India’s Tata Nano was launched with great fanfare as a 100,000-rupee (US$2,200) vehicle — a round number that neatly encapsulated its status as the world’s cheapest car.
However, analysts say parent group Tata and its chairman Ratan Tata will struggle to keep the jellybean-shaped vehicle on sale at this level due to the rising cost of raw materials, labor and new higher taxes. Described as India’s “People’s Car,” the Nano is pitched at the country’s aspiring middle-classes, many of whom currently travel on two wheels but are looking to upgrade.
“The Nano is Ratan Tata’s dream project. But as costs rise, the Nano will not remain a 100,000-rupee car,” said Vaishali Jajoo, from Mumbai-based Angel Broking.
PHOTO: AFP
Tata faces the same problems as other car manufacturers such as Japan-owned Maruti Suzuki and its rival Hyundai Motors, all of which have raised prices this year.
Steel in most forms has seen an average price rise of 25 percent since last April, Jajoo said, while the prices of tires and auto accessories are rising as demand for copper, aluminum, plastics and rubber picks up.
The increase in commodity prices can be attributed to rising global demand following the end of the financial crisis and deep recessions in developed countries, analysts say.
Tata Motors has guaranteed that the first 100,000 cars will be delivered “price protected” to owners, which means they get the vehicle at the promised price, despite rising costs.
At least 26,500 Nanos have been sold since its launch last July, with the basic model priced at 100,000 rupees from the factory floor, while the popular, high-end version, the Nano LX, sells for 172,360 to 185,375 rupees.
When a second round of bookings opens — seen as likely in the last quarter of the year — the cost of an LX could rise to nearly 200,000 rupees, while the basic model could be about 130,000, analysts say.
Tata Motors was coy on a possible price rise.
“What happens in the future is difficult to say,” a company spokesman said.
But while announcing its previous quarter earnings, the company admitted it faced challenges from the rising cost of raw materials, withdrawal of government stimulus and a possible hike in interest rates.
The Nano has sparked a race to create other ultra-low-cost cars for India and other emerging markets.
India and its 1.2-billion-strong population is a huge draw because of the low number of car owners. Car penetration is just eight per 1,000 people, compared with 550 per 1,000 in Germany and 495 in France.
French automaker Renault and its Japanese partner Nissan plan to launch a car to rival the Nano in 2012 in partnership with scooter and three-wheel specialist Bajaj Auto. Ford, Toyota and Honda are also poised to launch small cars in India in the next two years.
Nevertheless, analysts said the Nano should still hold its place.
The basic Nano is on average about US$1,300 cheaper than its nearest rivals, the Maruti five-seater Omni at 200,000 rupees and the Maruti-800 at 210,000 rupees.
“The Nano has a first-mover advantage [in India]. Rural demand will offset any impact of lower demand due to a price rise,” said analyst Gaurang Shah, from Geojit BNP Paribas Financial Services.
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