world's cheapest car, is threatening to be a commercial flop as surging raw material costs scramble its low-cost business model, according to industry insiders.
Analysts and rival manufacturers expect Tata, the conglomerate behind the Nano, to suffer heavy losses on the car as its promise to sell a basic model for only 100,000 rupees (£1,250) - a price calculated to tempt India's middle classes away from their motorcycles - proves unexpectedly costly.
Ratan Tata, the chairman of Tata, has admitted that he faces a dilemma. “If we pass on all costs to the consumer, it will affect demand, and if we don't, it will affect margins,” he told investors recently.
The economics underpinning the Nano, which is due to go on sale this autumn, make it especially vulnerable to commodity market moves. Since Tata began to develop the Nano in 2003, raw material costs have risen from about 13 per cent to about 23 per cent of its price before taxes, according to an estimate by Global Insight, the consultancy. By contrast, the cost of raw materials account for about 7 per cent of the average American car - or about $1,600 (£815), up from about $800 five years ago.
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Ian Fletcher, of Global Insight, said: “I can't see the 100,000 rupee price being maintained for more than three months, largely to let Ratan Tata keep his price promise, before the company raises it.”
Potential Indian buyers are also facing interest-rate rises, which have made financing packages dearer, and increases in fuel costs, making motorbike mileage figures more attractive than the Nano's 50 miles per gallon.
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