tata nano- npd

Tata’s Ratan- Nano- A legend before launch

Dr Amit Rangnekarwww.dramitrangnekar.

com

A legend before launch• “Innovation is primarily

implementing a new idea to give the company a competitive edge, in all aspects of the value chain. I can’t think of any other product or service which has built up such a strong brand without spending money. Within 24 hours of the launch, the Nano website had four million hits.”

• Ravi Kant, MD Tata Motors

Dr Amit [email protected]

The Tata’s• India’s premier industrial group• Revered- Ethics & values personified• 3% of India’s GDP• Diversified conglomerate• Salt to Steel to Software to Services• Very aggressive in M&A of late


Indian Auto market

• 2008- $40b, by 2016 to $145b, 5% GDP to 10% • 15L cars, China 95L, US 1.3cr• Penetration only 7/1000 cars- Indonesia (18),

Thailand (57), US (453) and Germany(565)• N5Y- 50K cr investments, triple capacity to 4mn

cars• 75% cars < 1100 cc, < Rs 5 Lakh price • Emerging export base- 2.5 L cars, 35% cheaper

than EU• “If a car maker targets only exports, China is

cheaper by 12-15% to, but for those looking at a mix of global & local, India makes sense."

Indian Auto market customer

• Spoilt for choice• 1983- 4 variants, 1993-14, 2003-83, 2008- 310• 90 new variants only in 2008 • Middle class growth- 50m(2005)-583m(2025)-

McKinsey• Value conscious, price sensitive customer• Drivers- Rising PCI, aspirational lifestyle, rural

affluence, downaging, reducing car ownership period

• Vehicle financing penetration- India 85-90% cars sold, China 50%, US 45%- AT Kearney


Average monthly category sales

Cat

Players 02 03 04 05 06 07

A Maruti 800 28 24 21 14 10 7

B Alto, WagonR, Santro, Indica

33 41 47 57 64 75

C Esteem, Swift, Indigo, Ikon, Ascent

12 15 18 22 26 33

D Mercedes-C, Skoda Superb

1 2 3 4

P/L

Mercedes-E, BMW

1 1 1 1 1 1

74 81 88 96 104 120

Segment break-up

SegmentLength

(mm)

Sales2007(U)

Share2007

%

CAGRL5Y% Majors

A1 Mini <3400 79245 6 -11.5 Maruti 800

A2 Compact 3401-4000 786590 56 23 Alto, Swift, Zen, Indica, Santro

A3 Midsize 4001-4500 200918 14 19 Esteem, Indigo, Accent, Honda City

A4 Executive 4501-4700 37099 3 87 Honda Civic, Toyota Corolla

A5 Premium 4701-5000 5963 0.4 6 Honda Accord, Hyundai Sonata

A6 Premium >5001 189 0 23 S Class

UV 222495 16 17Sumo, Safari, Bolero, Scorpio,

Tavera

MUV 84707 5 5 Omni, Versa

1417206 23%

CRISIL

Players

Indian two-wheeler market • Asia- 80% of world’s 315m motorcycles• 50m in India, 100m in China• India- 7.2m (7.8) two-wheelers a year, 5 times

cars • Motorcycles degrowing, Scooters growing !• <1 in 100 Indians own a car, but 1 in 20 owns 2-

wheeler• Thailand- 25% population owns 2-wheeler• In EMs if PCI>$5,000, motorcycles decline as

people prefer cars• India not even half-way to $5000


Tata Motors (1945)• India’s largest automobile company- Rs 32500 Cr• India- leader in Trucks, 2nd in cars, 4m vehicles on Indian

roads• World- 5th largest M&H CV, 2nd M&H bus manufacturer• 1954- JV with Benz• Successful with the Indica, Indigo and Ace• Plants- Pune, Jamshedpur, Lucknow, Pantnagar, Sanand,

Dharwad • 2,000 touch points nation-wide• Distributes & markets Fiat in India• Unique positioning- Economy, Rugged and Premium• Vision- “Best in the manner in which we operate, best in the

products we deliver, and best in our value system and ethics”


