OPER/078

ICMR Center for Management Research

The Tata Nano Project Making of the Worlds Cheapest Car

This case was written by Barnali Chakraborty, under the direction of Vivek Gupta ICMR Center for Management Research.
It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate
either effective or ineffective handling of a management situation.

2009, ICMR. All rights reserved.

To order copies, call 0091-40-2343-0462/63 or write to ICMR, Plot # 49, Nagarjuna Hills, Hyderabad 500 082, India or email
info@icmrindia.org.
www.icmrindia.org
 The Tata Nano Project Making of the Worlds
Cheapest Car
The Nano shows that a new world order is possible in the auto industry. It shows a glimpse of
whats 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 PEOPLES CAR

On April 25, 2009, bookings closed for the much-awaited Tata Nano, the worlds 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.100,0006 generated enormous interest among the public as well as industry
experts. 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

1
Jessie Scanlon, What Can Tatas Nano Teach Detroit? http://www.businessweek.com, March 18, 2009.
2
Booz Allen Hamilton Inc., founded in 1914, was a leading global management consulting firm. In mid 2008, it
separated its US government and global commercial businesses, and sold a majority stake in the US government
consulting business to the Carlyle Group for US$ 2.54 billion. The US government consulting business would retain
the name Booz Allen Hamilton and the commercial and international businesses would be operated as Booz &
Company. (Source: http://www.booz.com)
3
Will the Nano Change Indias Auto Industry, http://business.rediff.com, March 25, 2009.
4
Ernst & Young was one of the largest professional services firms in the world. It was founded in 1989. (Source:
http://en.wikipedia.org)
5
Ex-factory price of a car is the price at which a car manufacturer sells the car to the dealer, Ex-showroom price is the
price at which a dealer sells a car to the consumer and it also includes value added tax. On road price of the car is the
price at which the consumer buys the car which includes registration charges, insurance, and road tax.
6
As of April 30, 2009, US$ 1 = INR 49.9.
7
Italy-based Fiat SpA or Fabbrica Italiana Automobili Torino is involved in manufacturing automobiles and engines.
As of 2009, Fiat was the sixth largest car manufacturer in the world.
8
Italy based Ferrari SpA is a manufacturer of sports cars. Ferraris parent company is Fiat SpA.
9
The VIPs Who Checked the Nano, http://business.rediff.com, March 24, 2009.

1
 The Tata Nano Project Making of the Worlds Cheapest Car

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 Peoples 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 Peoples 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
Analysts believed that the Tata Nano had created a new segment in the passenger car market.
Citing Nano as an example, Vijay Govindarajan, Professor at Tuck School of Business at
Dartmouth College and Chief Innovation Consultant at GE,11 said, Great companies are built on
creating new markets, not increasing market share in existing ones.12
Notwithstanding the encouraging response received by the Nano, the car faced some challenges.
Some analysts wondered whether the positive response from the public would transform into sales
or not. They also pointed out that Tata Motors lacked the capacity to fulfill high demand. In the
first year, the car would be manufactured at the Pantnagar plant at Uttarkhand, which had a
capacity of manufacturing only 50,000 cars annually. Analysts opined that the long waiting period
may put off some potential consumers of the Nano.
Although there were some apprehensions among industry experts about the commercial success of
the Nano, the car was expected to change the way the developing world thought about innovations
and profitability. According to John Wolkonowicz, Auto Analyst for Global Insight, The Nano
will put the Third World on wheels, and that will have far-reaching implications. Its going to
affect every citizen of the world.13

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.
In the 1950s, Tata Motors ventured into the manufacture of medium commercial vehicles. In 1954,
TELCO signed a contract with Germany-based Daimler Benz AG to manufacture medium
commercial vehicles and within six months, the first vehicle hit the road. In 1959, it also set up a
research center at Jamshedpur in India. In 1961, TELCO started exporting vehicles. The company
also established an engineering research center in Pune, India, in 1966.
In 1983, the company started manufacturing heavy commercial vehicles. In 1985, in collaboration
with Hitachi, TELCO manufactured hydraulic excavators. From the next year onward, it started
the production of the first indigenously designed light commercial vehicle, the Tata 407.
In the 1990s, TELCO introduced several new vehicles including the first indigenous passenger car,
the Tata Sierra, and the multi utility vehicle, the Tata Sumo. In 1994, the company entered into a
joint venture agreement with Mercedes Benz to manufacture Mercedes Benz passenger cars in
India. In 1998, indigenously designed passenger car, Indica was launched. In the same year,
TELCO launched Indias first sports utility vehicle, the Tata Safari (Refer to Exhibit II for the
product portfolio of Tata Motors).

