International Case Tata’s Nano, the Cheapest car in the World

Dr. Amit Kr. Jain

Professor
Gitarattan International Business School,
Rohini, Delhi-110085.

Email: amit.jain@gitarattan.edu.in
Mob. 9873363829

When Ratan Tata conceived the idea of a $2,000 car, it seemed to be just a dream of so many.
The idea was to develop a fuel-efficient inexpensive car that could serve as an alternative to
Indian’s motorcycle riders. By 2009, however, the car entered the market. The initial demand of
the “people’s car” was expected to be several millions of orders, a demand that could not be
filled. Therefore, the first 1,00,000 car orders are to be distributed by lottery.

The introduction of the car was hindered by several setbacks. The West Bengal plant site had to
be closed because of protests by farming and political groups. The closing was not only costly,
but also resulted in a three-months delay of the car’s introduction. The production had to be
moved to Pune in the western part of India and to Pantnagar in India’s northern region.

The worldwide financial crisis increased the interests in low-priced cars while on the other hand
the car demand in general is markedly reduced. There is concern about the long-term success
of the nano and other low-priced cars because of their low profit margins. Therefore, the return
on its investment may take many years. During the time of Nano’s introduction, Tata Motors
also reported a quarterly loss. Moreover, the big bank loan for the acquisition of Jaguar-Land
Rover became due in 2008.

Competitors are also entering the low-price market. India’s Bajaj Auto Ltd., the second largest
India’s motorcycle company, is also working together with Nissan Motor and Renault on a low-
priced car. Japan’s Suzuki Motor in a joint venture with Maruti Suzuki India Ltd. Sells the Maruti
800, which however, costs much more than the $2,000 Nano.

When the car was introduced at a no-frills price of $2,600, only 20 percent selected this option
and preferred the more expensive version with many extras. Half of the buyers bought the top-
end version which costs 40 percent more. Many chose air-conditioning which means bigger
margins for the company. The high price also avoids the price war with competitors what sell at
a higher price.
Looking into the future, Tata plans a Nano’s version for the U.S. market. However, the price will
be substantially higher because of the safety and other requirements in America.

Questions

1. Do you think that Tata should keep the car price low? What does the company need to
do to keep the cost down?
2. Although there is limited information on the case, do you think that it would be wise
marketing a low-priced car (the Nano) with the Jaguar luxury car?
3. Do you think a low-price Nano would be successful in the U.S. market? Would such a car
be of interest to you? Why or why not?