Past Promise• “Tata Motors’ made and kept tall promises

before. When designing India’s first indigenous car, the Indica, Ratan Tata promised consumers “a car with the Zen’s size, the Ambassador’s internal dimensions, and the price of a Maruti 800”. And he delivered. If Tata keeps his promise this time around as well, he could make all global car makers go back to the drawing boards. If one is able to make a 4-wheeler (for Rs 1 lakh), it will change the industry dynamics”

• Pawan Goenka, President, Mahindra & Mahindra automotive division


Why Tata’s launched the Nano

When others said ‘No’, Tata said ‘ Nano

http://groups.yahoo.com/group/funonthenet/join/+


Ratan Tata's dream

• Make motoring affordable to millions of Indians• Offer Indians ultra low-cost cars @ Rs 1 lakh or

$2,500• Impact• Shaken the automotive world—from Detroit to

Stuttgart to Nagoya• Rivals, who never considered it a serious threat,

now scurrying back to their own drawing boards


The 1 lakh car concept

• “The FT interviewer at the Geneva Motor Show asked me the cost of a low-cost car and I said about Rs1 lakh. The next day’s headlines said the Tatas are to produce a Rs100,000 car. I wanted to issue a rebuttal, but then I thought, why don't we just take that as a target. Our people were aghast, but we had our goal” RNT


Nano- Lowest ever

• Ford Model-T @ $850 in 1908, innovated, reduced price to $500 in 1914 and $290 by 1924

• Ford accounted for 1/3rd of the world’s car production in 1924

Car Maker Intro HP Price* $

Model T Ford 1908 20 19700

Beetle VW 1956 24 11333

Mini Cooper 1961 34 11777

Nano Tata 2008 33 2500

*adjusted to 2007 US $


Nano Timeline• 2003- RNT announces desire to develop Rs 1L car• 2005- Vendor identification & development• Mar 2006- Pantnagar plant starts making Tata

Ace • May 2006- Nano prototype ready• Jun 2006- Announces Singur plant• Dec 2006- Farmer protests• 2007- Logistical and operational planning• Jan 2008- Nano unveiled


Internalising the concept• “We initially conceived this as a low-end 'rural

car,' without doors, windows and with rolled down plastic curtains, a 4-wheel version of the auto-rickshaw

• “As we progressed we realised we could do better and slowly gravitated towards a proper car. The challenges increased exponentially- the low-price barrier, inflation, adding features and parts, changes in raw materials”

• “What the team has been able to achieve, in the face of all these constraints, is truly outstanding”


The Ideation• Tata Motors' sprawling 160-acre Pimpri facility

near Pune • Home to the Engineering Research Centre (ERC)• Chief Engineer Girish Wagh (37) and his team of

500-odd engineers slogged over four years, putting in 12-14 hours a day, six days a week to deliver RNT’s dream

• Today- Instead of back-patting, they already have got some designs ready for the Nano variants, 5 years ahead.


Key Team Nano

• Girish Wagh, 37- Head, Small Car Project, also involved in the design of the small truck Ace

• RG Rajhans, 46- Project Manager (Body Systems), responsible for body and trim design

• Nikhil Jadhav, 29- lead exterior designer • Jai Bolar, 29- chief engineer• Keshav Mirasdar, 57- DGM- Prototype Mfrg • Abhay Deshpande, 44- AGM- Vehicle