10
Richard S, Chang, Tata Nano: the Worlds Cheapest Car, http://www.nytimes.com, January 10, 2008.
11
The General Electric Company, a multinational technology and services conglomerate, was founded in 1878 in New
York, United States.
12
Jessie Scanlon, What Can Tatas Nano Teach Detroit? http://www.businessweek.com, March 18, 2009.
13
Keith Naughton, Small. Its the New Big, Newsweek, February 16, 2008.

2
 The Tata Nano Project Making of the Worlds Cheapest Car

In 2002, TELCO launched the Tata Indigo and entered into an agreement with the UK-based MG
Rover to sell its first indigenously developed passenger car, the Tata Indica as the City Rover in
the UK. In 2003, TELCO was renamed as Tata Motors. In 2004, Tata Motors acquired the second
largest truck manufacturer in South Korea, Daewoo Commercial Vehicles Company.
In 2006, Tata Motors and Fiat India Automobiles signed an agreement to share a dealer network.
Tata Motor also signed a Memorandum of Understanding (MoU) with Fiat in 2006, to
manufacture passenger vehicles, engines, and transmissions.
As part of an agreement signed in 2007, Tata Motors agreed to build pick-up trucks which would
have the Fiat name. It was decided that the trucks would be built at Fiats plant in Argentina. These
trucks were expected to be sold in South America and in some European countries.
In 2007, the company started the construction of its first small car plant at Singur, in West Bengal,
India. However, the plan to launch the Nano by the end of 2008 was delayed as the company had
to shift the Nanos manufacturing base to Gujarat due to an agitation by farmers in Singur over
land acquisition by the company. On October 07, 2008, the company signed an agreement with the
government of the western state of Gujarat to set up a manufacturing plant of the Nano in the state.
The agreement entitled Tata Motors to 1,100 acres of land for the mother plant of the Nano near
Sanand, 30 km away from Ahmedabad.
On June 02, 2008, Tata Motors acquired the Jaguar and Land Rover (JLR) units from the US-
based auto manufacturer Ford Motor Company (Ford) for US$ 2.3 billion. JLR was part of Fords
Premier Automotive Group (PAG). While Jaguar manufactured high-end luxury cars, Land Rover
manufactured high-end SUVs.
As of 2008, Tata Motors was the largest automobile company in India in terms of revenues. It was
also the leader in the heavy commercial vehicles business in India with a market share of 65
percent. The companys manufacturing facilities were located in Jamshedpur, Pantnagar,
Lucknow, Ahmedabad, and Pune. Tata Motors commercial and passenger vehicles were marketed
in several countries across Europe, Africa, the Middle East, Australia, South East Asia, and South
Asia.
Tata Motors had been facing problems since the third quarter of 2008-09 (Refer to Exhibit III for
the financial highlights of Tata Motors). In the third quarter of 2008-09, the company reported
sales volume at 98,760 vehicles as compared to 144,608 vehicles during the corresponding quarter
of 2007-08. The company also reported its first quarterly loss of Rs. 2.63 billion in the same
quarter after seven years. According to the management of Tata Motors, In the October-
December quarter of the financial year 2008-09, the automotive sector in India suffered severe
contraction in demand, arising from major financial and other market upheavals. This exacerbated
the lack of liquidity and unavailability of consumer finance.14 The financial loss also affected the
stock price of the company, which plunged from Rs_741.45_on January 01, 2008, to Rs.159.05 on
December 31, 2008 (Refer to Exhibit IV for Tata Motors stock prices between January 2008 and
January 2009).

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. It had a 4-speed manual transmission and the maximum speed was 105
kilometers per hour (kmph).

14
Tata Motors Q3 Net Loss at Rs 2.63 Billion, www.moneycontrol.com, January 31, 2009.
3
 The Tata Nano Project Making of the Worlds Cheapest Car

The Nano met all Indian safety standards. According to the claims made by Tata Motors, the Nano
was BS III15 compliant and could be upgraded to BS IV emission norms. It also cleared the crash
tests to meet international safety norms. Tata Motors planned to introduce the petrol version
initially, and to follow it up with diesel and electric versions.
The car was available in three variants the Tata Nano Standard, the Tata Nano CX, and the Tata
Nano LX16 (Refer to Exhibit V for price of three variants of Nano in Delhi).
Tata Nano Standard: The standard version was available in three color options, single-tone
seats, and fold-down rear seat. The base variant complied with BS II and BS III emission
norms.
Tata Nano CX: The second variant was available in five color options with heating and air-
conditioning, two-tone seats, parcel shelf, booster-assisted brakes, and a fold-down rear seat
with nap rest. The variant complied with BS II and BS III emission norms.
Tata Nano LX: The third variant had all the features offered with Tata Nano CX. In addition,
it had complete fabric seats, central locking, front power windows, body colored exteriors in
three premium colors, fog lamps, electronic trip meter, cup holder in front console, mobile
charger point, and a rear spoiler. The variant complied with BS III emission norms.
The Nano became popular for its ex-factory price tag of Rs 100,000. However, Ratan Tata himself
had not planned to offer a car at that specific price. According to him, It was never meant to be a
Rs 1 lakh17 car; that happened by circumstance. I was interviewed by the [British newspaper]
Financial Times at the Geneva Motor Show and I talked about this future product as a low-cost
car. I was asked how much it would cost and I said about Rs 1 lakh. The next day the Financial
Times had a headline to the effect that the Tatas are to produce a Rs 100,000 car. My immediate
reaction was to issue a rebuttal, to clarify that that was not exactly what I had said. Then I thought,
I did say it would be around that figure, so why dont we just take that as a target.18

