India's highly anticipated $2,000 "People's Car" nears its debut amid factory headaches and a seriously slumping domestic auto market
After battling thousands of angry protestors, a cross-country move for a nearly completed car factory, a skeptical car industry, and a nosedive in its share price, Tata Motors (TTM) finally has a launch date for its People's Car, the Nano. With a sticker price of around $2,000, the Nano will be by far the cheapest car in the world—and the most widely anticipated car in India. On Feb. 26 the company announced the Nano will go on display Mar. 23 and on sale in mid-April.
As challenging as it has been for Tata to first develop and then produce the Nano, the automaker's biggest challenge may still lie ahead: With the Indian economy sagging, the country's auto market is in the dumps. Automobile sales in India, once the second-fastest growing car market in the world, have dropped significantly on a month-by-month basis since October. Total automobile sales—including commercial vehicles, two-wheelers, and passenger cars—dropped 13% in October, 18% in November, and 15% in December. This year, the downward trend is continuing, with sales dropping another 7% in January, according to data maintained by the Society of Indian Automobile Manufacturers.
Nano Web Site: 30 Million Visits
But if any car could buck that trend, say auto analysts, it could be the Nano. Without a doubt, it has captured India's imagination. When it was unveiled in January 2008 at the Delhi Auto Show, the car made headlines the world over. It was surprisingly good looking, and with an array of technological advances, it had delivered Tata Group Chairman Ratan Tata's promise of producing a quality car for 100,000 rupees. (In India, the car was nicknamed the One Lakh car before it launched, since a lakh is the Hindi word for 100,000.) For many Indians, the car became a symbol of national pride, coming on the heels of nearly a decade of breakneck economic growth and India's ascent in the global economy.
Since then, says Tata Motors, nearly 30 million people have visited the Web site for the Nano. And even though the car project got mired in controversy when protestors in the eastern state of West Bengal ringed its production site, complaining about the way the Bengal government had acquired land before leasing it to Tata Motors, the Nano remained popular in other parts of the country. "I would have bought one in October, if the car was ready," says Raghuvir Pandey, 33, a textbook salesman from Faridabad, a suburb of New Delhi, who said he had been saving money for the car for months. "If it was possible, I would have been the first person in line for it."
The success of the Nano is pivotal for Tata Motors, which is loaded with debt from a $2.3 billion purchase of Jaguar and Land Rover from Ford (F) nearly a year ago. Tata Motors' share price had dropped to nearly half of the company's book value, before recovering to about 80% of its book value of 4.61 per share, as estimated by Macquarie Research (MQG.AX). Its shares have fallen 10% so far this year; that's on top of a 78% plunge last year, versus a 52% drop in 2008 for the benchmark Sensex index. Analysts estimate earnings for the fiscal year ending in March will be approximately $351 million, on revenues of $5.6 billion.
Released at the Right Time?
The poor stock performance reflected investor unease not just about the Nano and the Jaguar-Land Rover deal but also the sorry state of the Indian auto market. Yet some observers are hopeful that there's room for a turnaround. Even though sales figures for February are not yet available, carmakers such as industry leader Maruti Suzuki (MRTI.BO) and No. 2 player Hyundai are eager to see if a slew of tax cuts and economic stimulus measures announced by the government can shake the car industry out of its lethargy. "There is a lot of pent-up demand in the system," says an auto analyst at an international bank who asked not to be named, as per company policy. "People have been putting off purchases for months because of the economy. If there is a resurgence in confidence, then the Nano is being released at just the right time."
That's a big if, of course, but the timing may just work. For years, India's reserve bank has kept interest rates high to hold back inflation, which last year touched nearly 12%. But the central bank has dropped interest rates three times in the past six months, enabling car loans to drop from nearly 16% to about 11%. In addition, the government's first $8 billion economic stimulus package, announced in December, includes road- and bridge-building plans that could make all cars more attractive. Already, lower interest rates, massive discounting, and yearend clearance sales helped Maruti Suzuki show strong sales in January for passenger cars.
The 624cc, rear-engine Nano will be sold in two versions at first—the basic $2,000 model and one with air conditioning and stereo, which Tata expects will help make the entire project profitable. Tata had expected to sell 100,000 of these cars in the first full year and has not revised that estimate, even though the first batch of cars likely will be of a limited number. Last month, Tata Motors CEO Ravi Kant told BusinessWeek that this first batch of cars was being produced at alternate production sites while the company waits for its main factory in Sanand (a city in the western state of Gujarat, where Tata shifted after the Bengal controversy) to become fully operational. "There are some interim arrangements to produce the Nano in small numbers to whet the appetite but not satisfy the hunger," he said Jan. 30, when the company announced a $54 million quarterly loss, its first in seven years.
Profits Will Come From Abroad
Ironically, for a vehicle that Tata has touted as a car for the people, the Nano's real profits may not come from India but rather from foreign markets, where the company is not wedded to the $2,000 price. The German newspaper Bild, for instance, has reported that Tata might sell the car in Europe for approximately $6,400, and that the company will show the European version of the car at a show in Geneva next month. Tata has not commented on the report.