 lakh. The car model, with a 2 litre petrol engine, was cheaper than the manual transmission variant of the Honda Accord, its main competition priced at Rs 14.95 lakh. Other competitors were the Ford Mondeo (priced at around Rs 16 lakh) and the Mercedes C Class (Rs 23 lakh).

By 2002, Hyundai crossed the 1 lakh sales mark, taking the number 2 spot and holding on to it for years to come. The company was adept at not just identifying segments, but creating new categories in the market. It did this with the Santro first, and later with the i20 and the Creta SUV. 

Yet, Hyundai has only been at number two, never being able to take over the number 1 spot. 

"Hyundai appears to be content to be No 2. It was different when we started when the entire focus was to become No 1," BVR Subbu was quoted as saying in an article in The Economic Times in 2012. This was when the company had registered its biggest fall in sales — by 14% to less than 31,000 units.

By 2012, Hyundai had launched a slew of cars. Its strategy was simple and offered one or two cars in each customer segment. 

Winning Strategies

To maintain its lead and also take on the competition, Hyundai followed two critical strategies — localising processes, and using India as an export hub. 

Hyundai Motor India Limited (HMIL) had become a small car export hub for the larger global corporation by 2003. This strategy has continued. It exported almost 40-50% of its production from India, which helped it make products at competitive prices for the domestic market. “Until about five years ago, Hyundai was a pretty aggressive exporter from India… in the last five years, the India market has been really booming. So they had to push more domestically and reduce their exports,” Gupta said. 

Hyundai was quick to localise its processes. For one, it created strong supplier ecosystems near its plant in Sriperumbudur, in regions such as Kanchipuram and Thiruvalluvar. The company helped suppliers gain access to international manufacturing technology and standards, which allowed them to achieve more localisation. Hyundai Mobis, the company’s auto parts partner, also launched operations in India in 2007, further reducing dependence on imports. 

Not just that, Hyundai also focused on localising talent. While its main R&D was in Namyang, South Korea, it developed the Hyundai Motor India Engineering (HMIE), launched in 2009, to become a major R&D unit to service the Indian market. Hyundai’s small car offering — Eon, which had a global launch in India in 2011, was designed in Namyang, but engineers from Hyderabad made several suggestions, including a bi-fuel engine. Sravan Kumar, an engineer who worked at Hyundai’s Hyderabad R&D centre for nine years, told The Core that Indian engineers were sent to South Korea frequently for training and eventually their dependence on Korean expertise reduced. 

Having established itself for its uncompromising quality, Hyundai shifted its attention to aesthetics. In 2010, the company introduced a new design philosophy called the fluidic sculpture design philosophy. In India, it was first introduced on its premier sedan, the Verna, and the Eon, in 2011 and then used for the i20, the grand i10 and the Elantra as well. 

This was part of a global strategy to give the company an edge over its competitors, as well as bring some uniformity to Hyundai’s cars, all of which had been designed individually before this. It also helped Hyundai position itself in a more premium market segment, against competitors such as Volkswagen and BMW. Considered to be a bold move when it was introduced, the company wanted the design rejig to give its cars a “modern premium” vibe, as Hyundai Designer Casey Hyun put it in a 2014 interview. 

Hyundai has, over the last twenty years, managed to stay at number two. However, its market share has reduced over time. While it grew from about 14% in 2009 to 17.4% in 2021, it is now back to 14.89% in FY2023, amid new competition and slackening demand for hatchbacks. 

India has always been a priority market for Hyundai though. Immediately after launching, Hyundai posted a profit after its first full year of operations, at Rs 59.3 crore after tax in 2000. It has been profitable every year since, except for in financial year 2008-9, when it posted its first annual loss. 

In 2023, India accounted for 18.6% of Hyundai’s global sales in terms of volume and is number three after the US and South Korean markets. HMIL also posted its highest-ever revenues and profits in FY2023, with the turnover crossing Rs 60,000 crore and profits growing 62% to Rs 4,653, the highest among the non-listed automotive companies in the country. 

Last year, HMIL’s CEO and MD, Unsoo Kim told the media that the company expects to make up more than 20% of Hyundai’s global sales volumes in the next two-three years.