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.
However, the top management of Tata Motors had specified that while the small car had to be
made at low cost, it had to meet the regulatory requirements and achieve performance targets
including fuel efficiency and other standard emission norms.
Ratan Tata was involved in the project right from the beginning. The development team opined
that it was his involvement and encouragement that had boosted the morale of the team. According
to Wagh, Mr. Tatas involvement with the project, his constant encouragement and support, and
his presence at the Pune plant were what made it all happen. He led by example. His interactions
were not only with senior managers; he discussed things and asked for suggestions from everyone.
And this attitude percolated to all team members.19

15
BS II, BS III and BS IV are the mandatory emission norms for Nitrogen Oxides, Hydrocarbons, Carbon Monoxide
and particulates in India. These norms are substantially aligned with the European norms Euro II, Euro III and Euro
IV; the main difference is that the peak speed in the extra urban driving cycle is 90 km/h in India and 120 km/h in
Europe (Source: http://www.tatamotors.com).
16
http://www.tatamotors.com.
17
One lakh was equivalent to 0.1 million.
18
Christabelle Noronha, The Making of the Nano, http://www.tata.com, January 2008.
19
Sujata Agarwal, A Passion for Cars, http://www.tata.com, January 2008.

4
 The Tata Nano Project Making of the Worlds Cheapest Car

Initially, the team thought of developing a four wheel version of an auto-rickshaw, which would
not have doors and windows. Instead, it would have plastic flaps to protect the passengers from the
rain. The team considered the idea of using plastic instead of steel and buying a low-priced engine.
Elaborating on the initial plan, Nikhil A. Jadhav, Industrial Designer at INCAT, Tata Groups
engineering and designing firm, said The idea was to try and create a very low cost transportation
with four wheels; it was not even defined as a car. 20 However, while developing the car, the team
realized that it could actually make a car within the price target.
Industry experts opined that Tata Motors was able to achieve its low price target because of the
Nanos innovative design. The company filed for more than 37 patents for the design (Refer to
Exhibit VI for technical specifications of Tata Nano). In its pursuit to reduce cost, the R&D team
responsible for developing the Nano made changes in most of the components of the car including
engine, steering, driveshaft, wheels, tires, seating systems, and interiors. Commenting on this, Ravi
Kant, Chief Executive Officer (CEO) of Tata Motors, said, Every day we invite people to come
and examine the car and ask: How can we make more savings?21
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. The engine design was changed three
times. Finally, they introduced a 623 cc, two cylinder petrol engine.
Wherever possible, lightweight steel was used in the Nano, which made the car much lighter than
other small cars. In an effort to reduce the steel content in the car, an aluminum engine was used
instead of a conventional engine made of steel. An aluminum engine helped not only to reduce
weight but also to save on cost. The engine was placed at the back in order to increase the space in
the interiors of the car. Commenting on the rationale for the rear position of engine, Abhay
Deshpande, Assistant General Manager, Vehicle Integration at Tata Motors Research Center,
said, It made the car more low-cost, more efficient, and more compact.22
As there was no space for the battery in the back, it was put under the drivers seat. Since the
engine was light and placed at the back, it put less pressure on the steering system. Hence, there
was no necessity for a link between the engine and the rear wheels. While incorporating these
changes, the Nano team ensured that the engine satisfied all emission standards and sound norms
and was fuel efficient. In an effort to reduce the price of the Engine Control Unit (ECU) that
controlled the operation of the cars engine, Tata Motors and Bosch worked together and made
several changes including reducing the number of sensors used by the ECU to oversee the cars
engine. These changes helped the company to further reduce costs.
Since the Tata Nano had a rear engine, it affected the air flow in the car. Tata Toyo Radiator, the
supplier of the engine cooling system (ECS), came up with innovations to address this issue. The
rear doors of the car were designed in such a way that there was easy air flow in the car. The fan
motor and fan blade were also redesigned to increase their efficiency.
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. As a result, the cost of machining and assembling the two
pieces of the steel tube was saved. According to Harish Lakshman, Director of the Rane Group,
The world has seen this sort of integration of two pieces into one, but applied differently not for
a new car, and not to reduce costs.23

