Can the Nano make a dent in the long term?
In an interview on the global auto industry to Knowledge@Wharton, Wharton management professors John Paul MacDuffie and Mauro Guillen, have struck quite a pessimistic note on how "big big" Tata Motors' Nano could become.
John Paul MacDuffie:
People have been watching the Tatas' $2,500 car with interest for a long time. Tata has done a great job of building up a lot of very high expectations. It's not a new quest to build products at the low cost end of the market and sell into these rapidly growing developing markets. This just seems bolder in its ambition.
The design is clever in a lot of ways, but some major questions still exist about how well the product will hold up over time. Even if the Nano now meets Indian emission and safety standards, will that continue to be true after two or three years of hard use on rough Indian roads? Certainly, these products will not be coming to the U.S. or other developed markets because they are a very long distance from meeting our safety and emission requirements, not to mention acceleration and other kinds of things.
In all the markets around the world, there has always been one car that has been priced right there, so that increasing numbers of people could essentially enter the automobile age. Tata can be one of the players that may play that role in India; I don't think they will be the only one. I don't think this car will make Tata's reputation in the global auto industry because there is going to be so much competition for that segment with that kind of product. It's not totally clear to me what advantage they have that some other company doesn't already possess. The technology cannot be it, unless they were able to find some new revolutionary engine. Branding can't be it either. Low cost? Well India may have low costs but so do many other locations around the world. So whatever initial advantage Tata obtains from these bold announcements, how on earth will they sustain it over time? I just don't see it. It's very clever, I agree, but it will be difficult to keep this just to themselves and to exploit all the profits.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.