Global Insight Perspective | |
Significance | After five years of development, Tata has finally unveiled its ”1-lakh car”, to be known as the Nano. |
Implications | The launch marks the realisation of a project initiated by Tata Chairman Ratan Tata and encouraged by certain quarters of the Indian government. The model offers an alternative to the motorcycle that is traditionally bought by customers at this price point. |
Outlook | The rising cost of commodities could lead to price rises for the model in the medium term, and although Tata will not initially have any rivals in this field, a project being developed by Bajaj Auto and Renault is likely to provide competition within the next two to four years. Profitability of the Nano and its components could be boosted, however, by Tata’s decision to take part in an ”Eco Car” scheme in Thailand and provide vehicles for export markets, which would not be feasible from its Indian plants due to anticipated strong local demand. |
On the opening day of the Indian Auto Expo, the chairman of Tata, Ratan Tata, has finally unveiled the company’s highly anticipated "1-lakh car". Very similar in design to the Mitsubishi I, the five-door hatchback that is to be known as the Nano is made from steel and measures 3.1 metres long, 1.5 metres wide, and has a height of 1.6 metres. It will use a 624cc gasoline (petrol) engine with 33 bhp located at the rear of the car, but a diesel variant will be introduced at a later date. The gasoline engine gives the vehicle a top speed of around 105 kilometres per hour (kph), but more importantly it should achieve an average fuel consumption of around 20 kilometres per litre, or 50 miles per gallon (mpg), and meet the Bharat 3 exhaust emissions standards (equivalent to Euro IV). The price of the base model will be around 100,000 rupees (US$2,500), but this is dependent on the cost of steel at launch. It will be available in two variants initially, one with air conditioning and one without, while Tata is currently polling potential customers to explore further comfort options that could be made available, including metallic paint, electric windows, and central locking, according to the Economic Times. The Indian automaker is initially hoping for sales of 200,000 units between its launch onto the market in around September and the end of the year. The company will also bring out a light commercial variant within the following 12 months after release.
Outlook and Implications
The unveiling of this vehicle marks the realisation of a project that was first mooted around five years ago by Ratan Tata, and which had been encouraged by some quarters of the Indian government. The aim of the project is to produce a new car that can be afforded by many more people in India, and to offer an alternative to the motorcycle, which has traditionally been purchased at this end of the market. Initially, the car will face very little competition from rival automakers, with base models appearing at its target price of 100,000 rupees, which is below the sticker price of the current cheapest vehicle in the country, the Maruti Suzuki 800, based on a Suzuki design that is over 20 years old. Maruti Suzuki has reiterated at the Auto Expo that it will not rise to the challenge laid down by Tata and its Nano in the sub-800cc category, largely because its engineers do not believe that a vehicle can be produced for the price that Tata has set.
However, with the cost of commodities having risen greatly since the conception of the project, it remains to be seen how long the model can remain at this price. Steel prices alone are expected to be a huge driver of the cost of manufacture of this vehicle, and Ratan Tata has said that he cannot predict when the car will become profitable for the company, or how much the margin will be. In addition, it seems very unlikely that the price of this model will stay at this mark for long once customers begin adding optional extras, such as air conditioning, which is likely to be vital in the Indian climate, although this could be advantageous for Tata in terms of the profitability of the project.
It is also unlikely to keep this market for itself for too long either, as Bajaj Auto has revealed a study of a vehicle that is likely to go head to head with the Nano within the next two to four years. Developed in conjunction with partner Renault and possibly Nissan, this model is likely to be very similar to Tata's vehicle because of the cost constraints involved in such a project. However, Bajaj has said that it will not be focusing on the launch price of this model, which is currently set at around US$3,000 and may rise over the course of the development process, consistent with a focus on quality and practicality.
Although the low price of the Nano may hamper the profitability of the vehicle initially, the underpinnings and the technology and expertise developed over the course of the project could find their way into other vehicles under consideration. One of these is said to be a model that could be built to comply with the Thai government’s ”Eco-Car“ investment scheme (see Thailand: 31 December 2007: Eco-Cars: Government-Backed Scheme Could See Thai Production Raised by 700,000 Units). The model would have to be adapted in order to gain approval under this scheme, involving changes such as a bigger engine, but the vehicle largely has the right ingredients to make it suitable for the programme. It would also allow Tata to provide vehicles to certain export markets, something it is unlikely to be able to do from its initial facilities building the model in India, due to the anticipated high demand in its homeland. Global Insight supports the view that the car will enjoy huge demand domestically, with sales expected to rise from around 200,000 units per annum (upa) to start with to over 500,000 upa within the next five years. However, it remains to be seen how long the vehicle can be sold for this ultra-low price and how it will be affected by a rise in competition in the future.