20
Dream Come True for Tata Nano, http://www.thaindian.com, March 23, 2009.
21
Manjeet Kripalani, The Story Behind the Tata Nano, http://www.businessweek.com, May 14, 2008.
22
Dream Come True for Tata Nano, http://www.thaindian.com, March 23, 2009.
23
Manjeet Kripalani, The Story behind the Tata Nano, http://www.businessweek.com, May 14, 2008.
5
 The Tata Nano Project Making of the Worlds Cheapest Car

The driveshaft helps to transfer power from the engine of a car to its wheel. The driveshaft of the
Nano was supplied by GKN Driveline India, a subsidiary of GKN Plc24. The supplier
experimented with 32 types of driveshaft before creating the appropriate driveshaft for the Nano
with the help of its designers from France and Italy. GKN manufactured a smaller diameter
driveshaft for Nanos rear wheel drive system, which was lighter and for which the material cost
was less.
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. According to
Srivats Ram, Managing Director of Wheels India, The wheel that was developed is lighter than
any other passenger car wheel in the country and the first wheel to my knowledge in passenger car
wheels to have three bolt-holes instead of the conventional four.25
MRF26 supplied the tires for the Nano. As the Tata Nano was a rear engine car, the rear tires were
made wider than the front tires to take care of the larger rear load. MRF developed three different
tires for Nano. While the front tires were 135/70 R12, the rear ones were 155/65 R12 with tubeless
radial tires of 12-inch rim diameter.
The spare wheel was smaller at 135/70 R12 so that it would use up less space and reduce weight
and cost. The spare wheel was supposed to be used only for as long it took the car to reach a place
where the defective wheel could be repaired. MRF branded the tire as TEMP.
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. A sufficient
amount of foam was used to give the required seating comfort. The drivers seat could be reclined
and could be moved forward and backward. The rear seats could be folded which helped to
increase the rear space of the car. To reduce costs, the basic variant did not have the option of seat
adjustments.
The interior and exterior plastic parts of the Nano including the bumpers, instrument panel, air
vents, cockpit, door handles, etc. was supplied by Tata AutoComp Systems. All these parts of the
Nano were designed to reduce weight. In addition, the design innovation was done keeping in
mind the specific needs of the car. For example, the recess in the front dashboard was designed in
such a way that the passengers could keep small items there while traveling. The central console
in the car was positioned for both right and left hand drive versions. It had a speedometer, an
odometer, and a digital fuel gauge.
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. In order to reduce costs on the cars brakes, Bosch
supplied a conventional vacuum booster. As the engine of the car was placed at the rear, the load
on the front wheels was less than that on the rear wheels. Therefore, the car had drum brakes
instead of the usual disk brakes on the front wheels. The Nano team had developed a cable type
gear shifter instead of the rod type. This innovation not only helped reduce the weight of the gear
shifter system but also made gear shifting smooth.

24
GKN Plc is an UK based engineering company. It is one of the leading manufactures of automotive driveline
components.
25
T Murrali, Revolutions in Wheels and Tyres, http://www.thehindubusinessline.com, March 22, 2009.
26
MRF Tyres is the leading manufacturer of tires in India. As of mid-2009, it exported its extensive range of tires to
more than 75 countries worldwide. For the financial year ending September 2008, MRF reported revenues of 57.56
billion and a net profit of 1.44 billion.

6
 The Tata Nano Project Making of the Worlds Cheapest Car

In order to save space and reduce cost, the windshield washing system was smaller compared to
any other car. The washer tank was fixed in front of the car. The Nano had only one wiper. It also
had only one outside rear view mirror. The inner rear view mirror was redesigned so that it could
integrate with the cabin lighting system, thus serving to reduce the total number of required
components. Instead of using long life bulbs, regular bulbs were used in the Nano. Regular bulbs
met the regulations and also helped cut costs.

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).
While some auto part suppliers developed a number of auto parts through their own research and
development, some worked together with Tata Motors to develop certain parts for the Nano. Tata
Motors also helped some auto part suppliers to find international partners to develop products
required for the Nano. According to Xavier Mosquet, Senior Partner and Head of the US
Automotive Practice at the Boston Consulting Group, Building partnerships with a limited
number of suppliers and putting everyone in the same room to work through problems and make
suggestion that has enormous value, its very efficient.27
In order to reduce cost on logistics, Tata Motors planned to assemble the Nano at the dealers
workshops. The Nanos components could be built and sent separately for assembling. According
to Tata Motors, if some entrepreneurs set up an assembly operation, the company would give
training to their employees and supervise the quality aspect. The company wanted these
entrepreneurs to set up a satellite assembly operation for it. Hence, the Nano would be sold in
kits and it would be assembled at the satellite assembly operations and sold via local distributors.
According to Ratan Tata, A bunch of entrepreneurs could establish an assembly operation and
Tata Motors would train their people, would oversee their quality assurance, and they would
become satellite assembly operations for us. So we would create entrepreneurs across the country
that would produce the car. We would produce the mass items and ship it to them as kits. That is
my idea of dispersing wealth. The service person would be like an insurance agent who would be
trained, have a cell phone and scooter, and would be assigned to a set of customers.28

