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Old 26th August 2008, 00:01   #1
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Default The Tata Nano Gamble - how many Nano Tatas will have to sell

The Tata Nano Gamble - If Tata moves out of Singur, they will argubaly lose close to 1,500 crores. A quick calculation on how many Nano Tatas will have to sell just in order to recover this 1,500 crores as sunk cost:

[1 Nano = 1 Lakh Rupees]
  • Assuming they make 1 Lakh per car: 1,50,000 [1 Lakh 50 Thousand]
  • Assuming fixed costs, dealer margins, etc - Tatas make 50k per car: 4,50,000 [4 Lakh 50 Thousand] - this scenario is more likely
[Comparison with Alto: Alto sells 2 Lakh models a year. Assumed optimistic market for Nano is 5 Lakhs]

Assuming Nano outsells Alto 2.5:1 - Tata will take 1 full year just to recover this cost.

It gets interesting:
  • Assuming Maruti Drops its price to match Nano's price. Assuming Bajaj launches its car in 2010 as planned.
  • Assumed market of 5 Lakh cars a year is suddenly divided into 3 by 2010. Thus Tatas only have 2009 to salvage any investments and drum up a war chest.
Bad, bad gamble.

Members may please suggest more scenarios.
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Old 26th August 2008, 00:26   #2
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I dont think Tata will make a profit of more than 25000 per car

so to recover 1500 crore, they will have to sell
1500,00,00,000/25000 cars = 6,00,000 cars

Thats way too much to ask for.
( My assumption )
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Old 26th August 2008, 00:36   #3
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People (mostly Indians) and the monopolistic Indian auto makers at that time belittled TATA Motors earlier when they brought the Indica to market. Who's eating crow now?. I'm sure TATA Motors have planned out all eventualities.
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Old 26th August 2008, 01:07   #4
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Quote:
Originally Posted by nickatnite View Post
People (mostly Indians) and the monopolistic Indian auto makers at that time belittled TATA Motors earlier when they brought the Indica to market. Who's eating crow now?. I'm sure TATA Motors have planned out all eventualities.
Past Performance Does Not Guarantee Future Results

A> This scenario is being played out assuming Tata write's off the 1,500 crore spent
B> Over a 10-15 yr period, Nano could eventually become a rich investment - but let's not discount the dark horses - Bajaj and Renault.

Going back to Indica - I think it still does more harm than good to the Tata brand. Toyota moved out of the qualis-taxi market to ensure brand premium. Tata is slowly easing out of the sumo-taxi equation for the good of the brand.

I'm not sure its entirely about money now. TCS makes enough cash to fund 10 tata motors[TTM]. Nano - I believe - is about building a brand more than anything else.
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Old 26th August 2008, 01:08   #5
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Tata Motors has been making vehicles ( albeit trucks) for ages...

They have a plant in working condition(for the Nano) in Uttarakhand already.

I am quite sure they know their business leaps and bounds better than we think/estimate.....

Also, going by the "value" ( not just the cost for the end customers) of the Nano, I have my doubts that 500K is a BIG number.

Alto sells 12+K per month...thats 150K or more, and Alto is not among the newer cars in the market.

Also, this 1500 crore loss seems too high to be true......do we have any real(read reliable) sources for this info ?? ( am just curious)
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Old 26th August 2008, 01:46   #6
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A Link for the 1500 crore loss ( source : random googling)

Tata threatens to pull Nano out of Singur- Automobiles-Auto-News By Industry-News-The Economic Times
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Old 26th August 2008, 04:28   #7
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Quote:
Originally Posted by agentsmith2 View Post
B> Over a 10-15 yr period, Nano could eventually become a rich investment - but let's not discount the dark horses - Bajaj and Renault.
ummm... if TATA Motors who has a product ready for market is facing difficulties maintaining the 1 lakh tag, how can Bajaj and Renault produce a competing product at a competing price tag while facing the same difficulties that TATA's are facing now?


Besides, I am sure TATA has taken all eventualities and risks into consideration when they priced Nano. After all,this is a business house that has been making trucks since the 60's and other businesses for almost 100 years.
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Old 26th August 2008, 04:36   #8
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Quote:
Originally Posted by Mayavi View Post
Besides, I am sure TATA has taken all eventualities and risks into consideration when they priced Nano.
Well, it's unlikely that they would have planned for a Rs.1500 cr sunk cost! No one can.
Quote:
The Tata Nano Gamble - If Tata moves out of Singur, they will argubaly lose close to 1,500 crores
It will actually be more since they would need to put a lot of investment in a new facility. But they would also be writing off the total amount as losses, so that will offset to some extent.
But a pull-out would be a severe blow - more to the state of West Bengal. Tatas certainly have the werewithal to survive this loss, but WB's image will take a severe beating.
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Old 26th August 2008, 09:53   #9
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Ihae a diffrenrt opinion on this figure 1500crores. Worstcase, its a investment on land. Is it not a Asset (good or bad may be) to Tata? There are so many companies whose share rose recently when it unlocked the land value. I dont mean that this is a good real estate investment. But who knows, it may turn out to be one in later stage.
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Old 26th August 2008, 10:18   #10
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I personally dislike the Nano, but Tata is crazy at making vehicles in a cost efficient manner. IMHO the inflexion point for the nano would be the electric/hybrid angle when it starts selling in more places than India.

