Tata’s Nano, the World’s Cheapest Car, Is Sputtering

Tata’s Nano, the World’s Cheapest Car, Is Sputtering

By Siddharth Philip on April 11, 2013

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The old adage says a person can’t be too rich or too thin. Given Tata Motors’ (TTM) disappointing experience with the Nano, the $2,000 compact it introduced with great fanfare in 2008, it’s clear a car can be too cheap—at least for consumers who don’t want to be associated with a low-end ride. Ratan Tata, then chairman of parent Tata Group, made headlines a decade ago when he ordered up a “people’s car” that would appeal to Indian families who previously could only afford to travel by scooter. But Tata Motors has sold just 229,157 Nanos since deliveries began in 2009, and sales in March were off by 86 percent from a year earlier.

Tata Managing Director Karl Slym insists the company won’t kill the tiny, egg-shaped car. It will soon add improvements to breathe new life into the model, a move that would ultimately bring its price closer to those of rivals. The Nano’s marketing “didn’t jell with anybody,” Slym says. Scooter drivers weren’t attracted because others “don’t think I’m buying a car, they think I’m buying something between a two-wheeler and a car. Anyone who had a car didn’t want to buy it, because it was supposed to be a two-wheeler replacement.”

Slym points to the Pixel, a Nano-based concept vehicle Tata first showed in 2011, as an example of how the brand could evolve. The two-door hatchback takes the skeleton of the Nano and adds innovative doors that rotate up rather than open out, automatic transmission, and a diesel engine. Yet Haritha Saranga, an associate professor at the Indian Institute of Management in Bangalore, says in an e-mail that “just creating variations is not going to help increase sales. It is important to change the current image of Nano as a cheap car.”With Nano sales in free fall, Tata’s passenger vehicle sales dropped 15 percent in the year ended March 31, even as industrywide sales rose 2.2 percent, according to the Society for Indian Automobile Manufacturers. For the year through March, Nano sales were off by 28 percent, to 53,848 cars.

When Ratan Tata conceived the people’s car in 2003, after seeing an entire family precariously riding a scooter, he established a target price of 100,000 rupees, a bit more than $2,000 at the time. The price has crept up to about 142,000 rupees ($2,600) for a stripped-down model and as much as 200,000 rupees for a version with air conditioning and power windows. These days, Nano buyers are more likely to be wealthy Indians rather than families upgrading from a two-wheeler. “People are buying the Nano for their mothers, fathers, children, second cars,” says Slym, a General Motors (GM)veteran who took charge at Tata in October. “That’s actually a good thing, because it allows us to do a lot more with the car than just make it at a low price.”

Tata will have to change the exterior and interior of the Nano and add features such as power steering to compete with cars from Maruti and Hyundai Motor, says Umesh Karne, an analyst at Brics Securities in Mumbai. That would require raising the sticker to about 250,000 rupees, says Karne, about the level of rival hatchbacks. Instead of selling solely on price, he says, the Nano must be “more aspirational.” Yet the automaker is still playing to financial concerns: In a bid to woo consumers unwilling to take out bank loans, Tata in March started accepting credit cards for Nano payments.

The bottom line: Tata Motors’ über-cheap Nano, now about $2,600, hasn’t caught on. So Tata may add features that would raise its price and profile.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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