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Tata May Beat Hyundai in India Helped by World’s Cheapest Car

A Tata Motors Ltd. Nano car
A Tata Motors Ltd. Nano car is driven near a dealership in New Delhi, March 26, 2009. Photographer: Keith Bedford/Bloomberg

A Tata Motors Ltd. factory opening this month in western India to assemble the $2,500 Nano, the world’s cheapest car, may help the company surpass Hyundai Motor Co. this year as the nation’s second-largest automaker.

The plant in Sanand will start producing the Nano by April 30 and make up to 250,000 a year, said Debasis Ray, a spokesman for the Mumbai-based company. That’s about 80 percent of Hyundai’s India sales last fiscal year, based on industry data.

Tata now is filling 100,000 advance orders for the Nano. Those sales plus new output may help the truckmaker regain second place after five years in third, said Jatin Chawla, an analyst at India Infoline Ltd. in Mumbai. The boost comes as Renault SA and Nissan Motor Co. plan a rival ultra-low cost car and market leader Suzuki Motor Corp. and Toyota Motor Corp. raise production to target motorcycle owners.

“Profit from the Nano project will come only if volumes are significant,” said Deepesh Rathore, an analyst at IHS Global Insight Inc. in New Delhi. “The new factory is key to boosting volumes and the sooner it comes, the better for Tata.”

Chairman Ratan Tata, 72, also has to find out why two Nanos caught fire within a month. The model that ignited April 7 belonged to the company and had no design flaw, Ray said in a statement.

‘Damage Control’

Another Nano burned last month while being driven home from the dealership. No one was injured in either incident.

“There is no doubt that Nano’s design is sound, but they need to do a damage-control exercise as the world’s attention is on this car,” said Mahantesh Sabarad, a Mumbai-based analyst at Fortune Equity Brokers India Ltd. “Tata has to get its act together and identify the cause.”

Indians may buy as many as 1 million low-cost cars a year by 2016, according to CSM Worldwide Inc. Tata, India’s largest truckmaker and owner of the Jaguar Land Rover luxury brands, sold 30,350 Nanos from July through March.

Hyundai, South Korea’s biggest carmaker, sells six bigger models in India and can produce 600,000 vehicles a year, including exports, at its Chennai factory.

“We have no intention of getting into the Nano segment at all,” said Arvind Saxena, a director of Hyundai’s India unit.

Tata Motors rose 3 percent to 833.90 rupees in Mumbai today, their highest level in more than three years. The shares have gained 5.4 percent this year while the benchmark Sensex Index has advanced 0.5 percent.

Tata Upgrade

Tata received 206,703 Nano orders in the initial sales period in April 2009 and chose the first 100,000 customers for the 624-cc model by lottery. That car, with one windshield wiper and no radio or air conditioning at the entry level, sells for 123,360 rupees ($2,800) in New Delhi.

In the three months ended in December, Jaguar Land Rover posted its first quarterly profit since Tata purchased it in 2008 from Ford Motor Co. for $2.5 billion. That turnaround and “a solid recovery in its Indian business” prompted Moody’s Investors Service to upgrade Tata Motors’ corporate family rating to B2 last week.

Revenue will grow, helped by the Nano’s introduction, Moody’s said. Tata has to sell at least 20,000 a month to beat Hyundai, India Infoline’s Chawla said.

Tata, which started selling cars in 1999, boosted vehicle sales 26 percent to 201,399 units in the fiscal year ended in March, giving it 13 percent of Asia’s third-largest passenger-car market. Suzuki led with 50 percent, and Hyundai controlled 21 percent, according to the Society of Indian Automobile Manufacturers.

“Tata Motors should become the second-largest passenger car manufacturer this fiscal year, and it will be only due to Nano,” Chawla said.

Ford, Volkswagen

Automakers, including Volkswagen AG and Ford, are targeting drivers in India and China as disposable incomes rise in the world’s two fastest-growing major economies. China became the world’s largest auto market in 2009 with a 46 percent jump in sales.

Demand in India increased at its fastest pace in six years during the last fiscal year, the industry group said. The central bank estimates the $1.2 trillion economy, Asia’s third-largest, will expand 8 percent in the fiscal year started this month.

Nissan, Renault and Bajaj Auto Ltd. are jointly producing a $3,000 car for showrooms in 2012. The car, one year behind schedule, would be produced in Maharashtra at a plant with a 400,000-vehicle capacity.

Violent Protests

Tata can make 50,000 Nanos a year at its factory in Pantnagar, northern India. The automaker halted construction of another plant in Singur, West Bengal state, after violent protests by farmers demanding the return of land acquired for the site.

Tata abandoned the nearly completed facility in October 2008 and built another one on 445 hectares (1,100 acres) in Gujarat, western India. It can be expanded to make 500,000 vehicles a year and employ 10,000 people.

The company is spending 20 billion rupees to build the new factory, Ratan Tata said Oct. 7, 2008.

“India has huge growth coming in the future for the car industry,” said Taina Erajuuri, who helps manage more than 1 billion euros ($1.4 billion) of emerging market stocks at Helsinki-based Fim Asset Management. “The Nano is like a first step for people.”

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