“$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.

Are you getting our free Daily Update
"reveal" emails? If not,
just click here...

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.



This site uses Akismet to reduce spam. Learn how your comment data is processed.

Inline Feedbacks
View all comments
jaidev ojha
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 som