Hopes Fade for Rivals to India's Tata Nano

Nearly two years after the launch of Tata Motors' $2,500 Nano in India, there are still no signs of serious competition

By Mehul Srivastava, Ian Rowley and Moon Ihlwan

It has been almost two years since Tata Motors (TTM) unveiled a prototype of its $2,500 Nano at the January 2008 New Delhi Auto Expo. Analysts and reporters predicted at the time that by now the industry would follow Tata's move by rolling out a host of cheap, small cars.

As the buzz surrounding low-cost cars subsides, though, there are no signs of the competition. The diminutive Nano's closest rival for the potentially lucrative and mostly untapped market for cars that cost less than a few thousand dollars is a joint venture where Bajaj, an Indian two-wheeler manufacturer, and the Nissan-Renault alliance would share the remainder. The companies announced their plans for a Nano-killer in May 2008, and Bajaj showed the mock body of a prototype the day before the Nano was unveiled in January 2008. Back then the hype was so huge that even the empty shell of the unnamed car made the front page of Indian newspapers, and Nissan-Renault chief Carlos Ghosn predicted the $2,500 car would be ready by 2011, with the joint venture expecting to build a 400,000-unit plant just for that car.

Since then, however, few details have emerged, and it isn't clear the companies will be able to meet their self-imposed deadline. Two Bajaj executives, speaking on the condition of anonymity, tell BusinessWeek the company is finding it difficult to persuade suppliers to do the kind of aggressive research and development required to push down prices without a clear guarantee that it would produce a sizable number of cars, especially without an approved final design. A Bajaj spokesperson declined to comment. Nissan's executive vice-president for Africa, the Middle East, and Europe, Colin Dodge, said last week that Nissan's (NSANY) input in the car is now minimal. "The project itself is very difficult," says Dodge. "Doing this car for around $2,500 and getting motorbike drivers to jump into four-wheel vehicles [is] very challenging…[but] the car is coming along." Dodge declined to comment on when the car will be released or if it will be badged as a Nissan, Renault, or Bajaj.

Where's Hyundai?

South Korea's Hyundai is taking its time, too. The second-biggest carmaker in India, the Korean company has spent more than two years mulling over a plan for an 800-cc, three-cylinder car that would be cheaper than its best-selling Santro, which retails for about $5,000 in its most stripped-down version. has yet to release details on its plan and hasn't set a target launch date. Even if Hyundai does eventually produce such a car, it may have limited ambitions: Seoul-based spokesman Oles Gadacz says the car wouldn't be exported to China, the world's largest auto market by car sales.

Given its success in the Indian market, the Korean automaker can afford to put risky plans for an ultra-cheap car on hold. Hyundai's India plant is operating at near-full capacity, says Lee Hang Koo, an auto specialist at government-funded think tank Korea Institute for Industrial Economics & Trade in Seoul. "It does not make any business sense to introduce a new platform with poor profitability and uncertain volume," adds Lee, who doesn't expect Hyundai to make the low-cost car a priority.

India's top automaker isn't focusing on the ultra-cheap auto sector, either.

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