“$2,000 Automobile Taking Asia by Storm!”

By Travis Johnson, Stock Gumshoe, March 3, 2009

Today’s ad for our review comes in from Bryan Tycango, who writes the Asian Growth Stocks newsletter — we’ve looked at a few of his ideas before, but it’s been a while.

This time, the ad is for a company that’s going to “jerk the rug out from under today’s tottering
automobile giants.”

Which just seems kind of mean, really — haven’t they suffered enough?

This company is teased as the next Ford, from back in the days when Ford was a spectacular long term investment and a revolutionary company.

“This $2,000 car is going to revolutionize the automotive industry like Henry Ford did a century ago. His Model T knocked the price of a car down 90% to a price ordinary workers could afford.

“Ford Motors grew explosively and made early investors incredibly wealthy. This company is doing the same thing today in Asia, in a market 45 times larger.”

And if that’s true, perhaps you could own these shares for a few decades before the company collapses, as our own iconic automakers are doing here in the US.

So what’s the story about this new car?

“… to most of Asia’s 4 billion people, owning a car is still a distant dream. That’s about to change.

“There’s an Asian company that’s about to start mass producing a $2,000 automobile. This is not a tin can on wheels. It’s a real car made with steel, not plastic. It has a design as memorable as the Volkswagon Beetle, and incorporates innovations so revolutionary they’re protected by multiple patents, including 34 on the transmission alone.

“Like the Beetle, it has a rear-mounted engine. But the engine is fuel-injected and gets 53 miles per gallon, while meeting the toughest environmental standards with ease.

“It’s also roomier than the Beetle. It seats 5 people comfortably, and they can get in and out through 4 doors instead of two. Aircon is standard equipment.

“This car is going to sell like hotcakes. There are 240 million Asians already riding motorcycles. I can tell you they put entire families on them, with a kid on the front, the wife on back, and another kid in between. This $2,000 car is the perfect step-up for them. It’s cheap, convenient, economical, and it’s infinitely safer than piling 4 people on a motorcycle.”

So … it’s cheap, it is poised to be the leader in a massive new market … what could go wrong?

First, lets share the name of this company. This is …

Tata Motors (TTM)

And the car they’re teasing us about here is the Tata Nano — the Nano has also been referred to as the “one lakh” car, since it was designed to be the first vehicle to break the one lakh cost barrier (one lakh is 100,000 rupees). When this company has been teased before by other companies, the car was $2,500, but now, with the collapse of the Rupee, it’s down to just under $2,000.

So yes, it is an Indian car, and an Indian company. And I’ve seen this one referred to as the “next Model T” so many times that it seems we’re supposed to accept it as gospel. The Nano is by far the cheapest car to be mass produced, asssuming that they do really manage to launch production this month and have it in showrooms in April, as planned, but it comes with a passel of challenges.

The first challenge is that Tata Motors, part of the huge conglomerate Tata Group, is leveraged up to the eyeballs and is essentially betting the company on the Nano, it appears. This is one of India’s largest car makers and their largest truck maker, and their business until now has been quite profitable and focused mostly on smallish commercial vehicles … but over the past year or so they’ve bought Ford’s failing British brands Land Rover and Jaguar, and the launch of the Nano has been significantly delayed due to problems that are probably all too familiar for investors in India (they had a plant just about built last year, but then a local political fight forced them to move across the country and built a whole new factory).

The Nano is still enjoying accolades — it has won many design and innovation prizes, and it is indeed a distinctive looking little car, with some clever engineering to cut down on price and maximize space and efficiency. It also will try to take advantage of local entrepreneurs in distribution, since the car is designed to be shipped in pieces and assembled regionally or at dealerships. But it’s quite early yet — and it’s very hard to guess at whether the car, successful or no, will be profitable. The big dreams that Tycango and other touters have for Tata Motors count on the Nano being cheap enough to get Indian families off of their scooters and into cars for the first time, and also, to some extent, on the Nano sweeping into other BRIC countries to seed a new low end car market.

I, of course, have no idea whether or not this will happen. There was a good article about them in the Financial Times last week that nicely lays out the challenges: The Nano is coming, and soon, but Tata is dealing with crashing sales and a big debt load otherwise, so it seems like the Nano had better be the hit that they expect.

One can certainly argue that the crash of the world economy will help the Nano, since it may take share away from the other inexpensive cars that cost up to two or three times as much … but you can also argue that car sales are going to suffer so much that we can’t count on a whole new wave of car buyers in India or elsewhere, even with a much cheaper car. I don’t know which argument will be right, or if, as usual, we’ll be toeing the line between the two for the next year or two … if you’ve got a thought to share, please do so.

Tata Motors, by the way, has been very actively teased in the past as a pick of both Chris Mayer and Christian DeHaemer, picks which also focused on the Nano and on an investment in Tata Motors being something like a “back door” into the Tata Group (that’s a bit of a stretch). The shares have certainly not performed nicely for either of those newsletter editors who teased us about TTM when the shares were above $15 a year or more ago (they’re around $3.30 now) … but perhaps Tycango is getting in closer to the bottom, we’ll see.

And if you’ve ever subscribed to Asian Growth Stocks, please click here to review the newsletter and let us know what you thought — he claims a good record, but then, so do they all.


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13 Comments on "“$2,000 Automobile Taking Asia by Storm!”"