Integration, packaging, performance & chassis design

• Plus 500 engineers


Process & Design Iterations• First 'doodles‘- an idea to make scooters safer • Idea before Indica, didn't envisage a car, but a

bar around a scooter• Took about 5-6 years, actual work about 4 years• Entire body designed twice, Engine designed

thrice• Floor & seats designed 10 times • Dashboard- 2 concepts- attractiveness, utility• Resources from Tata group companies for the

small car project- Tata Technologies & TCS


The Model Development

• Rear engine decided in 2004, to get optimal layout- Jai Bolar- ERC

• 3 concepts, one with best looks chosen• First full-scale model by mid-2005• Refinement helped define initial volume of the

car, detail lamps & doors• Mid-2006: Final refined model by Italian design

house, IDEA• Design in line with cost targets• Key- engineering development


Engineering the Nano

• RNT’s changes increased car length by 100 mm• Future- No exterior change, few interior changes• “The rear passenger seat on the engine, saves

space. The engine drives the wheels right there, saving engineering to get to the driven wheels. So you save on bonnet space. To lower costs, the construction has been made as rigid to pass safety tests, but engineered to keep the car light” RNT

• “An interesting exercise, because after 4 years you want to do things to make the car better, but your engineers say this adds Rs 10, that adds Rs 5, to the cost. I think the culture of the group has been innovative.” RNT


Insights• Ideas from unexpected quarters• Vendors and mechanics- part of development

phase• “Mechanics vehement on additional opening on

the rear floor to access intake manifold and starter. We tried to avoid this for cost reasons, but gave in" Wagh

• “Nano, designed with a lot of replicability, modularity and repairability. The engine can be removed from its cradle from underneath and changed if necessary. The design is extremely modular, extremely interchangeable and packaged for left-hand drive and right-hand drive to meet future export requirements” RNT


Design• Important to balance design change with cost

implications• 3 key design requirements—cost, regulatory and

acceptable performance standards• “Critical decision- Mounting engine, exhaust & gearbox in

a single module in the rear- Simplified assembly• Cut down the number of tools needed to make the car• “We did not want an embarrassment of a car. Costs were

critical, but the company was unwilling to make any compromise on other areas” Wagh

• “In India, fuel economy is a major driver for selling a vehicle. Also important to ensure that the car could be manoeuvred in the city. If your car requires less parking, then material required is also less" NK Jain, DGM- ERC


Learning Curve

• The Indica R&D team worked closely with the Ace design team

• The Ace core team helped design the Nano• "Clearly, the Nano was a tougher cost target. In a

commercial vehicle, endurance is of prime importance. It is also important in the case of a car, but sometimes other aspects like touch and feel are more critical. Possibly, the biggest plus point through the launch of the Indica and the Ace is that the development process at Tata Motors has matured to a great extent” Wagh


Supply Chain

• Over 100 component suppliers converted from sceptics to partners

• Inextricably tied up and investing in dedicated ancillary facilities

• Key Suppliers and Tier II & III suppliers investing Rs 600cr

• Includes support services and logistics to transport 250,000 small cars a year to dealers across the country


Outsourcing & Vendors

• 85% vehicle from outside• Initial steel from JFE (Japan) & POSCO (Korea)• Tata Steel’s expansion not complete• Clusters & JIT- Assemblies, ancillaries and sub-

assemblies• “The logic is to keep manufacturing simple. Parts

should move JIT & smoothly, between vendors and assembly line” Wagh



• "We felt it was not feasible for us to compete for the basic Nano model as the costing was too tight, but we plan to bid for the 'Deluxe model‘ “Sanjay Labroo, MD, Asahi India

• "This car is not over-engineered like German cars, but is a great example of frugal cost-effective & relevant engineering. When we figured out that the car would be rear-wheel drive, we knew the steering column could be engineered differently since the front wheels would not have the weight of the engine. So we kept the steering column hollow" Surinder Kapur, MD, Sona

• Bosch, world’s biggest components company, supplied a stripped-down version of its Motronic engine-management system



• Lumax Industries- head and tail lights and fixtures• "The opportunity to work on this car gave our

engineers a chance to showcase their skills. Other car products are designed abroad & we only manufacture components to a specific blueprint. Here, we designed light fixtures that meet all regulatory needs, fit the car and are low-cost" Deepak Jain, Lumax

• "A long-life bulb lasts 10 years but adds a lot to the cost, so we fit a standard-life bulb that met regulatory and warranty issues but kept costs low" Jain


Outsourcing & Vendors• Suppliers set near-impossible price targets, based

on volume estimations of 2.5-10L units pa• Price negotiations started at 50% of the quote• Some managed to push it up to 80-85%• The promise of unprecedented volumes, would

make Nano vendor businesses worth between Rs 7-9,000 cr or 25% of the total domestic component business in India!


