Ratan Tata wants the Nano to bring mobility to the Indian masses. But the project has been hit by costly setbacks, writes Mark Bursa
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There wasn’t quite the media scrum as last year – rampant enthusiasm is at a premium right now – but the new export-spec Tata Nano Europa, heavily revised from the original Nano, still attracted plenty of attention at the Geneva Show.
The urbane Ratan Tata was there to do the unveiling, posing for pictures with sundry Tata executives on the company’s stand, and outlining Tata’s plans for a European return. Tata will begin taking orders for the Nano in India next month, and the first cars will be delivered to customers just 15 months after Ratan Tata unveiled the tiny car at the 2008 New Delhi auto show.
Ratan Tata’s dream is still on track – remember, the inspiration for the Nano was his shock at seeing an Indian family of four riding precariously on a moped. But beneath his calm exterior, the Tata chairman knows what a struggle it’s been to get the car on to the market – a struggle that has been both costly and damaging to the company’s image.
In the West, we’ve been preoccupied by the struggles to stay in business of the major automakers. But in India, the Nano project has rarely been out of the headlines in the past year – and for all the wrong reasons. In between the last Geneva show and this, Tata has built a new factory for the car – and abandoned the almost-complete building. There has even been the burning of effigies of the Nano – an accolade usually reserved for corrupt politicians, or particularly inept cricketers.
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By GlobalDataMore seriously, an unseemly struggle with local farmers over compensation for land seized to build the original factory has damaged Ratan’s man-of-the-people image. Indian newspapers have carried lurid tales of local farmers driven to suicide over the wrangle. It’s the last thing Tata needs right now.
How has this little car, meant to bring safe mobility to Indian people, attracted such negative publicity? Politics, sadly, have played a part. The problems started when Tata chose Singur in West Bengal state as the site of the Nano plant. The local authorities didn’t handle this well, seizing farm land for the site. Tata pressed ahead with the plant. Intent on seizing an advantage over other planned low-cost cars, the company had set a 2009 on-sale target. But when the farmers demanded more money in compensation, the situation escalated into violent protests.
Tata refused to back down, and in October 2008 the company took the extraordinary step of abandoning the 95%-complete Singur plant. The prestige associated with such a high-profile project meant Tata has been able to secure the new site on favourable terms; indeed several Indian regional authorities were keen for the Nano to be built in their territory. The Tata Group finally chose a new site at Sanand, 45km from Ahmedabad in Gujarat state after evaluating sites in the Maharashtra, Uttarakhand, Karnataka and Andhra Pradesh regions.
But Tata had already spent around US$2.9bn on Singur, which puts into perspective the GBP27m recently granted by the UK government in order to help get the Land Rover LR1 into production at Halewood.
Much of the production equipment had been installed. This is now being relocated to the 65,000sq m Sanand plant, which will cost an estimated US$3.86bn – but won’t be ready until the end of 2010. This disruption has caused immense problems, and has forced Tata to set up a temporary line in order to get the Nano on to the market.
This has been set up at its existing plant at Pantnagar, near New Delhi. This plant previously made the Tata Ace light commercial vehicle, but production of this has been moved to another facility in Uttarakhand.
But the Pantnagar plant will have nowhere near the same capacity as Singur, or the new Sanand factory, which will churn out 250,000 Nanos a year. Now Tata bosses fear they may not be able to produce enough of the cars at its Pantnagar plant. Production has started, but is currently running at around 1,500 units a month.
By September, Patnagar should be building 7,000 units a month – but this is its limit, and it is less than one-third of the projected Sanand build rate. Tata is making the engines and gearboxes for the Nano in-house, at a temporary line at its engineering research centre in Pune. But again, this is capacity-constrained.
So now Tata is considering converting another plant, the former Mercedes-Benz India Ltd (MBIL) plant in Pune to build the Nano. This facility was until last year building Mercedes-Benz cars from CKD kits as part of a joint venture with Tata. But Mercedes has now moved its operations to a new, purpose-built plant across the city, freeing up the building. The new line could be installed quickly into the existing building, and crucially, using Pune would give access to Tata’s suppliers, as its main car-producing facilities are in the city.
And suppliers are a big part of the problem. The decision to move to Sanand from Singur has disrupted the supply chain, especially as some suppliers had already committed to build plants in Singur, and are unwilling to commit to set up temporary facilities before Sanand opens – and before they get some compensation for the money they’ve spent on their own, now useless, Singur facilities.
Tata could end up with a production schedule for the Nano that is close to its original idea, which involved the car being assembled at satellite locations around India. But the downside is the extra costs that the company has incurred.
Factor in the Singur write-off, the cost of relocation to Sanand, the compensation for suppliers, the cost of the extra temporary plants and the cost of logistics involved in transporting parts around the country. Suppliers fear that body panels in particular are likely to suffer transit damage as they are hauled around on India’s primitive road network. So factor in more rectification costs as well.
Nano is designed to be cheap – it’s expected to be priced at around US$2,500 – but it’ll have to be a loss-leader for a long time before those costs have been absorbed.
At the Geneva Show, Ratan Tata revealed plans to export the Tata Nano Europa. “The Nano has also generated wide interest in developed countries, since its unveiling in Delhi and its presentation here last year. We are delighted to present the Nano Europa for future launch in such markets,” he said. But exports will not start until Sanand opens, so don’t expect to see the car over here until the end of 2010 at the earliest – more likely 2011.
The Nano Europa has had a substantial makeover. It has a slightly longer wheelbase of 2.28m; front and rear body panels are substantially different, as are headlamps and other details. There’s an upgraded interior finish and an uprated 3-cylinder all-aluminium MPFI gasoline engine, matched with a 5-speed automatic transmission and electric power steering. CO2 emissions will be less than 100g/km. Safety has also been strengthened with advanced restraint systems, ABS, ESP and airbags.
So even though the target baseline price of US$2,500 for a rock-bottom spec Nano is still expected to be offered, you can bet that Tata will follow the Dacia Logan pattern of offering a richer mix of higher-spec models, in order to maximise unit profitability. The sooner exports to Europe and elsewhere can start the better, as margins can be much higher if the car is priced, say, at EUR6,000 or so. That ‘Europa’ spec is likely to be sold in India too, as a premium model. Ratan Tata’s dream has come at a high price – somehow, the Nano has to pay its way.
Mark ‘Coolbear’ Bursa
