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. 

Exit the Nano, pursued by the Nano-killers

Interesting to see the emergence of parallels in perceptions of the low-cost car market and the low-cost computer market. From Wired's article about the sub-$3,000 Tata: 

Now that Tata Motors has shown the way, competitors are scrambling to offer their own budget vehicles. Hyundai has announced a $3,700 car. Renault-Nissan has teamed with Indian motorcycle maker Bajaj to put 400,000 of its own ultra-low-cost cars on the road by 2011. General Motors is rumored to be working on a Nano-killer with China's Wuling Automotive. 

Time was (and still is) when the OLPC initiative was seen as launching a wave of innovation around netbooks, which led to the Classmate, the ASUS eeepc (which was initially based on the Classmate reference design) and an explosion of competitors. As far as I can tell, however, the manufacturers who have jumped successfully into this market aren't pursuing strategies at all like OLPCs; they aren't even focusing with any real diligence on education sales. 

I'm generally skeptical of models in which first movers are seen as suddenly alerting competitors or copycats to potential markets that had been neglected because, well, no one been able to realize a combination of design and price that would appeal to it. My skepticism increases when it's a market that opens less as a result of conceptual innovation (e.g. Twitter, YouTube) than of re-engineering and re-combining pre-existing tools. Yes, I do realize that the XO is a  swell feat of collaborative design specifically targeting (at least at first) children in developing countries. But the marketplace is demonstrating that manufacturers don't need one-off interfaces, learner-centric apps, or mesh networking to have sales. And HP (via e-inclusion) and other companies were tracking developing-country and emerging-market trends well before the OLPC initiative; Intel had already launched their 

In the case of Tata and the Nano, efforts by competitors are at least partly defensive: Manufacturers don't want to risk losing all of a global market that might reach 10 million per year by 2019 (my back-of-the-envelope estimate). However, Nano-killers will only generate nano-profits, and productive capacity won't be sensibly diverted from higher-margin models. Remember, Buick is the largest-selling brand in China. (Although the situation is slightly different in the cheap-device market, the trend toward higher-cost/higher-markup products demonstrates the sway that profit margins hold over marketing and production.)  My sense is that other manufacturers will direct some of their considerable resources into low-cost designs and, eventually, manufacturing, but that this was a space that they'd been tracking for quite some time and they simply aren't about to let Tata get too far along without having at least to face up to competition, in its South Asian backyard and, perhaps, elsewhere.