Cost cutting

• Involving vendors from the start helped reduce costs• Normal wheel mounting has 4 pins, Nano has 3• Reduced bumper thickness, 1 wiper instead of 2• E-sourcing helped cut costs (10%) for Indica, Ace & Nano• "Rising input costs (steel prices) made engineering

targets difficult, so we reduced amount of steel in the car" Ravi Kant, MD, Tata Motors

• “From the initial cost prevention, our focus has moved clearly to cost-reduction. But it is very important to look beyond costs, as price is what a customer pays in the beginning. Later on, only the performance of the car matters“ Wagh


Distributed Manufacturing System

• Possible scenario• CKD car kits from Tata plants- Pant Nagar, Pune &

Sanand, ferried to warehouses across India for dealers• Dealers to assemble, warehouse, display and sell• On firm order, withdraw kit, assemble, and deliver • Unheard of in the auto industry, also the $2500 price• Closest resemblance- furniture business• Social dimension- providing rural entrepreneurship• Rationale- For large non-metro volumes, customer

access critical• Develop warehousing facilities in Class A & Tier I towns

Singur Fiasco

• Dedicated Nano factory in Singur, West Bengal• Bring the car industry back to WB- starved of investment • Invested $400m in WB, against advice• Politically motivated protests over project land prices• Choice: negotiate with farmers, buy them off, walk away• 7th Oct 2008, Tatas walk away distressed & disappointed• Shift project and 10,000 jobs to Sanand, Gujarat• Hope- demand for higher models will offset extra costs• Launch postponed to Q409• Shifting costs, time lags, disruptions for Tatas & suppliers• Initial production from Pune or Pantnagar• Sanand can produce 250,000 cpa, scale to 500,000 cpa


Facility• 1800cr Nano project in Sanand, Gujarat• Capacity- 1000 cars per day= 250,000• Scaleable to 500,000 cars• “Alternate fuel technologies such as CNG and LPG

are under development. Future models could also have a diesel engine, as also continuously variable or automatic transmission" RNT

• Pantnagar and Pune facilities will also support Nano launch


Car Features• Dealer Price: Rs 100,000 (Base Model)• L 3.1 metres, W 1.5 metres, H 1.6 metres• Engine: RW drive, 2-cylinder, 623 cc, MPFI Petrol• Body: All sheet-metal body• Tyres: Tubeless.• Emission: Lower overall pollution level than 2-

wheelers • Fuel efficiency: 20 kmpl• Seats: 4* 6-feeters comfortably• Adequate ground clearance• Effortless manoeuvrability, Less parking space


Broad cost estimates• Body-Shell (steel, frame, welding)

- Rs 25,000• Engine & Transmission (Aluminium

engine block, gearbox, drive-train, steering) - Rs 30,000

• Electricals (lights, battery, starter) -Rs 10,000

• Interior Trim (floor mats, seats, plastics, roof trim) - Rs 20,000

• Tyres and suspension - Rs 10,000• Transportation- Rs 2500• Operating Profit per 'Basic' vehicle -

Approx. Rs 2,500

Nano interiors


Economics

• Tata Capacity- 2.5L units pa• Sales Value- 2.5L units *Rs 1L price = Rs 2,500

crore pa• Will add 8% to current revenues of Rs 32,000

crore pa• Traditionally, low cost car net margin < 5% • Sales of 4 million units can recoup Rs 1500

investment • India- Annual car sales- 1.5 million units • India- Annual 2-wheeler sales- 7.5 million units


Nano v 800 v Bike- Ownership Cost

Maruti 800 Tata Nano Bike

Engine 796cc 623cc 100cc

Price (OTR)

Rs 225,000 Rs 120,000 (88%)

