Tata Nano Car – An Unviable Business Model
Feb 25, 2009

In January 2008, Tata Motors India made breaking news when they presented the model of Nano as the world’s cheapest car at INR 100,000 only ($ 2500 at that time). For various reasons, the car is yet to be launched in the market. Without getting into the political issues associated, the Tata Nano car, in my opinion, is an unviable business model and therefore will continue to run into bad weather, unless fundamental changes are made therein.

My opinion is based on just three issues – (a) cost-price structure of Tata Motors Nano car is unbalanced and hence unsustainable, (b) Tata Nano car is against the grain of environmental climate issues of the day and (c) Tata Motors have taken a laid back management style in resolving critical social issues like displacement of farmland.

Cost Price Structure

We gather from press reports that Tata Motors have been driving hard bargains with the state governments to try and obtain as much subsidies as possible for the small car project. The subsidies they had obtained from West Bengal Government, as enumerated by the Economic Times of 25th September 2008, in an article “El Nano: A Perfect Storm” by Arvind Panagariya, are as follows –

a) land lease at throw-away prices (Rs 1,260/- only per acre per month)
b) a soft loan of Rs 2 billion for 20 years at interest rate of 1% per annum
c) concessional tariff of electricity at Rs 3 per kwh
d) VAT waiver for some Rs 10 billion or so
e) subsidised rates of water, stamp duties and other infrastructural facilities at nil or very low costs.

A recent press report says that it has been claimed that the amount of subsidy works out to Rs 60,000 per car, which is as high as 60% of its retail selling price.

In fact the cost equation is so thinly balanced, even after grant of the above subsidies, that Tata Motors management rejected a proposal to shift the vendor site location from the plant site to just across the road on the ground that the additional costs will make the project unviable.

It has never been wise to depend for business viability solely on government grants and subsidies and short term tax incentives. Nano however is trying to go against this basic business philosophy.

An Inconvenient Truth

We need to change our lifestyles and social-styles to deal with climate crisis and global warming on a long term basis. One of the things we must do in the automobile industry is to focus on improving mass transport systems rather than expand the market for small cars by producing low priced cars for almost every individual.

Even if the Nano car adheres to latest norms of pollution control and also develops a battery operated electric model, the “car for the masses” project still goes against the grain of current needs of the earth’s climate. In this context please refer to the treehugger site here.

Laid-back Management style

The laid-back management style adopted by Tata Motors for its Nano car is something which I find quite strange, to say the least. Tata Motors management avoided any participation in crisis management when social issues of displacement of farmland and farmers cropped up and which then turned into a social unrest. They solely depended on the West Bengal government for resolving the problem and therefore concurred silently to their act of removing farmers through police atrocities and armed hooligans of the ruling party, as witnessed on television by the whole world. Proactive management could have easily diffused the issue at an early stage and not made Nano a politically controversial project.

You can judge for yourself whether a business proposition which is based on 60% of its selling price being funded from taxpayers contribution, which does negatively contribute to global climate crisis and is backed by a laid-back management style relying on political hooliganism, can be a viable business model ever.

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11 Responses

  1. Irene

    A convincing article.However I had always been in favour of the Nano car project as it allowed a greater number of people to be able to afford a car of their own, making it easier for them to commute.To wait for an improvement of the state transport system seems to me to be a Utopian concept

  2. Thank you Irene for the comment. In the final analysis, it will be less expensive for the economy to build a decent mass transport system or improve the existing ones than to provide cars to every individual – without taking the environtal impact into account. Just imagine the no of cars, the amount of fuel consumption, the fuel distribution system, the training to millions of drivers, the maintenance of the cars etc vis a vis a mass transit system.

  3. Todays newspapers say that the diesel model of Tata Nano car will be launched soon after the petrol version and will be priced at Rs 200,000 – that is double the price of the petrol version. It seems that the gimmick days of Rs 1 lakh car are getting over.

  4. Vij

    Maruti was first started as a people’s car.But look what happenned to the price.Anyway,it was at least a good car.Is this Nano supposed to be good?

  5. Utpalendu Gupta

    The merits of the arguments presented in the blog are undeniable. On the environmental issue, however, I’d be reluctant to point a finger at anyone (despite the big-profile visibility of the Tatas as an easy target) without first pointing it at myself.

    Most green versus un-green debates are ultimately social issues, and thus political issues too. The ferocious and often violent arguments traded over Singur were never about “No-no to Nano”. All parties there were pro-Nano, but differed only over the mode of land acquisition. Since the un-greenliness of Nano did not enter or inform our collective awareness, it may be unfair to demand of the Tatas as a mere profit-seeking industrialist group a higher level of green-consciousness than the rest of society.

    The social context of the environmnetal debate is deeper than may be immediately perceived. Granted the nano-car is hostile to the environment, is the mid-sized or the larger car any better? Are we, as members of the society’s elite and privileged class, willing to first give up our BMW and Mercedes and Tata-Sumo before we talk of the Nano?

    As Sukumar Ray might have said:
    aamraa jaabo mercedes’e, choRbo shadaa plane’e –
    tomraa jete chaaile pare bolbo “kalaa ei ne”..

    How about motor-cycles and scooters? Do we wish to eliminate them too? If not, it may well be argued that the Nano is no more than a four-wheeled motor-cycle and should therefore be allowed to co-exist with the two-wheeled variety.

    Technology has given us a lot of benefits over the last couple of centuries; unfortunately, it has also ended the holocene epoch and brought about the anthropocene era where man’s inventions have a profound impact on the global eco-system. We need a serious debate at the civic society level about these concerns – a debate which may be pioneered by, for example, the IIT’s and/or the IIM’s which may also fund much-needed research. Once some form of consensus begins to evolve about how to balance material and social progress against consequential environmental damage, it may then be possible to involve wider groups like political parties, chambers of commerce and industry, etc., and look towards specific action.

    To expect the Tatas to enter the debate before it has even commnenced may not be fair to them.

  6. Michael

    “A recent press report says that it has been claimed that the amount of subsidy works out to Rs 60,000 per car, which is as high as 60% of its retail selling price.”

    I’ve done some research about this 60% claim but i haven’t found any reliable source to confirm this. So therefore i’m thinking that what you’re saying is not true.

  7. Hello there! This blog post couldn’t be written much better! Looking through this article reminds me of my previous roommate! He continually kept preaching about this. I’ll send this article to him.
    Fairly certain he’s going to have a very good read. Many thanks for sharing!

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