Global Economics

Tata Unveils the World's Cheapest Car


The $2,500 Nano, met with extreme enthusiasm, will have lighter steel and innovative distribution. It also could further snarl India's roads

It's called the Nano, for its high technology and small size. It's cute, compact, and contemporary. It's a complete four-door car with a 623-cc gas engine, gets 50 miles to the gallon, and seats up to five. It meets domestic emissions norms and will soon comply with European standards. It's 8% smaller in outer length than its closest rival, Suzuki's Maruti 800, but has 21% more volume inside. And at $2,500 before taxes (value-added taxes increase the price by about $300), it is the most inexpensive car in the world. Starting this fall, the Nano will roll off the assembly lines at a Tata Motors (TTM) plant in Singur, Bengal, and navigate India's potholed roads.

The Nano, also known as the People's Car, is Ratan Tata's dream come true, and is India's contribution to changing the global auto industry. "The car has put India on the global map," says Fionna Prims, head of business development for Segment Y, a Goa-based automotive consultant for emerging markets. "Tata has done in four years what the Japanese took 30 years to do. It will change the whole industry." Even rivals are gushing. "It's a red letter day for Indian industry, a day India should be proud of," says Venu Srinivasan, chairman of motorcycle maker TVS Motors. "Ratan Tata has the vision to create a new business model and all the naysayers are looking at it with concern. The Nano is a path breaker."

Judging by the extreme enthusiasm that greeted the launch of the car Jan. 10 at the biennial Auto Expo 2008 in New Delhi, the Nano has exceeded industry expectations. For the four years that the car has been in the making, Tata Motors, which makes trucks, sport-utility vehicles, and the Indica, India's second most popular car, has endured skepticism and disbelief (BusinessWeek.com, 1/3/08) from rivals both domestic and international.

Ratan Tata Never Lost Faith

In the past week alone, domestic rival Bajaj Auto unveiled a hastily configured concept car with a price tag of $2,700, and Osamu Suzuki, chairman of Japan's Suzuki Motor (7269.T), said the $2,500 price point was not where the market is (BusinessWeek.com, 12/5/07) in India. International carmakers and media doubted Tata's ability to meet international environment and safety standards, and wondered aloud what the appearance of an affordable car would do to India's already congested roads.

Throughout, Ratan Tata remained unfazed, despite his own doubts of meeting his timeline and price goal at a time when the costs of raw materials, from steel to rubber, were rising. But Tata promised a $2,500 car, and "a promise is a promise," he said to an audience spilling out into the streets and packed with government officials, industry chiefs, international carmakers, and reporters. "I hope it will be seen as the car…which changes the manner in which people in rural and semi-urban India will travel," said Tata. And, he added, "it will be a profitable venture for the company."

The Nano has broken ground on many different levels—in price, in size, in distribution, and technology. By using lighter steel, a smaller engine, and having longer-term sourcing agreements with parts suppliers, Tata was able to keep the price of the Nano down. Its length of 3.1 meters, width of 1.5 meters, and height of 1.6 meters, with wheels at the outer corners and engine, gears, and transmission in the rear, creates space inside the car.

A Diesel Nano Will Come Next Year

Tata has filed 34 new patents on the Nano, says Girish Wagh, chief engineer and leader of the 500-man engineer and design team that created and developed the car. Most are in the engine; the Nano will have a two-cylinder, 30-hp engine with a four-speed manual transmission. Analysts say the true engine innovation will come next year, when Tata introduces the diesel version of the Nano.

Finally, the distribution of the car will also be an innovation. Just like a bicycle, it will be sold in kits that are distributed and serviced by the entrepreneurs who will assemble it for the consumer. Tata won't elaborate, and will only say "the distribution system will be a variant from the norm. It will remove some of the layers in distribution and service."

The Nano basic will sell for $2,500, but there will be many versions of it, including an air-conditioned one, and prices could go up to $4,000, still less than the Maruti 800, until now the world's cheapest car at $4,810. And it will be customized for overseas markets and exported. Ratan Tata intends to export the car to emerging markets in Africa, Latin America, and Asia, where it'll be a natural fit, says Paul Blokland, director of Segment Y who has been following the auto sector in emerging markets, particularly China, for a decade. The Chinese, he adds, have been only making copies of cars all these years, and have a lot to learn from Tata Motors' innovative vehicle.

Dealers' Phones Ringing Off the Hook

The Nano, having created a new market segment, has already begun to spawn an industry around it. India's Apollo Tyres has said it will start to make tires for small cars like the Nano, and the industry could clearly grow if the Nano proves to be popular.

Will Ratan Tata shift to a lower gear now that his dream has been fulfilled? He'd like nothing better, he says, but it's unlikely. "We have to now deliver a reliable product, and the Indian consumer has still to ratify it," he said. "We have only just put a stake in the ground." Does he worry about rivals? "We were driven by a desire to achieve what we set out to do, and it can be achieved by anyone who tries to achieve their dream. Someone else may be able to do it better than us," he said.

Certainly there's interest from consumers. At Bafna Motors in Mumbai, the phones were ringing all day, according to S.M. Bafna, managing director of the auto dealer. He had to keep his phone off the hook to ward off prospective buyers. Bafna wouldn't hazard a guess of how many Nanos he might sell, for "I might underestimate the demand," he said. "People are desperately waiting for the car."


Steve Ballmer, Power Forward
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