Thursday, December 10, 2009

Business model example: Tata Motors - Inexpensive cars for modular distribution

Tata Motors is India's largest automobile company, the world's fourth largest truck manufacturer, the second largest bus manufacturer and the developer and manufacturer of Tata Nano, listed in the Guinness Book of World Records as the world's cheapest car. The Tata Nano, that has received media attention due to its low price, started to be delivered to customers after July 17 2009, with a starting price of Rs 100,000, which is approximately equal to UK£ 1,360 or US$ 2,171 as of October 2009. When competing in the Indian market the Tata Nano is not primarily competing with other cars but with motorcycles used to transport entire families. Making a car affordable for families with low incomes the launch of Tata Nano is believed to expand the Indian car market by 65%. Boston Consulting Group predicts that by 2015, 100 million households in the developing world will be able to afford cars priced between the Nano and the more expensive Renault Logan ($6000). So how could Tata create such a low cost car? Tata refined the manufacturing process breaking down every component of the car into its smallest pieces eliminating everything that is absolutely necessary and predominantly outsourcing its manufacturing to a limited number of suppliers. The number of parts have been reduced with changes such as one windscreen wiper instead of two, no power steering, three lug nuts on the wheel instead of four, no tubes in the tires, only one side mirror and the basic version has no air conditioning, no power windows, no fabric seats, radio or central locking and the seats are fixed except for the driver's which is adjustable. What is really fascinating is how the Nano is constructed of modules that can be built and shipped separately to be assembled in a variety of locations. It can be sold in kits that are distributed, assembled and serviced by local entrepreneurs in rural areas, adjusting the car for local needs adding value to the product or receiving replacement modules for broken cars. To ease assembly, body panels are glued instead of welded. Still, the car meets all Indian emission, pollution, and safety standards. Tata is also developing electrical versions of the Tata Nano that will probably become the world's cheapest electric car when launched.


  1. Another fascinating aspect of Tata's approach to designing such a low-cost car was how they collaborated with suppliers to keep costs low and get the most innovative ideas. For example, Tata gave its suppliers the goal to achieve rather than specific technical specs (i.e." wipe water from windshield" vs. "windshield wiper must be x mm by y cm and work at z cadence"). This gave suppliers the freedom to come up with the most low-cost way to achieve a given goal.

  2. Thank you for your comment and insights Andrea! That is very interesting! Perhaps they could have taken it one step further with "remove water from windshield" or "keep driver's view clear" :)

  3. I am really fascinated when I saw Tata Nano the first time coz it's looks very cute, stylish and gorgeous. So after 2 months, I bought my own and I was satisfied with except for some features. But overall performance is worth a money.