It's Here - Tata (NYSE:TTM) Unveils the World's Cheapest Car

Tata Motors Limited (ADR)  (Public, NYSE:TTM)

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It's called the Nano, for its high technology and small size. It's cute, compact, and contemporary. It's a complete four-door car with a 623-cc gas engine, gets 50 miles to the gallon, and seats up to five. It meets domestic emissions norms and will soon comply with European standards. It's 8% smaller in outer length than its closest rival, Suzuki's Maruti 800, but has 21% more volume inside. And at $2,500 before taxes (value-added taxes increase the price by about $300), it is the most inexpensive car in the world. Starting this fall, the Nano will roll off the assembly lines at a Tata Motors (TTM) plant in Singur, Bengal, and navigate India's potholed roads.

The Nano, also known as the People's Car, is Ratan Tata's dream come true, and is India's contribution to changing the global auto industry. "The car has put India on the global map," says Fionna Prims, head of business development for Segment Y, a Goa-based automotive consultant for emerging markets. "Tata has done in four years what the Japanese took 30 years to do. It will change the whole industry." Even rivals are gushing. "It's a red letter day for Indian industry, a day India should be proud of," says Venu Srinivasan, chairman of motorcycle maker TVS Motors. "Ratan Tata has the vision to create a new business model and all the naysayers are looking at it with concern. The Nano is a path breaker."

Judging by the extreme enthusiasm that greeted the launch of the car Jan. 10 at the biennial Auto Expo 2008 in New Delhi, the Nano has exceeded industry expectations. For the four years that the car has been in the making, Tata Motors, which makes trucks, sport-utility vehicles, and the Indica, India's second most popular car, has endured skepticism and disbelief (BusinessWeek.com, 1/3/08) from rivals both domestic and international.

Ratan Tata Never Lost Faith

In the past week alone, domestic rival Bajaj Auto unveiled a hastily configured concept car with a price tag of $2,700, and Osamu Suzuki, chairman of Japan's Suzuki Motor (7269.T), said the $2,500 price point was not where the market is (BusinessWeek.com, 12/5/07) in India. International carmakers and media doubted Tata's ability to meet international environment and safety standards, and wondered aloud what the appearance of an affordable car would do to India's already congested roads.

Throughout, Ratan Tata remained unfazed, despite his own doubts of meeting his timeline and price goal at a time when the costs of raw materials, from steel to rubber, were rising. But Tata promised a $2,500 car, and "a promise is a promise," he said to an audience spilling out into the streets and packed with government officials, industry chiefs, international carmakers, and reporters. "I hope it will be seen as the car…which changes the manner in which people in rural and semi-urban India will travel," said Tata. And, he added, "it will be a profitable venture for the company."

The Nano has broken ground on many different levels—in price, in size, in distribution, and technology. By using lighter steel, a smaller engine, and having longer-term sourcing agreements with parts suppliers, Tata was able to keep the price of the Nano down. Its length of 3.1 meters, width of 1.5 meters, and height of 1.6 meters, with wheels at the outer corners and engine, gears, and transmission in the rear, creates space inside the car.