REV: JUNE 3, 2010
KRISHNA PALEPU BHARAT ANAND RACHNA TAHILYANI
Tat Nano – The Peopl Car ta o e le’s r
dia k big. Ind must think small to stay b — Ra atan Tata, Cha airman Tata G Group In March 2009, Tata Motors India’s larg , s, gest automob company by sales lau bile unched the world’s cheap pest car, the Tata Nano i India price at $2500 (see Exhibit 1 for a pict in ed ture of the N Nano). Throu ugh this laun nch, the comp pany realized Tata Group Chairman R d Ratan Tata’s v vision of mak king a “peop ple’s car” - a safe, affordab car which was within everyone’s r ble h reach. Ratan T Tata’s overar rching ambit tion was to build innova b ative product for the ma ts asses. He exp plained, “The aim is to c e create produ for that la ucts arger segmen nt—good and robust produ that we a able to pro ucts are oduce innovatively and g to the ma get arketplace at lower costs.”1 The next c ” cheapest car a available in t world wa the the as Chine QQ3 at $5 ese 5,000 manufac ctured by Che Automobi ery ile. By targeting th two-wheele vehicle ow y he ed wners, Nano created a new segment – the ultra low cost w w (ULC) segment pr riced between two-wheeled vehicles an the Maruti Suzuki 800, the next che n nd , eapest car in India. The Nano was a resounding suc n N ccess, and by May 2009, Ta Motors ha received 20 ata ad 06,000 orders for it. How wever, Tata M Motors was p producing Na ano from the interim fa eir acility that ha an ad annua capacity of 50,000. Their new plant, w al f r which would start comme d ercial product tion by April 2010, would have at best an annual ca d t apacity of 350 0,000. Ra Kant, Vic Chairman of Tata Mo avi ce n otors, wonde ered what w would be the optimal cap pacity comm mitment for th Nano. The overwhelming positive m he e market response to Nano suggested th the hat company’s interna estimates o the market demand for Nano-like v al of t r vehicles in India was close to a e on y in of cess, global automakers su as uch millio units per year. He was aware that, i the wake o Nano’s succ Renau ult-Nissan an Chrysler h announce plans to ta nd had ed arget the ultra a-low-cost seg gment. More eover, Indian automaker Maruti Suzu was expected to laun n r uki nch the Maru Cervo in May 2010 p uti priced betwe $3200 and $4400.2 Kno een d owing that the Nano would face competition in the n e d near future, sh hould Tata M Motors be co onservative in its capacity commitmen and stick to its curren planned an n y nt, nt nnual capac of 350,000 Alternativ city 0? vely, should th company c he cement its fir mover adv rst vantage by m making an ag ggressive capa acity commitm ment? If so, h how much an nnual capacit should the company co ty e ommit to?
Overview of the Indian Passenger Vehicle Segment n
Th Indian auto he omotive mark was the fa ket astest growin in Asia driv by India’ large population ng ven ’s of 1.1 billion and a low car penetration of approxim 14 d mately eight c cars per thou usand people The e. _______ __________________ _________________ _________________ __________________ _________________ _________________ ________ ors u nd Associate Rachna Tahilyani from the India Research C e Center prepared th case. his Professo Krishna Palepu and Bharat Anan and Research A Thanks to Rachna Chawla, Research Coordin nator of the India R Research Center for her assistance wit exhibits and case authorisations. C r th Cases are nded to serve as en ndorsements, sourc of primary data, or illustrations of effective or ineffec ces ctive management. not inten ght nt Harvard College. T order copies or request permission to reproduce mat To n terials, call 1-800-545-7685, Copyrig © 2010 Presiden and Fellows of H write Ha arvard Business Sc chool Publishing, Bo oston, MA 02163, o go to www.hbsp or p.harvard.edu/educators. This publica ation may not be digitized, photoco opied, or otherwise reproduced, poste or transmitted, w ed, without the permis ssion of Harvard Bu usiness School.