Tata Nano: Showcase of what technology can do to costs

Ratan Tata, the 70-year old chairman of the Tata Group, fulfilled yet another promise today. He unveiled India's US$2,500 car, Tata Nano.

The Indian middle class has been waiting for this car since 2003, when Tata first spoke of the US$2,500 car to the Financial Times at the Geneva Motor Show. Since then, costs have gone up, the country has progressed and people have grown richer. But a promise is (indeed) a promise.

And what a car this is. The 624cc Tata Nano meets all safety and emission standards. It is, in fact, more spacious from the inside than its nearest competitor--Maruti 800, which has been around for nearly 25 years now.

When I was covering automobiles for Indian newspapers (1996 to 2001), I was told by automobile industry persons that no manufacturer can produce a car cheaper than the Maruti 800. That's because Maruti Udyog was manufacturing this car (sold at around US$4,750) out of a fully-depreciated plant. And designing a car from scratch used to cost a lot those days--anywhere in the region of US$1 billion or more.

But since then, the cost of designing a car has gone down substantially. Thanks to new and more efficient designing software, offshoring, reverse auctions and new techniques (such as the option of experimenting with re-engineered plastics and aerospace adhesives), today producing low cost cars like Tata Nano has proved to be a reality.

With technology, costs no longer appear to be a barrier.

Over the last five years, we've heard of a lot of experiments Tata Motors were undertaking in order to deliver the US$2,500 car. For instance, there was talk that Tata Motors was talking to two-wheeler makers to source cheaper components for this car. At first, there was talk that this would be a low-end "rural car", without doors or windows and with plastic curtains--a four-wheel version of the auto-rickshaw. But Nano has proved to be miles ahead of the rickety autos.

Tata Motors also looked at distributed manufacturing--creating a low-cost, low break-even point manufacturing unit that Tata would design and give out to entrepreneurs who might like to establish a manufacturing facility. The company also examined different ways of servicing the product to keep costs under check.

Tata experimented with engineering plastics and new materials, and using new technology like aerospace adhesives instead of welding. Many of these experiments were heavily criticized by auto experts and industry persons.

So where exactly has Tata been able to cut costs? It seems that various innovations have helped Tata Motors achieve its US$2,500-price target.

Nano has similar handles and mechanisms for the left- and right-side doors. Tata Motors has indigenously developed the 624cc engine of the Nano to sit under the rear seat, enabling them to craft a smaller overall package.

The company has cut costs by designing new types of seats. It has also put the instrument cluster in the middle and not in front of the driver. This means the same dashboard will work for a left-hand-drive vehicle. Obviously, Tata Motors is looking at exports of this car in order to generate volumes.

Let's wait and see how competition reacts to this US$2,500 hottie.