Tata Nano to hit roads in July

MUMBAI (Reuters) - The Nano, the world's cheapest car, will hit Indian roads in July, four months after its formal launch on Monday, and demand is expected to far outstrip supply as the price tag of around $2,000 draws legions of new buyers.

Hundreds of thousands are expected to put their name down for Tata Motors' Nano, including many previously limited to motorbikes or public transport.

Launching six months behind schedule in a subdued market, with production in the first year severely constrained and the threat of further ratings downgrades hanging over the company, it will take over a year to deliver the first 100,000 cars.

"We are at the gates offering a new form of transportation to the people of India, and later I hope other markets as well," Chairman Ratan Tata told a news conference.

"From the drawing board to its commercial launch, the car has overcome several challenges. I hope it will provide safe, affordable four-wheel transportation to families who till now have not been able to own a car," he said.

Since the Nano was first shown, the main production plant had to be moved following land protests, the company has posted its first loss in seven years, its shares have dropped 70 percent and its credit rating been downgraded.

The first 100,000 Nano owners will be randomly picked from bookings made from April 9and 25, and their prices will be protected, said Tata, who more than a year ago promised a 100,000 rupee ($1,980) dealer price at a glitzy unveiling.

A European variant will be launched by 2011, and the company is also looking at the U.S., as the current economic situation has made low-cost cars even more attractive, Tata said.

"This was never conceived as the cheapest car, but as providing transport to those people who never owned a car."

"Driven mainly by the change in demand that we see elsewhere in the world, we suddenly felt we had a product that could be of considerable interest as a low-cost product in western Europe, eastern Europe, the UK and even the U.S.," Tata said.

STUPENDOUS RESPONSE

The Nano can be booked at more than 30,000 locations in 1,000 cities across India, including Tata-owned department and electronics stores, with booking forms costing 300 rupees each. It can also be booked online (www.tatanano.com).

Dealers expect bookings will need a downpayment that Managing Director Ravi Kant said would be very close to the full price.

"We have had a stupendous response so far, breaking all class and other barriers," Kant said.

Heavy bookings could help the firm battle falling sales of commercial vehicles, its mainstay, and help repay $2 billion of bridge loans due in June. The bridge loan was taken for the acquisition of the Jaguar and Land Rover brands last year.

While the cost of raw materials such as steel has changed a lot since the Nano was first proposed, and even since its unveiling, the company decided to hold the price for the first 100,000 cars and expects it to be profitable, Tata said.

"It's often asked whether this project is going to be an act of philanthropy, which I assure you it will not," Tata said.

Analysts say Tata will most likely raise prices soon, but the slim margins, initial capacity constraints and depressed market sentiment mean that breakeven on the project will take five to six years.

"Scaling-up challenges are expected to be humungous," CRISIL Research said in a note, adding volumes of 200,000-500,000 units were needed in the medium-term for the project to be viable.

Tata can currently produce about 60,000 Nanos a year until a 250,000-unit plant in Gujarat state comes onstream by year-end.

PRICE CORRECTION

Competition is not far off: Volkswagen, Toyota, Honda and Fiat are eyeing the segment, and the venture of Renault /Nissan Motor with Bajaj is on track to launch their $2,500 car in 2011.

Meanwhile, Maruti Suzuki and Hyundai Motor, the No. 1 and No. 2 carmakers in India, are unlikely to cede ground to the Nano without a fight.

"I would imagine there'd be some reaction from the market. I expect price correction from small car makers," Tata said.

The Nano is also keeping environmentalists awake, with worries about the impact on India's already polluted cities and congested streets. Tata has said the Nano is less polluting than the millions of motorbikes on the road.