Tata May Slam Brake on Bleeding Nano Project Soon | CORPORATE ETHOS

Tata May Slam Brake on Bleeding Nano Project Soon

By: | November 7, 2016

Nov 7: For Ratan Tata, the Tata Group patriarch, the Nano dream is turning into a nightmare.  The company said Nano’s combined losses now top Rs 1,000 crore and the only way out from the mess is to pull the plug on the project.

Since Tata announced the project a decade back at the Paris Motor show, many eyebrows were raised, and analysts had written it off and predicted that making a toy car at sub-Rs 1 lakh was going to be pipedream.  But Tata Motors went on to roll out the no-frills Nano, which was supposed to lure two wheeler aspirants to drive a four-wheeler family machine.

But the company, after facing lots of starting troubles and hiccups, hit the roads with its dream car, had to pay dearly for its misadventure and even had to hike its ex-show room price within months of the roll out.

Skeletons from the Nano cupboard started tumbling out after the former Tata Sons chairman Cyrus P Mistry was sacked.  This forced Mistry to reveal certain facts that were brushed under the carpet so far in a missive sent to the Tata Sons board.

In his letter Mistry alleged, “the Nano product development concept called for a car below Rs 1 lakh, but the costs were always above this. This product has consistently lost money, peaking at Rs1,000 crore. As there is no line of sight to profitability for the Nano, any turnaround strategy for the company requires shutting it down. Emotional reasons alone have kept us away from this crucial decision. Another challenge in shutting down Nano is that it would stop the supply of the Nano gliders to an entity that makes electric cars and in which Tata has a stake.”

Mistry’s charges against Nano include throwing the mandatory risk assessment of the project and due diligence to wind as well implicitly implicating Tata in investing in a company without making proper disclosure and related party transactions.

However, Tata Motors defended its strategy for producing the $1,500 Nano but fend of queries on the future of the loss-making car. “The Nano’s concept received global interest for its affordable pricing but a change in its manufacturing location and the perception of a cheap car hurt production and sales,” Tata Motors said in the statement.

Nano sales declined more than three-fifths to 4,459 cars in the in the six months of the fiscal year beginning April 2016.  The car maker had written off some costs associated with the Nano, the statement added. Tata Motors also said investments in the Nano factory “could be used for making other products and that the company would focus on “growing and attractive segments of the passenger vehicle market.”

However, the company denied Mistry’s accusation of aggressive accounting for product development expenses and said it followed standard norms which present a fair and true picture of its financial health.