Of Automobiles and economic growth: India & China throwdown

China has just announced its intention to become the leader in manufacture of hybrid and electric vehicles. Next door, India's Tata Manufacturing Nano, the $2,500 sub-sub-sub-mini-nofrills car, is set to launch this week. The two programs reflect two wildly different approaches to economic growth and economic justice. Not to mention the environment...

Tata, which is the largest manufacturer in India, is aiming squarely at India's domestic market, and at what we might call the upper triangle of the bottom of the pyramid. No air bags, no air, no antilock brakes, the Nano i

s...

"

... a vehicle meant to herald a revolution by making it possible for the world's poor to purchase their first car."

 

But the Nano's going to be marketed within India for years before going global (if indeed global it ever goes). Tata has calculated that the Nano will be well positioned to attract the broadly rising fortunes of the Indian population. (The idea no doubt sounded better in 2007.) But at least in its marketing rhetoric, Tata is observing that poor people need wheels too, and that public transportation in India is inefficient, unreliable and harsh. Cars, essentially, are positioned as part and parcel of the ongoing (altho extremely incremental) approach to economic equality in India. 

The Chinese government (not a particular Chinese manufacturer) is in contrast focusing on a "leapfrog strategy" in relation to global automobile sales. China manufacturers are well behind Japanese, U.S., South Korean and European competitors--I believe Buick is the best selling automobile brand in China--but the playing field in relation to hybrids/electrics is still pretty level. Plus, China (and Tianjin, P.M. Wen Jiabao's home town) is a leader in battery manufacturing. 

The Chinese strategy seems aimed at gaining a big chunk, even the biggest chunk, of this emerging market niche worldwide. One model discussed by the NY Times will jump from US $14,600 to ~US $30,000 before subsidies, as a result of the switch from internal combustion to an electric powerplant and storage. (Per capita GDP is around US $6,000.)

As important, given China's power-generation infrastructure--75% of which runs on coal--the net reduction in greenhouse-gas output will be small (19% according to a McKinsey study). Of course there are other benefits, not least of which is reduced reliance on oil imports in proportion to domestic sales of electrics. (However these benefits accrue whether the electrics are produced within China or not.)

So, what are key points of comparison?

• The Chinese government seeks to take advantage of the semi-global reliance on the automobile while doing little to address it's own bottom-of-the-pyramid market.
• Tata (and by extension the Indian government) seeks to satisfy domestic demand with a product that might eventually see widespread export to an emerging global middle class. 
• The Chinese approach has moderate domestic upside in relation to reduced greenhouse emissions, with few costs in relation to increased traffic congestion and related problems.
• The Tata/Indian approach has the potential to be an environmental disaster. 

Interestingly, manufacturing for both approaches will likely hit 250 - 500,000 vehicles by 2011. Roughly the same. But gross returns from the Chinese approach will be wildly greater.