Continuing to produce the slow selling Nano is turning out to be a tough decision for Tata Motors. Picture this: Tata Motors set up a greenfield production facility at Sanand, Gujarat a few years ago. The Sanand factory was dedicated to make only the Nano hatchback with an annual production capacity of 250,00 cars. With a eye on future demand, Tata Motors even kept enough room for expansion with the factory being flexible enough to push output by another 100,000 units to take the total capacity to 350,000 cars per annum in case of big demand.
Along with Tata Motors, a large number of vendors supplying parts for the Nano also set shop at Sanand. Together Tata Motors and these vendors have invested a large sum of money at Sanand, while also employing a large number of young people engaged in the production of the Nano and parts for the world’s least priced car. While the huge capacity for the Nano was quite understandable given the buzz the car generated, when it was first showcased at the 2008 Indian Auto Expo, the sales of the Nano have been at complete loggerheads with the capacity being set up. Currently the factory operates at just 25% of its installed capacity of 250,000 Nanos a year.
This has led to the vendors having to downsize their operations and also lay off many of their workers as the demand for the Nano has dipped quite dramatically over the past few months. Despite Tata Motors continued efforts to make the Nano a sales success by attractive special edition variants and discounts, the car has failed to find enough buyers. Now, it isn’t that the Nano is not selling at all. Far from it, Tata Motors managed to sell more than 3,500 units in November 2012. However, the small car remains a dud seller when viewed with the sales it was aimed at and the sales it currently manages.
Tata Motors needs to build at least 150,000 Nanos/utilize 60% of the factory’s output each year, for the Sanand factory to be a viable proposition for the car maker. Tata Motors isn’t giving up on the Nano hatchback just as yet. The car maker is readying up a CNG powered variant of the Nano, a variant that will be much cheaper to run than the petrol version. The CNG powered Nano is expected to match the running cost of a diesel version of the car, which is also being readied up. So, Tata Motors will be hoping that the CNG version will give the sales of the Nano a big boost.