TATA NANO Vs. MARUTI 800

The Tata Nanos 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 ex-showroom 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).
Table I
Ex-Showroom Price Comparison of Basic Model of Tata Nano and Maruti 800 (In Rupees)
Delhi Chennai Mumbai Kolkata
Tata Nano Standard 123,361 132,056 134,249 130,784
Maruti 800 Standard 184,894 185,294 197,214 193,137
Source: http://www.infibeam.com.

27
Jessie Scanlon, What Can Tatas Nano Teach Detroit? http://www.businessweek.com, March 18, 2009.
28
John Hagel and John Seely, 4 Lessons to Learn from Tatas Nano, http://www.businessweek.com, March 25, 2008.
7
 The Tata Nano Project Making of the Worlds Cheapest Car

Analysts were also of the opinion that once the Tata Nano started selling, Maruti Suzuki might
reduce the price of the Maruti 800, which would bring down the price difference further. They
were of the opinion that since the price difference was only about Rs 60,000 and there were
various finance options available, many consumers might prefer to buy the Maruti 800, a car tried
and tested for more than two decades, rather than the Tata Nano, which was a new car and had a
long waiting period.
The Tata Nano had 20 percent more seating capacity than the Maruti 800. However, in order to
make the car spacious, its engine Nano was placed at the rear, unlike in the Maruti 800, where the
engine was placed in front. Analysts were of the opinion that the Maruti 800s front mounted
engine made the car safer than the Tata Nano. Analysts also said that unlike the Maruti 800, there
was no hand brake in the Tata Nano.
Some auto analysts pointed out that the engine of the Tata Nano made a lot of sound, whenever the
speed crossed 60 km/hr. Analysts were of the view that the main reason was the low capacity
engine of Tata Nano compared to Maruti 800.
Although, the Tata Nano was shorter in length than the Maruti 800, width-wise and height-wise, it
was larger (Refer to Table II for a comparison of technical specifications of Maruti 800 and Tata
Nano). The Tata Nano had a maximum power of 33 bhp compared to the Maruti 800s 37 bhp.
However, it was lighter than the Maruti 800, weighing 580 kg as compared to Maruti 800s weight
of 660 kg. Hence, the power to weight ratio, considered to be the right measure of performance of
an engine, was 0.057 bhp/Kg for the Tata Nano and 0.056 bhp/Kg for the Maruti 800. Considering
this fact, analysts opined that both the cars would have almost the same engine performance. The
fuel efficiency of the Tata Nano was much better than that of the Maruti 800.
Table II
Comparison of Technical Specifications of Maruti 800 and Tata Nano
Specifications Maruti 800 Tata Nano
Dimensions Length 3.34 meters 3.1 meters
Height 1.40 meters 1.6 meters
Width 1.44 meters 1.5 meters
Engine Type Front wheel drive Rear wheel drive
Number of cylinders 3 cylinder 2 cylinder
Engine capacity 796 cc 623 cc
Peak power 37 bhp 33 bhp
Transmission 4 speed manual 4 speed manual
Tyres Radial Tubeless
Source: S. Muralidhar, Mega Plans for Super Mini, http://www.thehindubusinessline.com, January 10,
2008.
The service and maintenance cost of the Maruti 800 was low compared to any other car available
in India. Analysts opined that the biggest challenge for Tata Motors would be to keep the service
and maintenance cost of the Nano low. They felt that although the service and maintenance cost of
the Nano was not known, this could be deciding factor for the consumers.

