Tata Nano - Visionary product or failed experiment?

From the world’s cheapest car to a trendy, urban car, the Nano was a case of confused identity

Since a promise is a promise, the standard dealer version will cost Rs 1 lakh - Ratan Tata

The actual cost of producing a Tata Nano had risen more than expected, but the price was kept at one lakh because Ratan Tata had promised a one-lakh-rupee car.

The Nano was touted as a dream car for every middle-class Indian, but ultimately ended its journey probably with a confused identity.

Was it a masterstroke or a lesson in business failure?

Launched as the world’s cheapest car at Rs. 1 lakh in 2008, the Nano was also the smallest car, smaller than a Maruti Suzuki Alto. It had limited legroom and features. Interestingly, the Nano’s engine was at the back, so storage was limited, too. It was a small, sleek car that could hold a few grocery bags, but probably not enough luggage for a family’s weekend trip.

What motivated the creation of a Nano?

It was in the late 1990s that while travelling on the roads of Mumbai, Mr. Ratan Tata saw a family of four on a scooter in the rain. He thought to himself

“... the father driving the scooter, his young kid standing in front of him, his wife seated behind him holding a little baby. It led me to wonder whether one could conceive of a safe, affordable, all-weather form of transport for such a family.’

That thought gave birth to an extremely affordable car. It took almost 10 years for his idea to become a reality when Tata Motors launched the Tata Nano in 2008.

When Tata Motors opened bookings for the Nano, it received over 2 lakh bookings within 17 days. It then stopped taking any more bookings until it could handle production and sales on a larger scale.

Other carmakers in India, like Toyota and Maruti Suzuki, said that the Nano could open a new market for the passenger car industry. Global carmakers were enamored, too. They wanted to learn lessons in frugal engineering from Tata Motors.

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The flip side

Not all was hunky-dory. Many observers sounded a note of caution.

Caution 1: Investment analysts were worried about the costs. To sell a car for 1 lakh to the customer meant the cost of production had to be much lower than that. After all, they had to leave some margins for their dealers, too. They believed such a low-cost production model was not sustainable.

Many feared that the Nano was being sold at 1 lakh only due to vanity and ego. The actual cost could not sustain such a low price tag.

That brings us to Caution number 2. International observers raised concerns about the Nano's safety and environmental impact. In fact, the Nano could not be sold in Western markets because it did not meet their stringent safety and emission standards.

Caution 3: Some Indian analysts pointed out the problem with Tata Nano’s cheap car positioning. As the world’s cheapest, it was not just a people’s car; it was a poor man’s car. It was a branding debacle. Status-conscious customers would not buy a Nano. In fact, a status-conscious customer might not want to buy any car from Tata Motors, the carmaker that sells a poor man’s car.

Nano faced different challenges

Nano’s first challenge had nothing to do with its product features. In fact, it was the ill-fated decision to locate the Nano’s first factory in Singur, West Bengal, which led to political protests, production delays, relocation costs, and late deliveries. For no fault of their own, the early excitement around Nano fizzled out.

When the Nano started selling, Tata Motors got a reality check.

The safety concerns raised at the time of launch became an actual danger. Several Nanos caught fire. Images of burning Nanos hit the national headlines. Tata Motors recalled cars to fix issues and insisted all Indian safety standards were met. But comparisons to other cars scarred the Nano’s image as unsafe.

Three years after launch, sales were far below the initial expectation of selling 2.5 lakh or two hundred and fifty thousand Nanos a year. Ratan Tata insisted that the Nano was not a flop. He attributed the setbacks to execution missteps – insufficient advertising, an inadequate dealer network, and production delays.

The revival plan

Over the years, Tata Motors updated the Nano with new features like power steering, suspension, air conditioning, and expanded financing options.

Then in 2015, Tata Motors launched the Nano GenX, with more features and an automatic gearbox. By this time, Tata Motors was trying to position the Nano as a trendy compact urban vehicle, similar to how Volkswagen positioned the Beetle. Of course, these updated models were priced higher. The highest variant was upwards of 3 lakh rupees, a far cry from the promise of a one-lakh-rupee car.

But the market already had trendier options around that price point, Hyundai Eon, Renault Kwid, and Datsun Redi-Go, to name a few.

As years passed by, pessimism around Nano continued growing. Industry experts increasingly viewed the Nano as a case of unmet expectations.

The Nano was initially launched for those who regularly travelled on two-wheelers. But those consumers still found two-wheelers an easier option. A two-wheeler could still be maneuvered faster than a Nano, and it was also more fuel-efficient.

Then it was positioned as a compact urban car for those looking to groove past city traffic. The price point of 2.5 to 3 lakhs was also appropriate for such customers. But wouldn’t such customers be thinking, “Hey, I buy a car for 3 lakhs but it would still be called a one-lakh rupee car or the world’s cheapest car?” It could be compact and urban, but surely not trendy.

The last chapter

Touted by some as visionary while criticized by others as Mr. Tata’s ego, the Nano soldiered on for about a decade.

Sales never picked up, and finally, in 2018, Tata Motors quietly discontinued the Nano. As an idea, the Nano pushed boundaries. It proved that a functional car could be made at a price point the world thought impossible. It sparked global conversations on frugal innovation. And it made other automakers take lessons on execution, product design, and branding.

The Nano has a few lessons to teach.

One, Indian consumers are value-conscious, not just price-conscious.

Two, vision must be met with realistic goals. A noble thought may not always be feasible.

And three, bold business experiments are important, even if they fail, because they spur innovation among competitors.

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This newsletter is written by Vineet Rajani.

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