Background
- ~$2500
- ~62 MPG
- Minimal features (including safety features)
- First car to compete with scooters
- Innovative design/production
- Massive branding/publicity exercise
Risk
From a feasibility perspective the Nano was quite risky . First, creating the Nano required 34 new patents to create the lightest modern production car at half the price of the nearest competitor. Second, as with most new vehicles, Tata will take a loss on all vehicles, estimating break-even at six years, at best an early estimate. This huge investment has weakened their financial position. Last Tuesday, S&P lowered Tata’s ratings from B+ to BB- and indicated that further downward revisions were in the offing. This pushes Tata’s bond ratings further into junk territory just as it is struggling to refinance $2 Billion of the $3 Billion bridge loan it took to finance the acquisition of Jaguar and Range Rover. Thirdly, it was not ingenuity that created the greatest impact on cost, it was politics. Tata convinced the Indian people to finance this project through manufacturing plant subsidies from particular states. One plant alone is creating
10,000 new jobs, and there are 3-4 plants expected to break new ground. The states were convinced, however farmers and activists staged violent protests at Tata Motor's Singur plant in February, alleging locals were forced off prime farmland to make room for the plant. The government says it has compensated most of the affected farmers; however, many vehemently argue they were forced into giving up their land and primary trade against their will. Tata has since moved the plant location.The Market
From a market-driven perspective the opportunity is palpable. India is about to enter a mode of wealth creation greater than China, as it finally recognizes its population as an advantage, not burden. The largest group of baby-boomers ever are entering the workforce (average and median age is 25 in India, over 40 in China) creating a surge in demand that no economy has ever seen. Simultaneously, small cars have become in-vogue on the global scale. While India purchased over 7M scooters in 2000 compared to 1M autos, the Nano's price enables it to directly compete with scooters. Currently, there are only 6M car owners in India and 18M have the means to buy one. Amazingly, the Nano's price point increases that pool of potential auto owners by as much as 65 percent, to 30 million just as the target market dramatically increases.
Global Impact
The environmental argument rages onward. Tata alleges that the emissions are better than that of comparable scooters and comparable to the next cheapest auto. Environmentalists worry that soaring car ownership, whether Nano or otherwise, degrades the environment and locks India into greater dependence on oil (India imports 75 percent of its crude oil).
"We'll have a timebomb ticking away. When you lower the price that drastically, how will you be able to meet safety and emissions standards?...It's just not sustainable, whether from an environmental point of view or in terms of congestion." - Anumita Roychoudhury, of the Centre for Science and Environment in New Delhi, to The Observer and Reuters
Additionally, India's urban areas are already terribly congested. This is a photo I took on a recent trip to India. It is also very common to see groups up to 4 or 5, including small children, all on a single scooter. Ratan Tata, the giant conglomorate's 70-year Chairman says:
That's what drove me -- a man on a two-wheeler with a child standing in front, his wife sitting behind, add to that the wet roads - a family in potential danger.
While Tata is highly respected across the globe (65% of the Tata Group, with $63B revenue, is held in chairitble trusts) lets not forget the considerably relaxed safety regulation that enables the Nano, and many others, to reach the market without air-bags, useful bumpers, or a crumple zone.Verdict
Regardless of government subsidies, the Nano is impressive. Early test drives demonstrate that consumers will generally be pleasantly surprised by features and the overally experience. The multi-year marketing blitz and media coverage has given Tata Motors headline status across Asia (30M website hits since last yr) and spawned business school case studies. The high-end brands may gain (good Corrolla sales help Lexus sales), and new job creation benefits many. If the Nano can maintain market demand consistency akin to the Nintendo Wii, this will surely reinvigorate the global auto market. Beginning in India, then europe and China, and hopefully expanding to other developing regions like Central and South America, the Nano will set the precedent for financially accessible personal automobiles of this century. However, despite all the hype and its future successes, I firmly believe the Tata Nano is an evolution, not a revolution. A revolution would leverage hybrid and renewable energies, not increase India and the world's dependence on oil. A revolution would encourage increased utilization and monetziation of the worlds most extensive railway system. A revolution would focus less on market capitalization and more on profitability while contributing to the Three E's of sustainable development: Economy, Environment, & Equity. Lastly, a revolution would work with regulators and government to create the cheapest safest car, not create a "People's Car" that directly increases deadly high speed collisions in the country with 8 percent of the world’s vehicle fatalities and less than 1 per cent of its cars.
Sources:
Merinews
BBC News
Tata Group
Wired
Reuters India
Sinlung
CNET
SepiaMutiny
Additional materials provided by Tata Motors