8
 The Tata Nano Project Making of the Worlds Cheapest Car

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). However, if the price of the raw material increased in the near future, then it
would be difficult to maintain the price, they said. And if the price of the car was increased, it
would lead to lower demand, they added. According to Bijoy Kumar Y, Editor, Business Standard
Motoring, You have to design a car at a specific cost and without comprising on the safety. You
also have to ensure that the price remains the same for few years that is critical as you cannot have
a Rs 1-1.2 lakh car which scales up to Rs 3 lakh car.29
Table III
Change in the Cost of Raw Material
Raw Material January 2008 March 2009 Change (In Percentage)
Cold Rolled Steel Rs 45,000 per tonne Rs 32,000 per tonne -28
Crude US$ 100 per barrel US$ 49 per barrel -51
Rubber Rs 93 per Kg Rs 75 per Kg -19
Engineering Plastic Rs 150-600 per Kg Rs 150-600 per Kg 0
Source: Manu P. Toms, Softening Raw Material Prices Smooth the Ride,
http://www.thehindubusinessline.com, March 22, 2009.
Nano attracted criticism from some analysts for having interiors made of plastic which, they said,
lacked appeal. Some also complained about the engine, which sounded like a lawnmower. Some
analysts also pointed out that in the standard model of the Nano, only the drivers seat could be
adjusted. Others pointed out that there was no luggage space in the Nano.
Industry experts felt that the Nano was more suitable for intra-city driving than inter-city driving.
Some analysts were concerned about the quality of the car, if the company sent the components of
the car to the dealers workshop for assembling. They were of the view that if there were some
quality issues at the dealers end, then the Tata brand would be affected.
Despite the challenges, the booking figure reflected the high demand for the Nano. Experts opined
that though there was a high demand for the car, if any problems were reported as far as the quality
of the car was concerned, then the consumers confidence would be affected and that would affect
its sales also. According to Wagh, Today, the Nano has become a big brand. But the bigger
challenge now is how to sustain the demand. The product has to be very good and consistent.30
Analysts were also concerned whether Tata Motors would be able to fulfill the high demand for
the Nano as the Pantnagar plant could manufacture only 50,000 Nano cars annually. It was
announced that production at the mother plant at Sanand, which had a capacity of manufacturing
250,000 cars per year, would start only by the end of 2009 and that the first Tata Nano from the
plant could be rolled out only by the end of 2010. Analysts opined that the long wait period would
decrease interest among the consumers.

29
Ketan Thakkar, Tata Might Struggle to Meet Nano Demand, http://profit.ndtv.com, March 19, 2009.
30
Sujata Agarwal, A Passion for Cars, http://www.tata.com, January 2008.
9
 The Tata Nano Project Making of the Worlds Cheapest Car

Tata Motors targeted the owners of two wheelers as potential customers for the Nano. The
company was of the view that low price would prompt many two wheeler owners to upgrade to the
Nano. However, not everyone agreed. Some experts opined that as two-wheelers generally gave a
higher mileage of about 55 km per liter, most of two wheeler owners may not buy Nano which
gave a mileage of around 21 km per litre. According to Venu Srinivasan, Chairman of the TVS
Motor Company, There will be no major impact on two-wheelers. It (Nano) will create its own
segment.31
Since the price of the Nano was low, the Nano dealers operated on a low commission. Experts
opined that the commission would be as low as 2 to 2.5 percent of the price of Nano in comparison
with an average commission of 3 to 3.5 percent. They said that it would not be too profitable for
auto dealers to sell the Nano. Commenting on this issue, SP Shah, President of the Federation of
Automobile Dealers Associations (FADA), said, We expect that since the manufacturer gets
wafer-thin margins in selling the Nano, dealers selling the model will be expected to make do,
too.32
Reportedly, Tata Motors had spent approximately US$ 400 million on developing the Nano.
Analysts opined that considering the Nanos low price, Tata Motors had to compromise with very
low margins. According to them, it would be as low as 5 percent. Experts were of the view that
with such low margins, it would take about five years for the Nano project to turn profitable.
However, the management of Tata Motors was confident that it would be able to sell huge
numbers to cover the cost of developing the Nano. According to Ratan Tata, All I can say at the
moment is that the project is highly profitable. After all, I am not doing it for philanthropy.33

31
Tata Nano May Have Marginal Impact: Maruti, http://www.business-standard.com, March 27, 2009.
32
Nano Offers Little to Dealers, Likely Margins to be 2-2.5%, http://in.msn.com, March 28, 2009.
33
Why the Nano is Profitable, http://business.rediff.com, March 26, 2009.

10
 The Tata Nano Project Making of the Worlds Cheapest Car

Exhibit I
Tata Nano

Source: http://wardsauto.com.

Exhibit II
Tata Motors Product Portfolio
Product Type Products
Passenger Cars Indica Vista, Indica V2, Indica V2 Turbo, India V2 Zeta, Indica V2 Dicor,
Indigo, Indigo XL, Indigo Marina, Indigo CS, Nano, Fiat Cars
Utility Vehicles Safari Dicor, Sumo, Sumo Grande, Zenon XT
Trucks Medium and heavy commercial vehicles including rigid trucks, tractor
trailers and tippers
Intermediate commercial vehicles
Light commercial vehicles
Small commercial vehicles
Tata Novus
TL 4X4
Commercial Buses including Tata Globus Range and Tata Starbus Range
Passenger Carriers
Winger available in standard, deluxe and luxury range
Magic
Defence vehicles Tata 207 ambulance, LPT 1615 TFF (Truck Fire Fighter), Armoured
Sumo, Armoured Safari, Winger Ambulance, Xenon 4X4 Pickup
Source: http://www.tatamotors.com.