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jaidev ojha
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jaidev ojha
March 3, 2009 11:46 am
Sales of cars are doing well in India. Part of why GM and Ford are alive are due to good sales in the asian markets. The Nano is a supplement to bring the 4 person family into a more shielded cube with 4 wheels. India is very big on 2 wheelers and prices for them range between $1000 -$1500 dollars. I have seen a family of 4 (with young kids) wing it on 2 wheelers on some of the unsafest roads in india, so for safety sake and a more comfortable ride, the Nano seems to be positioned well in… Read more »
SageNot
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SageNot
March 3, 2009 12:14 pm

Chris Mayer, ed. of Capital & Crisis has, (or had) TTM at $17.72 about a year ago, it was on Lincoln’s Birthday as I remember.

Now you can’t find any of the India stocks listed on his hard copy, only if you go online & SEO!

I don’t get Mayer, he had such a great reputation & now, YIKES!

This is one ugly looking chart:

http://finance.yahoo.com/q/ta?s=TTM&t=1y&l=on&z=m&q=l&p=m50,m200&a=m26-12-9&c=

Yet they pay a dividend & have positive earnings, GO FIGURE!

Pete Ewing
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Pete Ewing
March 3, 2009 4:07 pm

This is another example of problems the major automakers will face going forward. As electric vehicles become more efficient many more manufactures will emerge. With no need to build complex transmissions and motors car assembly will be greatly simplified inviting a whole new crop of entreprenuers.

Mike
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Mike
March 3, 2009 7:58 pm

So this might finally be a make it or break it situation for TTM? Would the Indian government step in to help out TTM like our loved/hated US involvement in GM. I see this as a great opportunity for a LEAP Straddle.

Julia
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Julia
March 4, 2009 10:55 am
I was in India last year and saw those families of four and even five on a motorcycle. In the booming IT capital of Hyderabad, I saw huge strands of rebar being carted around via motorbike and bicycle. Without a doubt, there is an enormous low-income population in this market (and others in Asia). What I have a hard time visualizing is where these cars can fit on the already absolutely crammed roads. Yes, they are nano, but they will still take up more room than a bike, right? And there just is no more room, or there surely won’t… Read more »
Henry Chakoian
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March 5, 2009 10:07 am

TTM has a great history.In 2005 it hit a high of 20. Since the new car was unveiled–2000.00 the price has drifted down to $4. today. The ill advised purchases of Land rover and Jaguar have hurt. They are antithetical to the concept of cars for the moderatly affluent. The Tata empire can easily finance the motor division and I feel that the nano is Mr. Tatas baby and he will produce it en mass.They paid about 175 in 07 and o8. Small but encouraging. A long term value at this price. Herach.

Gravity Switch
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March 20, 2009 11:54 am

Great article on Tata and the Nano in today’s Financial Times, just FYI (production much lower than expected, “Nano fails to hide Tata troubles”:

http://www.ft.com/cms/s/0/871fd8d4-14ee-11de-8cd1-0000779fd2ac.html?nclick_check=1

Bely
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Bely
June 14, 2009 11:53 am
I’ve just read a downgrade to Hold from Deutsche Bank on Tata Motors. They say: We believe Tata Motors’ 6-month 76% outperformance vs Sensex discounts the improving outlook for the economy and commercial vehicles (c75% of its standalone EBIT). Domestic demand likely bottomed out, but JLR is a known unknown Medium and heavy commercial vehicle (MHCV) volumes reflect a nascent recovery. In addition, Tata Motors has steadily gained market share, especially in the truck segment (66.4% in FY09 vs. 64% in FY08). JLR’s volumes (YTD Apr) in the key US and Europe markets are down c19% and 40%, respectively, and… Read more »
wheels parts
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February 9, 2010 7:34 am

Our online auto parts stores have everything you could need including motors, transmissions, automotive interiors, car and truck body parts, engine repair parts, and of course a way to save money with certified used OEM or aftermarket parts as well.

Thanks

wheels parts

asian growth stocks subscriber
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asian growth stocks subscriber
April 14, 2010 4:30 pm

their ADR last traded for US$4.59
each sometime in March 2009 when this stock was recommended by Brian. Now it is worth $19.65. You should know that I am happy about the profit and I’m making. Im holding on to my shares until Brian says I must sell it.

Longtime subscriber
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Longtime subscriber
September 16, 2010 1:12 pm

Had you invested $2000 in TTM when Brian recommended it at $4.65 per share back in March 26, 2009, you would have made a nice and juicy $8081 gross profit in one year and a half.

That's the type of recos Brian gives. TTM as of 1:36PM September 17, 2010 traded at $23.44.

ponce
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ponce
March 9, 2009 10:42 am

It is no fault of Chris Mayer, other newsletter writers or Warren Buffett for the economy and thus the market to go CRASH. Look what happened to GM, Ford and Toyota, or GE and other blue chips. Some lost 90% of their value. Like them TTM is a victim of the market. Mayer is a value long term investor. At the time he touted TTM there certainly was value in it. Lesson I learned is, NO MATTER HOW GOOD IS A COMPANY I SHOULD PLACE A stop loss ON SHARES TO PROTECT AGAINST A MARKET CRASH.

ponce
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ponce
March 9, 2009 10:55 am

Electric vehicle will stay as a pipe dream until cheap high density battery becomes available. GM had a beautiful one but failed because of high cost. Yes we can say other parts of EV are perfected but the main issue is affordable high density energy battery.

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