New Delhi: Tata Motors Ltd , India’s largest vehicle maker, is in initial talks with a couple of Chinese automobile companies for a tie-up for its passenger vehicles business, three people aware of the development said.

These companies may either invest directly in Tata Motors or form a joint venture, the people said, requesting anonymity. Mint could not independently verify the names of the two companies. The collaboration could include joint development of technologies related to electric mobility, sharing of manufacturing capacities, development of engines and platforms and other aspects of the business, they said.

“The Chinese have invested in German, Swedish and French automakers and wisely. I’m sure they will see value in Tata Motors," said Avik Chattopadhyay, founder of Expereal, a brand consulting firm. “It also gives a strategic investor the opportunity to provide ground-up electric mobility technology at the entry level."

The move could help Tata Motors significantly reduce its debt for its India business that stood at ₹23,365.49 crore as of 30 September, according to Bloomberg. Its consolidated debt, including that of its UK unit Jaguar Land Rover, stood at ₹95,465.08 crore.

Vehicle makers are increasingly seeking partnerships to invest in futuristic technologies to cope with stringent emission, fuel efficiency and safety standards. India recently adopted new safety norms for vehicles and new emission norms will come into effect from April. In a couple of years, vehicles will also have to meet a second and stricter phase of corporate average fuel efficiency (CAFE) norms and in another three years, real-time driving emission test will be introduced.

A spokeswoman for Tata Motors said the company does “not comment on market rumours".

According to one of the three people cited earlier, Tata Motors has been actively looking for collaborations as the company, like other manufacturers, is looking to slash costs to sustain profitability.

“It’s prudent to look for partnerships in the passenger vehicle business, where losses are likely to increase due to stringent regulations, which are likely to dampen demand," the person said. “Competition will also intensify due to new entrants like Kia Motors and MG Motor in the future."

Earlier this year, Mahindra and Mahindra, the country’s third-largest vehicle maker, formed a joint venture with the Indian unit of US carmaker Ford Motor Co. to develop and manufacture combustion engine and electric vehicles.

In 2017, Japanese manufacturers Toyota Motor Corp. and Suzuki Motor Corp. said they would jointly develop electric vehicles, lithium-ion batteries and combustion engine vehicles for the Indian market. They also bought minority stakes in each other this year to consolidate the partnership.

Tata Motors appears a lucrative target for Chinese companies looking to establish a base in India as the company has excess capacity, which could be easily utilized to ramp up operations.

View Full Image Tata Motors’ passenger vehicle market share shrank to 4.59% in the eight months to 30 November from 6.19% a year ago (Graphic: Paras Jain/Mint)

With China’s economy showing sluggishness despite the recent easing of trade tensions with the US, Chinese vehicle makers are keen to enter the Indian market.

In August 2017, Tata Motors ended talks with Germany’s Volkswagen AG for a collaboration in the passenger vehicle space in India.

MG Motor India, owned by China’s biggest vehicle manufacturer, SAIC Motor Corp., has already launched its first product, Hector, in 2019. Great Wall Motors Co. Ltd, China’s largest utility vehicle manufacturer, is scouting for land and is in talks with General Motors to buy its manufacturing plant in Maharashtra. Changan Automobile Co. Ltd is also scouting for land in the country to start operations.

Another reason for Tata Motors’ move could be that it may find it tough to maintain an edge in both the commercial and passenger vehicles. “Given the investment required in upgrading to BS-VI norms, second phase of CAFE norms and investment in electric vehicles, the pressure on the balance sheet would be significant," the second person cited earlier said. “The company will have to pile on more debt, which is not sustainable in the future."

In passenger vehicles, the company’s market share in the eight months to 30 November shrank to 4.59% from 6.19% a year ago, following a 39% drop in sales to 86,412 units.

The Mumbai-based vehicle maker is already looking for partnerships for Jaguar Land Rover and has forged one with German competitor BMW for developing next generation electric powertrains.

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