Tata Hopes Tiny Car Is a Big Hit
Indian Company Plans to Target Motorcycle Owners With Low-Cost Nano
By SANTANU CHOUDHURY
NEW DELHI -- When the Nano minicar was conceived by India's Tata family in 2003, patriarch Ratan Tata said he intended to provide an affordable, fuel-efficient, safer alternative to the motorcycles and scooters used by millions of low-income Indians.
The 10.2-foot-long car's launch Monday will come at a very different time -- for India, the auto industry and the Tata empire.
The focus will be as much on whether the Nano will sell big and deliver profits to debt-strapped Tata Motors Ltd. as on whether it could spur a transportation revolution on India's roads.
This photograph taken on January 10, 2008 shows the Tata "Nano" car in New Delhi.
With an expected starting price of about $1,945 for dealers, which doesn't include a markup and other charges that consumers will pay, the Nano will be one of the world's cheapest cars.
Tata Motors has declined to discuss details on costs, production plans and profit margins. It is expected to reveal fresh information, such as sales forecasts, at the launch event in Mumbai.
Like auto makers the world over, Tata Motors is contending with slowing demand, both for its bread-and-butter commercial vehicles in India and its luxury nameplates, Jaguar and Land Rover.
The company reported its first quarterly net loss in seven years in the October-December 2008 quarter, and saw its debt rating cut by ratings firms.
More pressingly, Tata Motors faces a June deadline to repay $2 billion in loans related to its Jaguar-Land Rover acquisition from Ford Motor Co. last year.
The Nano symbolizes the global auto industry's rush to create affordable, lower-emission vehicles to tap developing nations from India to Brazil. Should the car succeed, it could represent the coming-of-age of modern India's manufacturing prowess.
But going by the auto industry's experience with small cars, the upstart Nano won't be much of a money-spinner. Manufacturers have traditionally made razor-thin margins on smaller cars, using them more to capture younger buyers in the hopes they will move up to more profitable models as they grow in age and wealth.
"Even if Tata Motors sells 100,000 Nano cars a year, it will still be insignificant for their overall profit and revenue," said Ambrish Mishra, an analyst at Mumbai-based MF Global Sify Securities India Pvt. Ltd.
Other auto makers, meantime, are pursuing their own versions of the Nano.
Bajaj Auto Ltd., India's second-biggest motorcycle maker, is developing an inexpensive small car with Japan's Nissan Motor Co. and Renault SA of France. Suzuki Motor Corp. of Japan, which has half of India's car market through its joint venture Maruti Suzuki India Ltd., sells the diminutive Maruti 800. Yet the cheapest car in India costs nearly twice as much as the Nano.
Still, "we don't see the Nano as a game-changer today," said John Bonnell, J.D. Power & Associates' director of forecasting for Asia Pacific. He said Tata will have a hard time sustaining the Nano's low price over a long period due to materials costs.
Mr. Bonnell also doubts that India's motorcycle buyers will upgrade to Nanos en masse because the vehicles, though inexpensive, still will cost more than three times the price of a modest motorcycle and will be more expensive to operate and maintain.
The Nano has had its share of setbacks. Most notably, a planned West Bengal manufacturing site, in which Tata Motors had invested about $292 million, was abandoned last year after violent protests by a political party and farming groups over disputed land.
The Nano will now be built, in batches and after a costly three-month delay, at existing Tata plants in Pune in western India and Pantnagar in the north. Meantime, the company is spending about $389 million to build a dedicated Nano factory in Gujarat state.
Amol Bhutada, an analyst with Edelweiss Securities Ltd. in Mumbai, said the Nano's cost structure is based on high volumes. "So only when you make good use of the installed capacities, then you will start making good money," he said, adding that may not happen until fiscal year 2010-2011.
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