Tata’s Trudge 

In comparison to Santro and its maker, the trajectory of Indica and Tata Motors was a bit different. On its launch in 1998, it was received really well. It came with a diesel engine, making it a cheaper option to buy and run. But it soon ran into issues with reliability – from engineering issues like tailpipes falling off, troubles with winding the windows, and overheating, to abysmal after-sales service. A second version was launched to address the reliability and refinement issues. That too failed. 

“The problems being faced were very different from its truck business…serviceability was a big area of concern,” a former business unit head and assistant general manager at Tata Motors, who worked there for 19 years, and requested anonymity, said. 

In terms of competition, “the company itself could be called its competition when issues cropped up in the car,” the ex-Tata Motors employee said. He added that the company took a while to figure out its hubris and the faults in its engineering process. 

The company developed the 207 platform (design architectures that make up the underfloor, engine compartment and frame of the car), which was used for the Tata Sierra, Estate, Sumo and Safari, from the ground up. It was inspired by contemporaries like Toyota Hilux and Nissan A new engine was developed in-house inspired by the 207’s 483 DL engine, which was then downsized for the Indica. The 207 platform had a lot of issues, but it took them a great amount of time to actually accept and rectify them, he added. 

“Tata's aspiration was to provide a world-class product. But somewhere considering the needs of the markets, it went into multiple categories and lost control,” Gupta said. 

The Nano Problem

It had big ambitions for the Nano, launched in 2008, which it had termed as the ‘people’s car’. Tata was making the cheapest car — it cost Rs 1 lakh, barely more than a two-wheeler… but it ran into trouble from the get-go. 

For one, the earliest versions of the car brought up several safety concerns. There were reports of cars catching fire, attributed to various factors, including faulty electrical systems and fuel leakage. Plus, the basic model of the Tata Nano lacked certain safety features like airbags and antilock braking systems (ABS). 

The car being marketed as the “cheapest car in the world” also worked against it. Despite the company pushing for years, the Nano couldn’t shake off this negative publicity.

Months before the car was launched, analysts projected that the carmaker would report a net earnings decline of around 30% for three months, due to rising costs. It had just acquired the Jaguar and Land Rover businesses from Ford for $2.3 billion, and its stock was down 42%.

To bring down the cost of manufacturing the car, as well as in dire need of outside innovation, Tata Motors had pushed suppliers and vendors to bring down, not only the cost, but also the weight of the components. Most of the vendors stuck to the rigid cost and engineering guidelines, and delivered, knowing they would not start making profits for the first few years. What came out was a revolutionary product in the way it was designed to be frugal. 

For instance, Sona Koyo and Rane Group came up with hollow steering shafts, saving cost and reducing weight. Rico Auto, which supplied the engine block, used aluminium to reduce weight. Bosch, which developed the braking system, configured it so that the conventional vacuum booster wasn’t needed, to keep costs low. The car’s seats and window winding mechanism were inspired by helicopter seats and windows. 

And yet, there were more challenges. For one, it faced challenges in setting up its factory in Singur, West Bengal from Mamata Banerjee’s TMC, which at the time was the state’s main opposition. Getting suppliers from auto centres in Pune, Chennai and Delhi, to Singur was already difficult. At one point, suppliers halted investments due to political uncertainty. The company then shifted production to Sanand, Gujarat. 

By 2013, component suppliers were asking the company for a price rise. 

Tata also launched the Manza, a compact sedan and Vista, a successor to Indica Vista, in 2009, in a bid to refresh its lineup. Both failed miserably and were discontinued in 2014. After sustained efforts to increase sales, Tata also discontinued the Nano in 2018. 

It wasn’t like Tata-made cars were not seen on Indian roads. The Indica, Tata Sumo and Indigo were popular cars, but they failed to convert into numbers. 

In 2009, Tata had dipped below Mahindra and Mahindra to become the fourth largest car maker in the country. And between 2010 and 2016, its market share fell from 13.7% to 4.6%. New generation versions of its old classics like Tata Safari and Sumo, didn’t find many takers in the passenger vehicle market and were relegated to the sidelines, adopted mainly by taxi fleet drivers. 

“But they persevered… they kept learning and experimenting and pushing,” the employee said. 

