Tata Motors stock rises on JLR Nvidia deal

The stock of Tata Motors has suddenly turned chirpy in last few days. On 16th February, the stock rallied by 3% and added another 1.7% on 17th February. That is nothing much to write home about but there is an interesting story building up around Tata Motors. The investors largely cheered the announcement that Jaguar Land Rover's (JLR) had signed a multi-year strategic partnership with Nvidia, the world’s largest producer of graphic and AI chips.

The tie up between JLR and Nvidia is about tapping the huge electric car and smart car opportunity with the help of customized chips, where Nvidia has tremendous expertise. In the US markets, as the chip shortage has mounted, Nvidia has become the most valuable chip maker in the world with its market capitalization closing in on the $1 trillion mark. Nvidia focuses on the high value graphic and artificial intelligence chips.

In a statement, post the signing of the deal, Nvidia confirmed that it had tied up with Jaguar Land Rover (JLR) to jointly develop and deliver next-generation automated driving systems. These driving systems would be based on specially designed and AI-enabled microchips and related services for the customers of the carmaker. Today cars are getting smarter and savvier and more command driven. Hence chips have become an integral part of a car.

Here is why the deal is extremely interesting. Effective 2025, all new vehicles manufactured by JLR will be built on the NVIDIA DRIVE software-defined platform. This will be part of the long term association between JLR and Nvidia. As part of this long term deal, Nvidia will deliver a complete spectrum of active safety, automated driving and parking systems, apart from high-end and safety tweaked  driver assistance systems for futuristic and smarter cars.

This is going to be the next big leap for cars that will now become increasingly software driven and dependent on chip intelligence. The deal is likely to accelerate JLR’s transition from a traditional car market to a software-enabled electric cars and autonomous driven car manufacturer. This tie up for JLR with the world’s most advanced pure chip company puts them in a unique position to capitalize on the emerging trend of smart autonomous cars.
 

JP Morgan price upgrade also gives a boost

In a way, it was like the pieces falling together for the TAMO stock price story in India. Even as the Nvidia deal was leading to a re-rating of the smart car story within Tata Motors, J P Morgan has initiated coverage on Tata Motors with an “Overweight” rating. J P Morgan has given a normalized price target of Rs.630 for the stock, which implies an upside of 26% for the stock from current levels. This has added grist to the Nvidia story of Tata Motors.

However, the price of target of Rs.630 is just a base case target and its bull-case target for Tata Motors is closer to Rs.783, which implies an upside potential of 54% from the current price levels. To top it, JP Morgan is also confident that Tata Motors will achieve its target of zero net debt target by the end of fiscal year 2023-24. This sharp reduction in solvency risk will be a big boost in an environment where debt is increasingly looked at as taboo.

For now, Tata Motors has already indicated that it will launch as many as 10 electric car models over the next five years in the domestic Indian market. Clearly, it has a first mover advantage and wants to make the best of it. There is one more market that Tata Motors is looking to capture and that is the huge and lucrative market of the government push for electrification of India’s automobile fleet. The story may have just about begun.