Posted by: John Elliott | March 23, 2009

Tata’s “One-Lakh” Nano – let’s cool the hype

I’m travelling out of India so hadn’t intended to blog on the launch today of Tata’s tiny Nano car, but am doing so because, surely, the hype has gone too far.

On the FT website there’s a piece by Suhel Seth, a well known figure in India’s social, media, and business circles, excitedly titled “Why India Needs a Nano”.

the Nano

the Nano

Arguably it’s something of an insult to India because it suggests that the country needs this small car because “in these troubled times, India needs a symbol of hope; a symbol of the possible”.  It will not just be the launch of a car – “instead it will be the launch of a million possibilities”. This is sheer hype from my friend Suhel, who I believe advises Ratan Tata.

I don’t want to be a spoilsport, but what is all the fuss about?

bmw-isettaThere have been many small cars before around the world – a little Fiat 600 and a even smaller front-opening BMW Isetta 300cc three-wheeler “bubble car” (left)  were for example familiar sights on  Europe’s roads 40 or so years ago

OK, so the Nano’s basic ex-factory price will be one lakh rupees – that’s Rs100,000 – roughly $2,000 at current exchange rates.

And this means that Ratan Tata, who heads the Tata group and has direct managerial responsibility for Tata Motors, is personally honouring his promise to produce a car for that price.

But every buyer will have to pay more than one lakh rupees even for the basic model – probably nearer $2,500, though that is of course still less than India’s next cheapest car, Maruti’s 25-year old 800cc model which retails for about Rs190,000 upwards.

More significantly however, not many of this basic model will be built, simply because it will  not be profitable. The economics of the exercise dictate that Tata Motors must focus more on higher priced models that can fetch higher prices, which it will do immediately.

Nano interior

Nano interior

About 10ft, long and just over 5ft wide, the Nano is very small, and that is one of the innovations that Tata has made to reduce the price. The company has also worked with suppliers to reduce the price of components, and it is economising by for example only having one windscreen wiper. The basic model also does not have safety specifications that would be needed in many overseas markets.

And, unless Ratan Tata announces it later today, we do not know how these cost savings add up, nor the surely considerable contribution made to the low costs by the extremely favourable investment incentives that it was first offered for its blighted West Bengal factory at Singur and now has in Gujarat where the car will be made later.

These incentives on land price and tax and other concessions are of course available in other states for new factories, but would presumably not have been offered for Tata Motor’s main plant in Pune. (I will return to these figures later when I am back in India)

So let’s be realistic. Sure, Tata is today unveiling an exciting new small car – smaller than anything else on the India market. Other manufacturers – including India’s Bajaj Auto with Renault – are working on a similar size car, so Tata does seem to be heading where there will be a big demand.

That’s great, but the One Lakh  Ratan Tata promise has become a branding gimmick and is well below the on-the-road price of most 0f the Nanos that will be produced.

And a proportion of the savings has come not from brilliant engineering or innovation but from state government subsidies, which will cost the tax payers of Gujarat in lost government revenue.

Secondly, if Ratan Tata really wants to do something for India, wouldn’t he have done better to develop a tiny car with serious fuel emission and fuel economy innovations, instead of simply a low cost brand that will further clog India’s already crowded roads?

So, on balance, is Tata really doing India many favours today?

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This post is also on the FT.com website – see http://www.ft.com/cms/s/0/2b47c97e-178f-11de-8c9d-0000779fd2ac,dwp_uuid=a6dfcf08-9c79-11da-8762-0000779e2340.html

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Responses

  1. I doesn’t matter that it will remain of one lack or not but tata Nano is something that took the national pride to new levels, no doubt about it. Tata tied the tongues of the global auto experts and critics who claimed it’s impossible to build a one-lakh car even its price hikes it will always remain people’s car.
    regards,
    http://www.qpoonline.com

  2. i dont u’stand why people are divided into two groups abt TATA nano…. its a bad car ,its a great car. what i belive is its not a great car but but its not the worse thing available in the market….. its a cheap product…. and you get what u paid for…. something which drives on 4 wheels.. got decent enough fuel economy….
    If you dont have anything good about it to saythen its fine…. but why work overtime to put a finger in the eye…. Like e.g. “And a proportion of the savings has come not from brilliant engineering or innovation but from state government subsidies, which will cost the tax payers of Gujarat in lost government revenue.” – this kind of benefit all the industies gets/takes….. why blame Mr. Ratan Tata or Nano. And thanks Mangesh for such to the pont reply of this blog

  3. Most importantly how safe is it?
    Would it turn turtle if even a rickshaw crashes into it? Are there any safety features at all to reduce accidents or minimize impact on collision?

