Tata Nano – Between Hell and Heaven

A month ago a friend of mine told me that he had just bought a brand new gaming computer which cost him around €2000. He’s the same friend that told me once, after he successfully got his driver’s license, that the money he had paid for driving lessons etc. was an investment for his future since he couldn’t afford a car in sound condition anyway. I didn’t know any better then but I do now. While recently doing some research I stumbled across an article that blew my mind.

A Comfortable Way to Carry Pigs and Geese

In my last entry, I tried to give a report on the African “mobile revolution” and the concomitant economic relevance for potential investors. I mentioned Spice Mobile and their intention to introduce what they call “The People’s Phone” in India. Andrew English’s article in The Telegraph however incentivized me to write about the Tata Nano also known as the one-lakh car, which was presented in 2009 as “The People’s Car”. As he states the Tata Nano was created to, first and foremost, serve India and China a low cost Car that, according to the income, even less fortunate people can afford. “The kind of people who previously climbed on a battered scooter, along with their entire family, a pig and a few geese”, English writes.

Specifications:

  • 2 cylinder SOHC petrol Bosch multi-point fuel injection
  • all aluminium
  • 4 speed synchromesh with overdrive in 4th
  • Length: 3,099mm
  • Hidth: 1,495mm
  • Height: 1,625mm
  • Weight: 600-635 kg

The World’s Cheapest Car

Tata Motors indeed came up with an approach that’s in a certain way comparable to the original function of the German Trabant only in another dimension. While the Trabant was supposed to serve 16 million people in the GDR, the Nano could firstly apply to up to 3620 million people in China, India and Africa. You might wonder how it’s possible for people that belong to the poorer half of our population to afford a car and Saveutasp.org provides you with the answer. According to its admin the Tata Nano got its name from the introductory “nano” price which was only about €1500 back in 2009 and due to the rise in production material has gone up to €2100 today. It’s considered to be the cheapest car in the world corresponding to Richard S. Chang.

What about Safety?

My first thought was: That car must be everything but safe. WRONG! Hank Green clarifies most of my doubts as he announces that the Nano passed the European Crash Test in 2009. In his opinion a lack of safety is a corollary of making cars smaller, lighter and cheaper but though the Nano is probably the nr.1 in all of these three categories, the results signify that it’s safe enough to be sold in Europe.

It’s not all Roses!

It may be “safe” but obviously not safe enough. Several fires have dominated the headlines and the “ex-wonder car” slowly turns out to fail its mission. “Quality issues are not new to Tata Motors,” says Abdul Majeed, auto practice leader, PwC and addresses an important point. Due to the increasing criticism, Tata Motors are in danger of losing its face and image. After an early hype the aggregated demand decreased reaching its peak in November 2009 when only 500 cars were sold in entire India, as Lijee Philip, ET Bureau quotes, a reaction of the Indian population to the recent problems.

Conquering New Markets

Nevertheless Tata Motors plans to expand its market to Europe and the US and has therefore made many efforts to revise the Nano in order to regain trust and success, not only in Asia but especially in the more critical western countries. Tata Motors also seeks to build a hybrid as well as a diesel version.

Another “Long-Tail-Story”

Like in my last post the case of the Tata Nano is applicable to the “Long Tail” theory which I explained back then. The idea of creating a low cost car that is affordable to poorer people but also meets all safety and customer requirements is highly profitable and far seeing. The second point might seem less important because electronic devices like radios, window motors are not needed in these countries but as you can see, neglecting safety requirements is a besetting sin that does not stay unpunished. I, personally, consider the Tata Nano as a first major attempt to create a people’s car in developed countries that so far has worked out quite well but could not totally fill the market niche. It’s been a sign for other though to invest in low cost cars and all the sudden you see plenty of low cost cars shooting out of nowhere.

The game is still on! Who’s going to build the people’s car of the world?

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Africa – “Garbage Chute” of Western Mobiles

Making Money off the Poor!

For my last post I was searching the web for alternatives that are tantamount to Apple’s latest success Siri. While we are wondering about which speech recognition program works best, some people that by the way make up about 15% of the world’s total population still live in a, as we would consider it, technological stone age. Never been in touch with phones or whatsoever they surely got different issues than looking for voice control applications. I’m talking about Africa, a “garbage chute” for old, technologically rewind mobile phones that are in our “developed” countries anything but a profitable business.

Africa’s Mobile Revolution

“Africa is at the center of a mobile revolution”, writes Kilian Fox in The Guardian. According to his statistics there were “fewer than four million mobiles on the continent in 1998” which has gone up to 500 million today and is still rapidly growing every year. Mike Kujawski sets these numbers in relation with the total population of the continent. Taking his numbers into account 30% of Africa’s total population is already in possession of mobile devices that were predominately manufactured at little cost. This is where it’s becoming interesting.

The Aspiration for Technological Benefit!

Apparently the majority of the Africans are unable to afford Laptops, computers and other modern devices as ca. 50% of Africa’s total population still lives below the poverty line. But just like us these people want to benefit from electronic systems that make interpersonal communication and accessibility much easier. Due to their technological pre-stage some businessmen have struck gold and started buying cheap, obsolete mobile phones in our countries to sell them for an affordable price to the African population. Ken Banks has already introduced Spice Mobile which built “The People’s Phone” for India and rolled it out in Europe. Such plain phones offer an extremely narrow profit margin but open bright markets.

An Example

An example: Let’s assume we produce very simple mobile phones for average costs of €10. We speculate that out of 1.2million Africans, 900.000 people will buy our phone which we sell for only €20. Considering these numbers we could expect earnings of €9.000.000 with the possibility to expand our production to other continents and countries. Since the electronic development is an ongoing process companies can steadily “recycle” outdated phones and sell them in technologically backward countries.

The Future Goldmine

This concept refers to the so called “Long Tail”. It basically describes that selling a couple high-priced devices to a particular group of customers is just as profitable as providing plain, cheap phones for a poor but huge target group. Fox writes about a “booming industry” and though countries like India as well as the African continent have already been introduced to such phones it’s still seen as a future goldmine.