MUMBAI (Reuters) - The Tata Motors Nano, the world's cheapest car at around $2,000, will hit Indian roads in July and, with demand set to far outstrip supply, the first 100,000 owners will be picked at random.
Hundreds of thousands are expected to put their name down for a Nano, including many previously limited to motorbikes or public transport, following Monday's formal launch.
"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 reporters.
Launching six months behind schedule and with production in the first year severely constrained, it will take over a year to deliver the first 100,000 Nanos to an otherwise subdued market.
"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," Ratan Tata said.
Since the Nano was first shown, its main production plant had to be moved following land protests, the company posted its first loss in seven years, its shares have dropped 70 percent and its credit rating been downgraded with the threat of further downgrades remaining.
The first 100,000 Nano owners will be randomly picked from bookings made April 9-25, and their prices will be guaranteed, said Tata, who more than a year ago promised a 100,000 rupee ($1,980) dealer price at a glitzy unveiling.
The basic version, excluding taxes, will still be 100,000 rupees. But once taxes and dealers charges are included, the Nano will be in showrooms for 112,735 indian rupees in some parts of India, while top-end models with air conditioning and other extras will cost close to 200,000 rupees.
A European variant will be launched by 2011, and the company is also looking at the United States as the 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.
The Nano can be booked at more than 30,000 locations in 1,000 cities across India, including Tata's department and electronics stores, with booking forms costing 300 rupees. It can also be booked online (www.tatanano.com).
Bookings will need a down payment very close to the full price, managing director Ravi Kant said. "We have had a stupendous response so far, breaking all class and other barriers."
Those bookings could help the firm battle falling sales of commercial vehicles, its mainstay, and help repay $2 billion of bridge loans due in June and taken out for the acquisition of Jaguar and Land Rover 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 said Tata may raise prices soon, but slim margins, initial capacity constraints and muted market sentiment mean that breakeven on the project will take 5-6 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 end-2009.
Competition is not far off: Volkswagen, Toyota, Honda and Fiat are eyeing the segment, and the venture of Renault/Nissan with Bajaj is on track to launch a $2,500 car in 2011.
Meanwhile, Maruti Suzuki and Hyundai Motor, the two biggest 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.
(Additional reporting by John Mair; Writing by Rina Chandran; Editing by Ranjit Gangadharan and Dan Lalor)
$1 = 50.48 rupees