We believe that the Nano will create a new segment in passenger cars, straddling the gap between two-wheelers (average price Rs 50,000), and the Maruti-800 standard non-AC version, which is available at an on-road price of Rs 2,18,000. We dont expect the launch of this car to adversely impact two-wheeler volumes, says brokerage firm Motilal Oswal.
Despite a slump in sales in 2007, two-wheeler makers are expected to bounce back in FY09. Even after the launch of Nano, the sales will keep momentum as the cost of ownership of two-wheelers is about one-third of an entry-level small car. Moreover, no matter how small, a car requires regular maintenance. As both two-wheelers and the Nano have the same set of potential buyers, it would be easier to get a smaller loan for a two-wheeler than for a Nano, which would cost 2-3 times more. Research and rating agency Crisil said Nanos launch would attract a section of existing two-wheeler owners, currently about 50 million, to upgrade to a car.
In a worst-case scenario, if the Nano succeeds in attracting 5 lakh two-wheeler buyers post-FY10, it would constitute only 6% of two-wheeler sales, predict analysts at Motilal Oswal. Analysts at equity research firm Merrill Lynch expect the Nano to target 1.2 million potential customers of used cars and marginal two-wheeler owners .
As far as Maruti 800 is concerned, the Nano may initially take away some share in the A1 segment, but the impact is not likely to be much in the A2 segment. This is because a low car price doesnt ensure the highest demand. For instance, the Alto outsells the Maruti 800 in a ratio above 3:1 despite being priced higher by about Rs 50,000.