Indeed, Bajaj Auto Ltd, India’s second largest two-wheeler maker by volume, has already unveiled an indigenously developed low-cost car earlier this week, though it still has no name or a price, and will take four years to show up on Indian roads. Bajaj runs the risk of seeing buyers of not just its two-wheeled bikes, but also drivers of its profitable three-wheelers, or the ubiquitous rickshaws, which cost a little under Rs1 lakh, switch to the Tata Nano. Bajaj, which is developing the car’s engine, is partnering with the Renault-Nissan combine.
On Monday, Rajiv Bajaj, managing director of Bajaj Auto, declined to discuss the Tata Nano, though he was heard on CNBC TV 18 channel calling it a “cute car.” On the same channel, Pawan Goenka, president (automotive), of Mahindra and Mahindra Ltd, also dubbed it a “very impressive demonstration of Indian engineering.”
The closest competitor to the Tata Nano is the Maruti 800, which was India’s largest selling car for almost two decades since its introduction in 1983. It is now priced at about Rs2 lakh. Meanwhile, despite Tata Nano’s length being less than that of the Maruti 800, it is wider and taller, making passenger space 20% larger at about half the price.
“The only way that Maruti can take up the challenge is to redesign the 800 and play around with the pricing,” suggests S. Ramnath, vice-president with SSKI Securities Ltd. Until now, Maruti has said it won’t reduce the 800’s price.
Tata was able to keep the price of the entry-level Tata Nano to Rs1 lakh without significant changes to how cars are generally made mostly by packaging the car effectively in a small space, coupled with trimming costs on components and minor technical innovations. It took some 500 engineers nearly four years to arrive at the Tata Nano, along the way abandoning a plastic body as well as notions of a vehicle without doors. Tata said Tata Motors had filed for 34 patents for the car platform.
“Does this become a platform or is it just a low-cost car?” Tata asked rhetorically before saying: “We believe it will be a platform.”
Indeed, it is only with a variety of models, mostly priced well above Rs1 lakh, and strong sales that it is likely the car maker will start making money on the Tata Nano, on which Tata Motors has invested about Rs1,700 crore so far, including costs for the Singur factory.
Indeed, steel prices alone have risen by 2% in the three months while aluminium prices have shot up by a third in the same period.
“There will come a time when we will not be able to hold to a price that we have emotionally held ourselves to,” said Tata, adding that what he worries about the most is “runaway inflation.”
Tata Motors is already seeking better pricing for car parts from suppliers in return for high volumes and becoming the preferred supplier for various parts. As many as 40 vendors are building factories in Singur for the small car project.
With its entry price point, which will climb to about Rs1.2 lakh by the time a Tata Nano is driven out of the dealer’s parking lot, Tata Motors will target some 50 million motorcycle users, many of whom pay up to Rs50,000 to buy a bike. While average monthly cost of ownership of a bike versus the Tata Nano, which is promising a fuel efficiency of 20km to a litre, will be lower, it will be significantly smaller than the gap between a two-wheeler and a Maruti 800.