The rising cost of commodities could lead to price rises for Tata’s new ‘1 lakh’ Nano ‘people’s car’ model in the medium term, and although Tata will not initially have any rivals in this field, a project being developed by Bajaj Auto and Renault is likely to provide competition within the next two to four years, Global Insight auto analyst Ian Fletcher said on Thursday.
Go deeper with GlobalData
Profitability of the Nano and its components could be boosted, however, by Tata’s decision to take part in an ‘Eco Car’ scheme in Thailand and provide vehicles for export markets, which would not be feasible from its Indian plants due to anticipated strong local demand, Fletcher said in a research note.
He said the launch – at a motor show in New Delhi today – marks the realisation of a project initiated by Tata chairman Ratan Tata and encouraged by certain quarters of the Indian government. The model offers an alternative to the motorcycle that is traditionally bought by customers at this price point.
Fletcher said the base model price of around 100,000 rupees (US$2,500), would be dependent on the cost of steel at launch.
It will be available in two variants initially, one with air conditioning and one without, while Tata is currently polling potential customers to explore further comfort options that could be made available, including metallic paint, electric windows, and central locking.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThe Indian automaker is initially hoping for sales of 200,000 units between its launch onto the market in around September and the end of the year. The company will also bring out a light commercial variant within the following 12 months after release.
“The aim of the project is to produce a new car that can be afforded by many more people in India, and to offer an alternative to the motorcycle, which has traditionally been purchased at this end of the market,” Fletcher wrote.
“Initially, the car will face very little competition from rival automakers, with base models appearing at its target price of INR100,000, which is below the sticker price of the current cheapest vehicle in the country, the Maruti Suzuki 800, based on a Suzuki design that is over 20 years old.
“Maruti Suzuki has reiterated at the Auto Expo that it will not rise to the challenge laid down by Tata and its Nano in the sub-800cc category, largely because its engineers do not believe that a vehicle can be produced for the price that Tata has set.”
Fletcher said that the cost of commodities such as steel had risen greatly since the conception of the project, and it remains to be seen how long the model can remain at this price. Steel prices alone are expected to be a huge driver of the cost of manufacture of this vehicle, and Ratan Tata has said that he cannot predict when the car will become profitable for the company, or how much the margin will be.
“In addition, it seems very unlikely that the price of this model will stay at this mark for long once customers begin adding optional extras, such as air conditioning, which is likely to be vital in the Indian climate, although this could be advantageous for Tata in terms of the profitability of the project.”
Fletcher added that Tata was unlikely to keep this market for itself for too long either, as Bajaj Auto has revealed a study of a vehicle that is likely to go head to head with the Nano within the next two to four years. Developed in conjunction with partner Renault and possibly Nissan, this model is likely to be very similar to Tata’s vehicle because of the cost constraints involved in such a project. However, Bajaj has said that it will not be focusing on the launch price of this model, which is currently set at around $3,000 and may rise over the course of the development process, consistent with a focus on quality and practicality.
Fletcher said that, although the low price of the Nano may hamper the profitability of the vehicle initially, the underpinnings and the technology and expertise developed over the course of the project could find their way into other vehicles under consideration. One of these is said to be a model that could be built to comply with the Thai government’s ‘Eco-Car’ investment scheme.
The model would have to be adapted in order to gain approval under this scheme, involving changes such as a bigger engine, but the vehicle largely has the right ingredients to make it suitable for the programme. It would also allow Tata to provide vehicles to certain export markets, something it is unlikely to be able to do from its initial facilities building the model in India, due to the anticipated high demand in its homeland.
“Global Insight supports the view that the car will enjoy huge demand domestically, with sales expected to rise from around 200,000 units per annum to start with to over 500,000 within the next five years.
“However, it remains to be seen how long the vehicle can be sold for this ultra-low price and how it will be affected by a rise in competition in the future,” Fletcher conluded.
