In India, ultracheap cars and laptops target hundreds of millions of emerging consumers who wouldn’t otherwise be able to buy these products. Now Yamaha Motor is looking to get in on the trend with a $500 motorbike that will be its lowest-priced model globally.
But does ultracheap mean extra profitable?
Tata Motors made a big splash with the little Nano car that went into production in 2008. Priced at just $2,600, the Nano has seen sales rise to 9,000 units this year, from 6,000 a year ago. But the tiny car contributes just a fraction to Tata’s bottom line. The company doesn’t disclose the profit it makes from the Nano, but analysts say sales would have to double for the model just to break even.
Other automakers have considered following Tata’s lead. Renault and Nissan Motor both made agreements with India’s Bajaj Auto to produce a competitor to the Nano. But Bajaj backed out last year, saying the plan wasn’t commercially viable. Nissan and Renault now say they will sell small cars in India but priced much higher than the Nano. Bajaj, meanwhile, has opted to build cheap cars, to be sold for taxi fleets only, that won’t be pitched to ordinary drivers.
Yamaha currently sells 10 models in India. Six are high-end, priced at about $1,400 while only two models are in the lowest price range at about $750.
Yamaha’s cheap bike may sell to some loyal customers willing to trade up, but the company risks diluting its brand equity. India’s emerging consumer class is getting wealthier all the time. Yamaha will have to avoid being known for cheap products.
Turning a decent profit on low- priced vehicles depends on selling huge volumes. But Yamaha will have to fight hard for market share. The likes of Hero MotoCorp already sell low-priced motorbikes in India. Although their cheapest models cost at least 30% more than Yamaha’s planned new bike, it will take some effort from Yamaha to dislodge entrenched players. Hero’s share in the light motorbike segment is nearly 74%, according to data from the Society of Indian Automobile Manufacturers.
Yamaha says it aims to triple its share of India’s motorbike sales to 10% in the next four years. Market share, though, doesn’t necessarily lead to profit.
India’s emerging affluent class is an appealing target. But selling lots of products only makes sense when it generates profits too.