The company, however, maintained its profitability during this time. In FY2009, Tata Motors' standalone Indian operations' profits declined by 51% over the previous year, thanks to a global economic downturn and JLR sales declining. It still posted a net profit of Rs 1,001 crore. It bounced back somewhat and managed to maintain profitability in the next year, with a net profit of Rs.2,571 crore. Its financial performance jumped over three-fold to Rs 9,274 crore in 2010-11, thanks to global economic recovery as well as a pick up in JLR’s sales in key markets. 

Profits in FY2012 also rose to Rs 13,516 crore thanks to increased sales of PVs and CVs, as well as better JLR sales. Net profits dipped in FY2013, to Rs 9,893 crore, amid a slowdown in the Indian automotive industry. They improved marginally in FY2014 to Rs 13,991 crore and remained flat in FY2015, thanks to a slowdown in demand, and increased competition. 

tata motors hyundai

The Reinvention Of Tata Motors 

Tata’s acquisition of Jaguar Land Rover as its wholly-owned subsidiary in 2008 helped it get insights into the global market (something Hyundai had had an edge over before this). It got access to JLR’s advanced auto technologies, expertise in luxury vehicle manufacturing, and R&D capabilities which helped the company enhance its product offerings. 

Tata also gained access to JLR's design studios in the UK, including the Jaguar Design Studio in Coventry and the Land Rover Design Studio in Gaydon. It also briefly collaborated with Italian car design firm Pininfarina, to develop concept cars and trucks. 

But this was not what turned the tide. 

A spree of new hirings breathed new life into a company that was struggling to stay relevant. 

 It started with Karl Slym, who came on board as Tata Motor’s managing director in 2012, until he died due to suicide in 2014. “He really set a lot of things in motion,” Hormazd Sorabjee, editor at Autocar India, told The Core. After Slym, ex-airbus COO from Germany, Guenter Butschek, came on as Tata Motors’ CEO in 2016. Butschek, who was part of the company till 2021, propelled the company forward. Under him, Tata Motors checked its expenses through cost cutting and got rid of unnecessary platforms. There was greater integration with JLR and the company hired several top former executives from Maruti. 

The Nano debacle also taught the Tatas a thing or two. While it was advertising and constant innovation for Hyundai, the engineering and ecosystem-building lessons Tatas learnt while making the Nano helped play a key role too. Leveraging synergies within the Tata Group to build cars was another game changer. 

After 2016, an unlikely winner emerged. At the time, Tata was working on two new platforms – the Alfa and Omega platforms (on which the Harrier, 2019 and Altroz, 2020) were launched. While it was working on these, it needed bridge products to draw customers in. These were the Nexon, Tigor and Tiago. This time Tata Motors also decided to onboard a celebrity — football legend Lionel Messi — to endorse its cars, to perhaps make up for what Hyundai had gained all those years ago with Khan. 

The Nexon became a game-changer for Tata Motors. Not only was it feature-rich but also because of its design. It had dual front airbags for the base variants, multiple drive modes, and an 8-speaker, 6.5-inch touchscreen Harman infotainment system. By 2018, the model contributed to as much as 50% of the company’s utility vehicle sales. In that fiscal year, the company sold 51,891 utility vehicles, of which 27,747 were the Nexon. 

In 2019, it launched the Nexon EV, which propelled the company to dominate a sizable chunk of the EV market, coming at a time when the EV segment was ripe for the taking. 

In February, Tata Motors sold 51,321 units domestically, registering a 19% year-on-year rise. Close behind, Hyundai sold 50,201 units in the month, with the volume up by 7% year-on-year. 

Hyundai’s India arm registered its highest-ever revenue in FY 2022-23  at Rs 60,000 crore and clocked profits of Rs 4,653 crore. 

Tata Motors’ passenger vehicle arm posted Rs 47,868 crore in revenue in FY 2022-23. This does not include the significant numbers that JLR brings in. After the demerger, where JLR will be a part of its PV business, its revenue is expected to be around Rs 2,75,000 crore, 2.4 times that of market leader Maruti Suzuki (Rs 1,17,571 crore). The demerger will take about 15 months to be implemented. 

But let’s not forget Hyundai’s $3 billion IPO. Both companies are also poised to introduce a slew of new variants and models in the market, making the competition for number 2 even more fierce. 

Read part 2 here

Updated On: 3 April 2024 10:27 AM GMT
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