  4. John, the hype for the Tata Nano is justifiable.

    Owning a car is a great aspiration for people who do not have cars. Say about 80% of the world’s population cannot currently afford cars. If the Nano can make ownership possible for even 10% of this population, you have a product whose demand can be in tens of millions. That is revolutionary!

    Indeed, if the Nano proves to be durable, there is going to be huge demand for it in places like India, China, South and South-East Asia, Latin America, Mexico, Middle East, and Africa.

    The Nano breakthrough is not technological, rather it is whether a quality product can be made by those relatively poor for others who are relatively poor. This section of the world’s population (and they are a large majority) has currently been shut out of the car industry. The Nano may change that for some of those, say 10%, not the entire deprived population.

  5. It is a ridiculous car. The mobility requirements of Indian people have to be in congruence with the nation’s energy requirements. We can ill afford to take the path America took after Henry Ford’s inauguration of the Model T in the 1920s.

    For a simple fact – America has three times the amount of land India does and one third the population of India.

    Just because an automobile was a solution to America’s mobility requirements, does not mean it is going to be applicable to India.

    We are already reeling under fuel subsidies for the middle class that is expected to be the target for the Nano.

    The Nano is going to keep the subsidies intact because the vocal middle class will turn violent even if there is a slight increase in fuel prices.

  6. I liked the interesting views you have put ahead JE, however is there some sort of attempt by Western media to constantly de-motivate and de-grade India? Please do not take this the wrong way, but almost everywhere the Western media seems very biased.

    In fact I just finished reading Happionaire’s Cash The Crash – Yogesh Chabria/CNBC-TV18 where the author very clearly talks about how Western rating agencies indulge in such scams and de-grade India to junk while America is already bankrupt. What are your views on this and on this book? I find you an open person and that is why have posted this comment.

    MY REPLY:
    thank you Sumit –

    you sent this comment with a (confidential) email address that does not work, so I am putting it up here – sumti@gmail.com. If you log on again, please send me another comment with your correct email, which then will be confidential – I do not run comments from sources that I can’t verify.

    No, I don’t detect any intention to “de-motivate and de-grade” India – the euphoric reception givenm to the Nano illustrates that.
    And no, I have not read Happionaire’s Cash The Crash – Yogesh Chabria/CNBC-TV18
    je

  7. Well-deserved puncturing of the hype – though one has to hand it to Tata for generating so much publicity about so very little. And is the Nano really the world’s cheapest car? I suspect that in China, where production capacity is currently estimated to be twice national unit sales, new cars are being dumped on the market at, or even below, the same price.

  8. I do agree that it has nothing innovative, except an astute understanding of the market, and its needs. To be honest, I feel more proud of the “budget” Moon-probe( at $ 83 Million) than the Nano. But having said that, I think these two events signify something more than just “branding” and “PR” machine. Both have been very cost effective ways of delivering a dream, and in my opinion signal the arrival of efficient engineering (perhaps not yet research). But, efficient & innovative engineering is still a value-addition.

  9. I am glad that someone like John Elliott has the courage to see through the hype and state things in perspective. The Nano is a good product, but its surely not the most important agenda for India, and the obsessive outpouring of national sentiment is misplaced. Public transport and other fundamentals get overlooked in such ‘bhed chaal’ mass responses. Somebody has to keep looking at the whole picture.

  10. Your blog entry seems to be designed to be provocative. So is it really worth it to respond? Oh well, spending a few more minutes would not hurt I guess.

    Innovation does not have to be completely new technology. By that measure lots of the corporations have stopped being innovative long time ago. Nano’s innovation is in understanding what most Indian customers would want/need and delivering it at a price that a lot more people can afford. And it did take a lot of clever engineering and collaboration to do that. It surely will provide transportation a lot safer than a rickshaw or 2 wheeler to millions of people. If that is not innovative, what is? And if it is so ‘not innovative’, how come none of the other auto companies came up with this idea before?

    I have worked for a Tata company, and believe me, they are not good at PR. All the hype you see now is created by a genuinely game changing product. No wonder others are getting into the game.

