Tata Motors unable to shut loss-making ‘Nano’ due to emotional reasons: Mistry

Tata Motors has been unable to shut down the loss making small car Nano due to "emotional reasons" and doing so would also stop the supply of "gliders" to an entity that makes electric cars in which Ratan Tata has a stake, Tata Sons' ousted Chairman Cyrus Mistry has alleged.

In clear indications that not all was well between him and Tata, Mistry in his letter to Tata Sons board members said for the group's automotive venture Tata Motors to make a turn around the company needed to shut down the Nano -- a pet project of his predecessor.

"The Nano product development required concept called for a car below Rs 1 lakh but the cost were always above this. This product has consistently lost money, peaking at Rs 1,000 crore," Mistry said in his letter written a day after he was ousted as the Chairman of India's largest conglomerate.

He further said: "As there is no line of profitability for the Nano, any turnaround strategy for the company (Tata Motors) requires to shut it down. Emotional reasons alone have kept us away from this crucial decision."

Moreover, raising issues of conflict of interest, Mistry said: "Another challenge in shutting down Nano is that it would stop the supply of the Nano gliders to an entity that makes electric cars and in which Mr Tata has a stake."

Tata's dream project Nano came alive in January 2008 when it was launched at a 'promised' price tag of Rs 1 lakh, which was then the cheapest car in the world.

However, the car faced setbacks one after another. Tata Motors had to shift the manufacturing plant of the car from its original site at Singur in West Bengal due to farmers' opposition led by Trinamool Congress to Sanand in Gujarat.

Although the company had managed to roll out the car from its new location, initial instances of the car catching fire raised many safety issues. It could never live up to its potential, with Tata even admitting that Tata Motors had made a mistake of marketing Nano as the cheapest car.

He had insisted that that "Nano should have been marketed towards the owner of a two-wheeler because it was conceived giving the people who rode on two-wheels with the whole family an all-weather safe form of affordable transportation, not the cheapest".

Highlighting problems faced by Tata Motors, Mistry said in his letter that an even more challenging situation arose for the company on the commercial and vehicles front.

"Before 2013, in order to shore up sales and market share, Tata Motors Finance extended credit with lax risk assessment. As a result the NPAs mounted to being in excess of Rs 4,000 crore," he said.

Besides, historically, the company had employed aggressive accounting to capitalise substantial proportion of the product development expenses creating a future liability, he added.