11
 The Tata Nano Project Making of the Worlds Cheapest Car

Exhibit III
Tata Motors Financial Performance
(In Rs. million)
Q3 FY 09 Q3 FY 08 9M FY 09 9M FY 08
Revenue* 47,586.2 72,518.3 187,659.2 199,813.0
EBITDA 916.50 8,197.4 11,186.3 21,608.6
Profit Before Tax (4,191.5) 6,651.0 2,839.5 18,784.2
Net Profit (2,632.6) 4,990.5 4,098.4 14,926.5
Volume Summary (In Units)
Total Commercial Vehicles 49,546 82,568 195,192 215,313
Total Passenger Vehicles 42,187 49,284 142,507 153,475
Exports 7,027 12,756 29,177 40,488
Total Volumes 98,760 144,608 366,876 409,276

*Net of excise
Conversion rate for Q3 FY 09 1 US$ = 49.96
Conversion rate for Q3 FY 08 1 US$ = 39.49
Average conversion rate for 9M FY 09; 1 US$ = 45.14
Average conversion rate for 9M FY 08; 1 US$ = 40.44
Source: http://www.tatamotors.com.
Exhibit IV
Tata Motors Stock Price Chart (January 2008 January 2009)

Source: www.equitymaster.com.

12
 The Tata Nano Project Making of the Worlds Cheapest Car

Exhibit V
Prices of Different Variants of Nano in Delhi (In Rupees)
Tata Nano Standard Tata Nano CX Tata Nano LX
Base Price 109,654 134,543 153,209
Value-added Tax 13,707 16,818 19,151
Ex-showroom Price 123,361 151,361 172,360
Octroi 0 0 0
RTO 5,168 5,728 6,148
Insurance 4,416 5,186 5,784
Other 2,206 2,206 2,206
Estimated On Road Price 135,151 164,481 186,498
Source: http://www.infibeam.com.
Exhibit VI
Technical Specifications of Tata Nano
Engine Type 2 cylinder petrol with Bosch multi-point fuel injection
(single injector)
Size All aluminum 624 cc (38 cu in)
ECM Value Motronic engine management platform from Bosch
Valves 2 valves per cylinder, single overhead camshaft
Compression 9.5:1
Ratio
Bore X Stroke 73.5 mm (2.9 in)73.5 mm (2.9 in)
Power 33 PS (33 hp/24 kw) @ 5,500 rpm
Torque 48 Nm (35 ft-lbft) @ 2,500 rpm
Suspension, Front Brake Disk
Tyres and
Rear Brake Drum
Brakes
Front Track 1,325 mm (52.2 in)
Rear Track 1,315 mm (51.8 in)
Ground Clearance 180 mm (7.1in)
Front Suspension McPherson strut with lower A arm
Rear Suspension Independent coil spring
Wheels 12-inch steel rims/alloys
Performance Acceleration 0-70 km/h (43 mph) in 14 seconds
Maximum Speed 105 km/h (65 mph)
Fuel efficiency 20 km per litre (5 liters per 100 kilometers)

13
 The Tata Nano Project Making of the Worlds Cheapest Car

Layout and Rear Wheel Drive, 4-speed manual transmission

Transmission
Steering Type Mechanical rack and pinion
Body and Seat Belt 2
Dimensions
Trunk capacity 30 liters (1.1 cu ft)
Source: S. Muralidhar, The Great Indian Engineering Feat, http://www.thehindubusinessline.com, March
22, 2009 and http://www.mytatanano.co.in.
Exhibit VII
Auto Part Suppliers of Tata Nano
Components Supplier
Cylinder Heads Sundaram Clayton Limited, Rico Auto Industries Limited
Batteries Tata AutoComp Systems Limited, Exide Industries Limited
Starter Motors Bosch, Lucas-TVS
Alternators Bosch
Radiators Taco
Engine Management System Bosch
Mirrors Taco
Tyres MRF Limited
Brakes Bosch
Sheet Metal Caparo Group, JBM Group, Rasandik Engineering Industries
Limited
Bumpers Taco
Lamps Lumax Industries Limited
Steering Sona Koyo Steering Systems Limited, Rane Group
Dashboard Taco
Seats Taco
Source: S. Muralidhar, The Great Indian Engineering Feat, http://www.thehindubusinessline.com, March
22, 2009.

