Costs rising for Tata's Nano

With the October launch of Tata’s 100,000 rupee (about $2,400) Nano getting closer, expect the hype surrounding the world’s cheapest car to soon revisit January levels. Back then, the Nano’s debut in Delhi grabbed more headlines than any car at the North America International Auto Show in Detroit held the same month.

Still, one discussion Tata will probably want to avoid is how much the cheap car will cost to build. In recent weeks a slew of stories coming out of India suggest that costs are rising sharply. On July 7, Automotive News reported that Tata is (like all automakers) struggling with rising steel prices, which rose by about half in the last year. One possibility is that Tata Motors might receive discounts on the steel it buys from sibling company Tata Steel, although that sounds suspiciously like robbing Peter to pay Paul.

Meanwhile, in an interesting twist on cost cutting, on July 3, India’s Economic Times reported that India’s carmakers are cutting back on ad spends to offset rising input costs and warned that the Nano may be “launched without much fanfare.” Tata says that suggestions it is slashing the Nano ad budget are just speculation.

What isn’t speculation is that the new factory where the Nano will be built is costing more than hoped after flooding at the site during the rainy season. Tata managing director Ravi Kant told reporters on June 28 that the price of the plant had risen to 20 billion rupees ($470 million). That’s 18% higher than the projection back in January.

Here in Japan, where Suzuki (the biggest automaker in India) and Nissan (which is planning a cheap car of its own) are watching events carefully, local Japanese media also noted that trial runs at the plant are slated to begin either this month or next. That doesn’t leave much time to iron out any glitches ahead of an October launch. “At least half a year will be needed after the factory is completed (for production to get on track),” an anonymous official from one Japanese manufacturer told the Nihon Keizai newspaper.

source:businessweek