At Last, Tata Motors' $2,000 Nano

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"Nightmares" About Project's Completion

There's also competition from Maruti Suzuki (MRTI.BO), which had sold the least expensive car until the Nano came along. The Maruti 800, which is made by a 50-50 joint venture between Japan's Suzuki Motor and India's largest passenger car manufacturer, is about 80% more expensive than the cheapest variant of the Nano. Its sales have soared despite the financial crisis that has hit economies around the world. (American manufacturers such as Ford (F) and General Motors (GM) control less than 5% of the Indian market, mostly with higher-end models.)

There are other challenges. A new plant that Tata is building in the western Indian city of Gujarat remains far from complete, according to executives working for suppliers who have visited the site. To meet demand for the initial orders, Tata has had to set up assembly lines at a temporary site in Pantnagar, in central India. In addition, suppliers are now shipping parts to that site, inflating Tata's costs.

Another distraction: how to finance the purchase of Jaguar and Land Rover. Tata bought the British luxury car brands last year, paying just over $2.3 billion, but it's now scrambling for cash. Some $2 billion of its loans are due for refinancing in June. Tata Motors' Kant refused to answer questions about financing for the Jaguar-Land Rover deal, but analysts think Tata Motors will turn to the Tata Group for help. Tata Group, which has annual revenues of $64 billion, already has nearly $20 billion of debt, according to a report by Indian brokerage house Kotak Mahindra. The Tata Group could sell shares or assets, or look for more expensive refinancing options. Last year, Tata Motors' shares fell 78%, compared with a 52% drop for the benchmark Sensex index. Since January, the stock has rebounded 1.2%, vs. a 7.7% drop for the Sensex.

The one area where Tata has benefited from project delays is in materials costs. Hot rolled coil, a benchmark for steel prices, has fallen nearly 62% since June 2008, to about $450 a metric ton, making the nearly 600kg (1,322-lb.) car cheaper to produce. At the news conference, a reporter asked Ratan Tata if he thought the Nano might get any cheaper. "For now, I have no dreams of any sort, only nightmares about getting this project complete," Tata said.

Srivastava reports for BusinessWeek from New Delhi.