45,000

DP Rs 10,000 Rs 10,000 Rs 5,000

EMI (60m)

Rs 3,583 Rs 1,833 (95%) Rs 667

Kmpl 15 20 50

/ Km cost (@Rs50/L)

Rs 3.33 Rs 2.50 (33%) Rs 1.00


Competitors Strategy• Bajaj-Renault: Rs 1L car, ‘Lite’ @ 30kmpl• Suzuki: Maruti 800 costs Rs1.3L, difficult to reduce costs• Challenge from True value, with over 1L deals in 2007 • Hyundai- Low cost small car• VW/ Ford/ Benz/ Toyota/Honda/GM- small cars, costly• Hero Honda: No firm plans• Reva- Rs 1L green car• Tata- First mover advantage, idea validated

“We would like to see a fair battle inside the marketplace, not outside ” RNT

• “Carlos Ghosn was the only one in the industry who said the Nano could be done, he was my secret motivator.”

Scenario• Optimistic- Convert 10% 2-wheeler users to Nano= 7.5L

units• Additional 3L units from existing/potential car buyers,

driven by price & features- Nano can cross 10L units• Realistic- 90% 2-wheelers sold in Rs 30- 45,000 range• Highly sensitive wrt price, maintenance cost & fuel

efficiency• Nano- 3x of a bike- wrt cost price, running costs & mileage• Higher interest rates skid the throbbing 2 wheeler market• Migration to nano may not be en masse• 2.5L units (Full capacity)• Pessimistic- Initial production hiccups and teething

problems, which every Tata car has faced- 1.5L units


Segment• Between the car market and two-wheeler market• May cannibalise some of the two-wheeler market

and four-wheeler market• May cannibalise Tata Indica sales• Will hit the used car market hard• People may opt for Nano as a second car• Local taxi


Range• Nano Standard- No frills• Nano Deluxe- AC, central lock, power windows,

body-coloured bumpers & fabric-trimmed seats• We are launching with a conventional

transmission, but we will have a continuously variable, and maybe at a later time even an automatic one.

• Eventually, we will launch the vehicle in several variants


Rural India

• Will find space in rural & semi-rural India• Prime transport mode for small households, who

today travel on tractors and 2-wheelers• Innovative changes in financing, to make it

widespread• Remove distribution & service layers as much as

possible• Designing a low breakeven point assembly plant kit

for entrepreneurs who can assemble, retail and service


Dealer Speak• Bangalore- “ We expect a mad rush for bookings,

similar to that for Indica, which saw 250,000 bookings on the day of its launch in 1999. We are also investing in our software to accommodate the rush“

• Delhi- “We have developed space to sell 1,500 cars a month from 300 now”

• Mumbai- “We have created space to park up to 50 cars in our showroom and 500 in our stock yard”

• Kochi- “We are preparing ourselves as this car could be a volumes game”


Key concerns• Safety• "The Nano meets all current Indian regulations and

future EU regulations including offset frontal and side impact“

• Emissions• "Currently, meets Bharat III norms, applicable in 11

cities & Bharat II norms in rest of the country. We will meet Bharat Stage IV and Euro IV requirements as well“

• Congestion• “Initially we will produce only 250,000 cars, which

can be scaled up to 500,000 cars


Myths shattered• Cheap means unsafe- physically validated crash test

results on 1 vehicle and plans more tests in the future• Rear-engined cars are unsafe- Ferrari, Porsche, VW

and Lamborghini do it why can't Tata? • The Nano will pollute the planet- 623cc engine

produces less CO2 than average EU small car, working on CNG and LPG

• The Nano will have no storage space- sufficient storage space, under the bonnet and over the rear parcel tray. rear seats fold flat to dramatically increase storage space.

