Abstract:

The case discusses the making of Tata Nano, the world's cheapest car, manufactured by India based Tata Motors. On March 30, 2009, Tata Nano was launched with an ex-factory price tag of INR 100,000 (about US$ 2000). The case explains the design and development process of Tata Nano. The car was the result of a five year research and development project carried out by Tata Nano development team. While developing the car, Tata Motors and its suppliers constantly made efforts to reduce the costs while ensuring quality of each and every component including engine, steering, wheels, tires, windshield washing system, gear shifter etc. Analysts opined that Tata Nano had created a new segment in the passenger car market. However, they were concerned about the company's lack of capacity to fulfill high demand. They also argued that considering the low margins the company would get, it would take a long time for the project to break even. The case ends with a discussion on the challenges Tata Nano might face in the future.

Issues:
To understand the challenges in developing an innovative, cost-effective product. To study the Tata Nano project with a focus on design and development process of the car. To understand the efforts put in by Tata Motors to cut down the costs at every stage of development and production of Nano. To analyze the challenges that Tata Nano may face in future.

Contents:
Page No. 1 2 3 4 7 7 9 11

The People's Car Background Note Nano - The Car The Nano Project Managing the Supply Chain Tata Nano Vs. Maruti 800 The Challenges Exhibits

Keywords:
Tata Motors Ltd., Tata Nano, Small Car, World's Cheapest Car, Value-for-Money Car, Costs, Product Design, Product Development, Ratan Tata, Automobile Safety Standards, Engine Induction System, Maruti 800, Dealers' Margin, Creating New Markets, Business Model, Fuel Economy, Price Leadership, Cannibalization of Sales The Nano shows that a new world order is possible in the auto industry. It shows a glimpse of what's to come."1 - Vikas Sehgal, Vice-President at Booz & Company2, in March 2009. "This is a big achievement but the auto market has been changing over the years anyway. To sustain this requires production volumes, great after-sales and product-acceptance."3 - Rakesh Batra, Partner, Ernst & Young4, in March 2009.

The People's Car

On April 25, 2009, bookings closed for the much-awaited Tata Nano, the world's cheapest car, made by India-based Tata Motors Limited (Tata Motors). The bookings began on April 09, 2009 and the car received an overwhelming response from the Indian consumers. The company received a total of 203,000 bookings for the car.

Tata Motors, the largest automobile company in India in terms of revenues, launched Nano, commercially on March 30, 2009 (Refer to Exhibit I for a visual on Nano). The car with an ex-factory price5 tag of Rs.100,000 6 generated enormous interest among the public as well as industry experts.

The People's Car Contd...

Commenting on the Nano, Luca Cordero Di Montezemolo, Chairman of Fiat7 and Ferrari8, said, "I congratulate you [Tata Motors] on three things - a modern and contemporary car, design, sufficient internal volume, designed and developed entirely on your own."9 The Tata Nano project was the brainchild of Ratan Tata, Chairman of the Tata Group. The project to make the cheapest car in the world had started in 2003. The engineering team that made the Nano achieved the cost target by implementing an innovative design and reducing cost by paying attention to each and every component of the car. From the engine, steering, wheels, and tires to the windshield washing system, gear shifter, and central console, every component was given special emphasis in an effort to cut down cost. During the launch of the Nano, Ratan Tata said, "Today, we indeed have a People's Car, which is affordable, and yet built to meet safety requirements and emission norms, to be fuel efficient and low on emissions. We are happy to present the People's Car to India and we hope it brings the joy, pride, and utility of owning a car to many families who need personal mobility."10...

Excerpts Background Note

The history of Tata Motors dates back to the mid-1900s. In 1945, Tata Motors was incorporated as Tata Engineering and Locomotive Company Limited (TELCO). The company was engaged in manufacturing locomotives and engineering products. Three years later, it launched a steam road roller in association with the UK-based Marshall Sons...

Nano - The Car

The Nano had a 623 cc rear engine and a rear wheel drive. The engine was a two cylinder petrol engine. The fuel economy of the car was expected to be around 21 kilometers per liter under city driving conditions...

The Nano Project

The project to build the Nano started in 2003. Girish Wagh (Wagh) was selected as the leader of the 500-member team which was chosen to develop the Nano. Right from the beginning, the team members were asked to be as frugal as possible to maintain the low price target of the car... ENGINE Initially, the Nano team thought that they would outsource the engine. However, after considering all the engines that could be suitable for Nano, they decided to create an engine on their own. In the year 2005, they started working on the new engine... STEERING AND DRIVESHAFT In the Nano, the steel rod of the steering was replaced with a steel tube. This helped to reduce the weight of the car. Rane Group, the supplier of these tubes, redesigned them to make them of one piece instead of the usual two pieces... WHEELS AND TYRES The wheels for the Tata Nano were supplied by Wheels India, promoted by the TVS Group. The company developed a lighter wheel as compared to other passenger cars in India... SEATING SYSTEMS AND INTERIORS The seating systems were supplied by Tata Johnson Controls Automotive. The front seats of the Nano were based on a single support structure as an alternative of 'individual rail'... OTHER COMPONENTS

In an effort to reduce costs, the Nano team laid emphasis on each specific component of the car. For example, in order to reduce the weight of the car and save costs, the Engine Induction System was made of plastic instead of aluminum...

Excerpts Contd... Managing the Supply Chain

Although in the beginning, the auto part suppliers of Tata Motors were skeptical about the project, they were later convinced that they also could contribute to achieving the cost target as well as improve their own bottom lines (Refer to Exhibit VII for auto part suppliers of Nano)...

Tata Nano Vs. Maruti 800

The Tata Nano's closest competitor in terms of price was the Maruti 800, made by Maruti Suzuki India Limited, a subsidiary of Suzuki Motor Corporation of Japan. Analysts pointed out the fact that the exshowroom price difference of the standard models of the Tata Nano and the Maruti 800 was about Rs. 60,000 (Refer to Table I for price comparisons of the basic model of Tata Nano and Maruti 800 in different Indian cities)...

The Challenges
While Tata Motors launched the Tata Nano at the promised price of Rs 100,000 (ex-factory), most industry experts opined that the Nano would face many challenges in the near future. They said that the decline in the raw material costs between January 2008 and March 2009 had helped Tata Motors maintain the price target of the car (Refer to Table III to know about the change in the cost of raw material)...

Exhibits
Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit Exhibit I: Tata Nano II: Tata Motors - Product Portfolio III: Tata Motors' Financial Performance IV: Tata Motors - Stock Price Chart (January 2008 - January 2009) V: Prices of Different Variants of Nano in Delhi (In Rupees) VI: Technical Specifications of Tata Nano VII: Auto Part Suppliers of Tata Nano