    Nano’s fuel economy is already better than every other options. 23 kpl/52 mpg is great, lots of hybrids can’t even do that. Hybrid, more fuel efficient versions of Nano may also come later. How many companies are delivering on that promise globally anyway? And what would a middle class Indian consumer rather buy? A hybrid Prius for $40000 or a Nano for $2000? They have the same fuel economy rating🙂

    Most auto companies would not even think of a product like Nano because it does not have the margins of a SUV or a big car. Tata is not out to do charity, but it is not socially and environmentally irresponsible like GM or Ford either.

    As far as saving from government subsidies, all manufacturers have those options and play that game. Who else have you seen having the vision and the will to come out with a cheap car that may take years to turn real profit? Everybody else is busy making expensive, gas guzzling, road space consuming cars with high margins that only a few Indians can afford.

    I am surprised that having been a journalist based in India (and for FT of all publications), you have not been able to understand the Indian market, otherwise you would not think of this event as a hype.

  11. I feel if Tata had invested in a world class public system in Pune, it would have gone a long way and perhaps would have been a true foresighted campaign. Indian roads do not read more cars and we need to learn from the western worls and start investing in sensible public system -now!

  12. Finally, a pessimistic look at the Tata Nano! I should say that innovation can just as well be breakthrough as incremental and process vs. product. In your opinion, can simply challenging traditional mindsets on what constitutes a car market be described as innovation?

    That said, you are right that the Nano is not, as some would have us believe, the 2nd coming of the Lord, nor is it something that India “needs” to boost its confidence. Indeed, if that were true, it would not bode well for India and its prospects.

  13. thanks everyone for these comments, mostly not agreeing with me – welcome! I wish more people would comment either way. Answering some of the points….

    ­- The Nano is not really the result of innovation Mr Krishna, even though I do use the word in my column above. It’s more a case of cleverly shrinking size and specifications to the minimum.

    ­- Thanks RecycleBill – indeed, as you say, the “return” of the micro-car – so not innovation!

    ­- Hi Humphrey – no it’s not innovative as I have just said, there are many milestones in life, unsurprising it’s in the private sector, and as for “captured the imagination of the global media” – that shows that Tata’s pr machine is working overtime (and unusually successfully).

    – ­Good to have your comment Raja but you are really just echoing the hype – and don’t forget that Maruti was the real trailblazer of the Indian passenger car industry with the 800 model, admittedly with Japanese help, but it spawned the modern Indian auto industry of today – see https://ridingtheelephant.wordpress.com/2008/12/14/today-is-the-25th-anniversary-of-the-maruti-suzuki-car-that-changed-india%e2%80%99s-motor-industry/

    – thanks friend Oracle – that’s a nice concept, a huge nano! Nothing here justifies the hype!

    Keep the comments rolling!
    je

  14. You have to start somewhere and, admittedly, there will have to be solutions to environmental concerns and over-crowding. Of course, prices will go up as a consequence, but it is still a huge step forward and will impact on both upstream and downstream employment.

  15. I don’t know, I think this car is nice. Would like to see something like it in the USA…I wrote a blog about it also if you care to look link is below:

    http://www.thisisawebsite.info/2009/03/23/indias-tata-motors-unveils-nano-worlds-cheapest-car/

  16. Nano is an innovation from India – Indian engineering, Indian minds, Indian execution. And is deemed the “India’s people car” and from a private company. Every country had its people’s car and it was a pride of that country (Ford Model T, Volkswagon, Subaru) and now Nano is pride of India. Also it is need of the hour. You might have come across sights of entire family of 5 traveling on a two wheeler. India definitely needs Nano….

    But what makes Nano great is that single thought that came across Ratan Tata to manufacture $2500 car. Making the impossible possible. Now many companies may follow it and come up with $2500 car. But what matters the most is who did it the first, who made it happen inspite of all the ridicule faced within industry circle, who achieved it inspite of all the hurdles that came across its way!!! That makes Nano n Ratan Tata great!!!!

    – Raja!!!

  17. Nano will be curse for poor indian people who navigate by walking or bicycles or motorcycles. Cant imagine of going on the roads wherein no traffic rules or signs are followed!.What will the state of narrow lanes/roads and major roads with no dividers ?.More cheap cars on the un-developed roads will be catastrophic and curse for the commoners! Why experts like you dont write of environmental effects on introduction of this car?

  18. It is innovative. It is a milestone. It is private sector. It is optional. It has also captured the imagination of the global media.

  19. The return of the micro-car! If only we Americans were smart enough to do the same…

  20. Nano is a symbal of innovation in India. It also adequately addresses the need of the market and the public whose requirements are very price sensitive in nature.


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