The Economist – that slightly erratic periodical of record – recently ran an intriguing story (Stuck in low gear, 20th August 2011) on the woes of the Tata Nano, an automobile that promised to revolutionise motoring on its March 2009 launch: the Nano, a small four-door city car stripped of luxuries such as power steering and a stereo system, originally retailed at around 100,000.00 (US$2,200.00) in its thus far sole market of India; despite recent price hikes, it is still the cheapest new car available anywhere in the world, aiming to bring the (albeit complex) liberty of private motoring within reach of tens if not hundreds of millions of materially ascendant subcontinentals.
As yet, sales of the Nano have not yet taken off as planned: predictions of 20,000 units vended per month have not been met, with total sales for July 2011 a mere 3,260 vehicles. The Economist gives two specific reasons for these sluggish figures, part of ‘a slump in the Indian car market’: ‘rising interest rates and fuel prices’. It goes on to report that Tata Motors – whose subsidiaries include marques such as Jaguar and Land Rover – is trying to entice customers with a raft of measures, including nationwide advertising and an improved guarantee.
We at Mediolana believe this is a profound miscalculation. If Tata Motors wishes the Nano to become South Asia’s equivalent of the Volkswagen Beetle – truly a people’s car – then it has to proffer the Indian consumer an incentive without precedent: no more fuel bills.
As consumers in Europe and North America are beginning to find out, petrol bills can be a huge financial drain and a serious barrier to ownership of a private vehicle. However, the cost of petrol (and indeed other forms of energy) relative to income in developing countries – particularly still essentially poor and/or chronically mismanaged ones such as India – is enormous. A 2010 World Bank study, the snappily titled Expenditure of Low-Income Households on Energy, shows that the average Indian household devotes 12% of household expenditure on energy; in a context where 55% of household expenditure is allocated to food, this leaves little margin for additional discretionary spending, let alone consistent outlays on expensive petroleum.
Therefore, Tata Motors would be well-advised to consider the following moves:
1. Ditch Petrol Engines. The Tata Indica – a fairly anonymous hatchback a tad larger than the Nano – already has an electric version, the launch of which is imminent in Europe; moreover, an electric iteration of the Nano was paraded at the 2010 Geneva Motor Show. Incredibly, there are presently no concrete plans to launch an Nano powered by a lithium-ion battery; Tata Motors should embrace the inevitable and commence production of this vehicle without delay.
2. Ship Solar Cells with the Nano. Owing to a patchy, unreliable and far from comprehensive grid, a conventional electric car charging system is not yet feasible in India. The solution is clear in a land of abundant sunshine: include a solar charger with the Nano. At a stroke, this will wipe away the overwhelming majority of costs associated with car ownership – and make the Nano an irresistible proposition for India’s new middle classes.