14
 The Tata Nano Project Making of the Worlds Cheapest Car

References and Suggested Readings:

1. Nano Bookings Expected to Touch a Million, http://www.business-standard.com,
April 26, 2009.
2. Nano Offers Little to Dealers, Likely Margins to be 2-2.5%, http://in.msn.com,
March 28, 2009.
3. Tata Nano May Have Marginal Impact: Maruti, http://www.business-standard.com,
March 27, 2009.
4. Shymal Majumdar, Nanos Nano Impact, http://business.rediff.com, March 26, 2009.
5. Why the Nano is Profitable, http://business.rediff.com, March 26, 2009.
6. Will the Nano Change Indias Auto Industry, http://business.rediff.com, March 25,
2009.
7. Sudha Menon and Mobis Philipose, 300, 000 Bookings = Rs. 2,850 Cr in Cheap Funds
for Tata Motors, http://www.livemint.com, March 25, 2009.
8. Tata AutoComp Systems contributes significant components for Tata Nano,
http://www.indiaprwire.com, March 24, 2009.
9. Tatas Ready for the Nano Mad Rush, http://timesofindia.indiatimes.com, March 24,
2009.
10. The VIPs Who Checked the Nano, http://business.rediff.com, March 24, 2009.
11. Sister Brands on Nano Ride, http://timesofindia.indiatimes.com, March 24, 2009.
12. NanoA Dream of Ratan Tata, A Revolution for the Auto Industry,
http://www.indiainfoline.com, March 24, 2009.
13. Dream Come True for Tata Nano, http://www.thaindian.com, March 23, 2009.
14. Tata Motors to Redesign Nano for US Market, http://www.thehindubusinessline.com,
March 23, 2009.
15. How Customers Can Book Their Nano, http://www.thehindubusinessline.com, March
23, 2009.
16. Nano Wait Is Over, http://www.thehindubusinessline.com, March 23, 2009.
17. Nano on Indian Roads in July, http://www.economictimes.indiatimes.com, March 23,
2009.
18. Murali Gopalan, From Singur to Sanand, an Arduous Drive,
http://www.thehindubusinessline.com, March 23, 2009.
19. Manu P. Toms, Softening Raw Material Prices Smooth the Ride,
http://www.thehindubusinessline.com, March 22, 2009.
20. S. Muralidhar, The Great Indian Engineering Feat,
http://www.thehindubusinessline.com, March 22, 2009.
21. N. Ramakrishnan, Who Is Going to Finance the Car,
http://www.thehindubusinessline.com, March 22, 2009.
22. T Murrali, Revolutions in Wheels and Tyres, http://www.thehindubusinessline.com,
March 22, 2009.
23. Ketan Thakkar, Tata Might Struggle to Meet Nano Demand, http://profit.ndtv.com,
March 19, 2009.
24. Tata Nano: the Innovations by the Team, http//ibnlive.in.com, March 19, 2009.
25. Jessie Scanlon, What Can Tatas Nano Teach Detroit?
http://www.businessweek.com, March 18, 2009.
26. Tata Motors Showcases 3 Models at Geneva Show,
http://www.thehindubusinessline.com, March 04, 2009.
27. Manu P. Toms, Nano Booking Likely to Cost Rs. 70, 000,
http://www.thehindubusinessline.com, February 26, 2009.
28. Virendra Pandit, Tatas Pick Gujarat for Nano, http://www.thehindubusinessline.com,
February 26, 2009.
29. Tata Motors Q3 Net Loss at Rs 2.63 Billion, www.moneycontrol.com, January 31,
2009.
15
 The Tata Nano Project Making of the Worlds Cheapest Car

30. Nano: Tatas to Beef Up Dealer Network, http://in.rediff.com, August 06, 2008.
31. Manjeet Kripalani, The Story behind the Tata Nano, http://www.businessweek.com,
May 14, 2008.
32. John Hagel and John Seely, 4 Lessons to Learn from Tatas Nano,
http://www.businessweek.com, March 25, 2008.
33. Keith Naughton, Small. Its the New Big, Newsweek, February 16, 2008.
34. How the Rs 1-Lakh Car Was Made, http://www.rediff.com, January 12, 2008.
35. S. Muralidhar, Mega Plans for Super Mini, http://www.thehindubusinessline.com,
January 10, 2008.
36. Richard S, Chang, Tata Nano: the Worlds Cheapest Car, http://www.nytimes.com,
January 10, 2008.
37. R. Jagannathan, Tata's Nano Will Fit into Most Pockets, http://www.dnaindia.com,
January 10, 2008.
38. Sujata Agarwal, A Passion for Cars, http://www.tata.com, January 2008.
39. Christabelle Noronha, The Making of the Nano, http://www.tata.com, January, 2008.
40. http://www.tatamotors.com.
41. http://www.mytatanano.co.in.
42. http://www.infibeam.com.

16