• The Nano can't go fast- tested Nano at 105 kmph, too much to expect brilliant acceleration


Innovation• “ The greatest achievement of our people is that

they packaged the car very efficiently in terms of bumper-to-bumper size and yet left the interior dimensions amazingly large”

• “If you look at the so-called small-cars internationally, they have been designed to be owner-driven, and the back seat, 50-80% based on occupancy ratios. In India that occupancy ratio could be 100%” RNT

Dampeners• Steep climb in steel & polypropylene prices,

global meltdown • Costs have risen by $165 (AT Kearney) per Nano• Tata may lose up to $90 / basic Nano (Economist)• Car loans up from 8% to 16%• Petrol prices


Nano- CSR or Business• “A bit of both. You don't produce a small car with

low margins as a business case. You do it because you want to make a contribution and uplift the quality of life of the country. You also don't go into a venture to lose money, so there is a business case, but you make the sacrifice in terms of making profits. It is always easier to design something which is less critical. This is just the start of the journey, we have to build the plant, we have to put the product on the road. We have to live up to the aspirations of the customer, there are many who say we have sacrificed quality, we have sacrificed reliability, which we haven't. And we will have to prove that”


The Indian consumer

• “If someone stopped walking, upgraded to a bicycle & then to a motorcycle, but cannot afford a car, is he condemned to live the rest of his life in that form? No, he will aspire for more, & as prosperity improves, more & more people will aspire. But, suddenly, a quarter of our society seems to grudge those people & you wonder if they have the right to determine for the rest of the society”

• “New 2-wheeler capacities are being created by foreign firms, but I don't hear a word that such investment will crowd roads with 2-wheelers. As car sales increase, 2-wheeler sales will also increase.

• “India is a country of masses, with a great unsatisfied demand. The capacity & demand for improvement in the quality of life is enormous, and this attracts foreign companies to look at India as a market”


The FIAT partnership• Tata’s partnership with FIAT in India • Ferrari, a division of FIAT• Ferrari selected TCS for designing the software

behind the Ferrari's F1 championship winning team

• Over 30 engineers each in Maranello and Chennai

• TCS’ success extends now, to Ferrari's range and FIAT subsidiaries like Iveco (Truck) & CNH (Farm equipment)

• Tata Motors may partner Ferrari in India• FIAT may drive Tata’s Nano launch in EU &

Brazil


Diversification benefits• Design from ERC• Technology and Design from TTL• Software from TCS• Steel from Tata Steel• Emerging market entry thro Fiat JV• Hospitality support- Taj• Telecommunication- Tata Indicom


RNT’s Riposte• “When you set a bunch of young

Indian engineers a goal that most people around the world think impossible, it is significant that they are able to achieve it. People may criticise Tata Motors, or me, for adding congestion, but how about giving recognition to a bunch of young engineers who did something everyone thought impossible”

“We started with a clean sheet of paper and created a new template to develop a ULCC that others will now follow. The

overall outcome was a culture defined by frugality and a willingness to challenge convention, which many call “Gandhian engineering. In terms of engine performance & emissions, we

have bettered our expectations. Still some engineering tweaks to be done before launch, but on the whole, it has come together much better than I expected. It is a very elegant package, no

wasted space… I am very, very happy”

The Nano XP

• “The goal of making a “proper” car has been achieved. Although noisy, the tiny 32bhp engine provides enough puff to reach the claimed maximum speed of 60mph. Despite the tall roof and the weight carried over the rear wheels, the Nano handles quite predictably and is particularly nimble at city speeds. Given its tiny size it is astonishingly spacious inside and comfortably seats 5. The interior plastics and fittings look cheap, but then the car is cheap.”


Nano- International Press

• The Times, London- Defying expectations that a company best known for its elephantine lorries could manufacture a cutting-edge passenger product.

• The New York Times- Hypocrisy of the dealers who have resisted Tata's bid for Jaguar on the grounds that Indian ownership would erode the brand's prestige.

• The Washington Post- Could revolutionize production & distribution to compete, create more problem for beleaguered US auto workers, who will become expendable as Detroit shifts manufacturing to India

• The Guardian- Landmark in transport comparable to first powered flight by Wright brothers, or the first moonshot

tata nano- npd

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