Tata Motors and the $2,500 car

On Thursday the world will get a look at Tata Motors (Public, NYSE:TTM) $2,500 car. Tata wants to provide four-wheel transportation for the first time to people accustomed to getting around on two, including hundreds of millions of Indians and others in the developing world. Tata Motors is India’s largest bus and truck maker and their stock is trading at $19 a share with a 52-week high of $22.11.  Just imagine what this could do to American automakers like Ford (F) and General Motors (GM).

“It’s basically throwing out everything the auto industry had thought about cost structures in the past and taking out a clean sheet of paper and asking, ‘What’s possible?’” said Daryl T. Rolley, head of North American and Asian operations for Ariba, which helps supply parts to Tata, BMW, Toyota and other carmakers. “In the next five to 10 years, the whole auto industry is going to be flipped upside down.”

In India, Tata Motors is known in the passenger vehicle segment, where it has about a 17% market share, for its low-cost diesel models and sport utility vehicles. It accounts for more than 65% of the bus and truck market, by contrast. The company, which rests at the bottom of J.D. Power’s quality rankings for automobiles, does not have the pricing power of rivals like Toyota (NYSE:TM) and Maruti, analysts say.

Tata Motors’ stock has traded flat on the Indian exchanges since news emerged that the company was a key contender for Jaguar and Land Rover. Analysts say the share price mainly responds to developments in the commercial vehicle segment, which accounts for 80%-85% of company profits. Despite visible improvement in the truck business, the stock price has been weighed down because of concerns over the acquisition.

It will take a while for India’s leading automobile maker to become a brand to be reckoned with on a global scale. But given a history of successful acquisitions at the Tata Group, which last year pulled off the $13 billion buyout of Anglo-Dutch steelmaker Corus, there is reason to believe the Tatas can succeed again.  The Masters love the fact that Tata's stock doesn't rely on a recession feared American market place.