Evaluating the Tata Nano

Evaluating the Tata Nano

 

The Tata Nano. "The People's Car" is marketed as India's first major mark as the world's leading innovators and a key enabler for job and wealth creation across India. However, many protest, citing environmental concerns, urban congestion and forced displacement. I was recently provided materials from Tata Motors and it inspired the following exploration of the Nano from three business angles: risk/feasibility, market opportunity, and overall global impact.

 

From a feasibility perspective the Nano was quite risky . First, creating the Nano required 34 new patents and creating 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. Small cars are currently 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. 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. 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.