Hypothetically, Tata can buy Maini (the Reva guys) for next to nothing. Add to the equation their global distribution network and clout with the government, and a Reva engined Nano may be the next big thing.

However, Tata is also developing electric capabilities on its own for that ACE order that it has from the US Postal Service.

So you never know!
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Old 26th August 2008, 10:22   #11
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Originally Posted by mjothi View Post
I dont mean that this is a good real estate investment. But who knows, it may turn out to be one in later stage.
Slightly off-topic, but Pallonji Mistry - the biggest shareholder of Tata Sons - already owns a lot of land that Tata can use. Pallonji Mistry - Wikipedia, the free encyclopedia. Why Tata chooses not use its land bank - and buy more more state govts - is a standard exercise in common sense. The Mercedes Benz plant in Pimpri[Pune] operates next to Tata Motors and is leased out by the Tatas.

Rumor has it that Pallonji's son Noel is being groomed for throne. Pallonji also gave up Indian Citizenship in favour of an Irish passport - just an interesting note.
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Old 26th August 2008, 10:48   #12
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Quote:
Originally Posted by agentsmith2 View Post
Rumor has it that Pallonji's son Noel is being groomed for throne. Pallonji also gave up Indian Citizenship in favour of an Irish passport - just an interesting note.
OT:
Son-in-Law. And that information is incorrect - He is not being groomed for any throne. If I had to take a guess, the next chairman of Tata Son's will not be a Tata.

Last edited by vcash : 26th August 2008 at 10:50.
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Old 26th August 2008, 11:18   #13
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Quote:
Originally Posted by agentsmith2 View Post
Slightly off-topic, but Pallonji Mistry - the biggest shareholder of Tata Sons - already owns a lot of land that Tata can use. Pallonji Mistry - Wikipedia, the free encyclopedia. Why Tata chooses not use its land bank - and buy more more state govts - is a standard exercise in common sense. The Mercedes Benz plant in Pimpri[Pune] operates next to Tata Motors and is leased out by the Tatas.

Rumor has it that Pallonji's son Noel is being groomed for throne. Pallonji also gave up Indian Citizenship in favour of an Irish passport - just an interesting note.
Sorry guys. I take my word here about the "investment". Just read in other article that this is "leased" to Tata. So, they can show this as land bank or sell it off.
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Old 26th August 2008, 12:46   #14
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Has any one ever thought about the $SS? I belive the Margin on a new vehicle is quite reasonable with regards to these ultra cheap cars but think about servicing 1.5 lack nanos in first year.

To calculate, if minimum cost to service a Nano (for a single one time service) is Rs. 500/- Than

Total $SS income (Only in 1st year of its launch considering Tata sells 1.5lack Nanos, people service their Nano's 4 times a year, once in every 3 months) = 1,50,000 * 500 * 4 =
30,00,00,000

And as the number of Nanos sell Year on Year, i have a strong feeling that this number will double.

Good move Tata, Just waiting to get my hands on !

Last edited by sary : 26th August 2008 at 12:51.
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Old 26th August 2008, 14:10   #15
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I doubt Tatas will lose anything close to 1500 crore if they pull out. They might have invested 1500 crore, but they only thing they would lose would be anything they have constructed at the site. The rest of the investments like the machinery they will just move. The land will go back to the state govt and they will just go back on the deal.

Tata is like a big Banyan tree with its roots diverse and deep. A few Mamtas pulling on the vines will not bring it down Tata Steel alone had profit of 12321 Crore for the last fiscal, and TCS has a market cap of around 100 thousand crore.

The Nano has other tangible benefits other than just profits, it will help Tata grow in scale, increase visibility and market share, and get repeat customers . Middle class Indian's income is doubling every few years and most of the Nano customers will be looking for new cars some time in the future, and if the Nano is a good reliable product Tatas can build up a great brand loyalty just like Nokia has. Also the fact that Tata has done what most thought impossible in creating the Nano has established Tata's reputation as an innovator and has got it a lot of respect. People around the world now sit up and look at Tata seriously - you can see that in Britain where Tata is well respected and welcomed as a buyer of Jaguar and Corus.

Last edited by chncar : 26th August 2008 at 14:23.
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