Tata Nano was launched with great fanfare as a 100,000-rupee (2,200-dollar) vehicle -- a round number that neatly encapsulated its status as the world's cheapest car.
But 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 costs of raw materials, labour 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.
Tata faces the same problems as other car manufacturers, such as Japan-owned Maruti Suzuki and its rival Hyundai Motors, which have hiked their prices this year.
Steel in most forms has seen an average price rise of 25 percent since April 2009, Jajoo said, while the prices of tyres and auto accessories are rising as demand for copper, aluminium, 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, regardless of rising costs.
At least 26,500 Nanos have been sold since its launch in July last year, with the basic model priced at 100,000 rupees from the factory floor, while the popular, high-end version, the Nano LX, sells for 172,360-185,375 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.
|
