The World’s Cheapest Wheels

Analysts are even more bullish on Tata's plans. "There's no doubt this car is going to create a new [automotive] segment altogether," says Abdul Majeed, a partner in the automotive practice of PricewaterhouseCoopers. "If you look at the Indian automotive market, the bulk of it—over 70 percent—is two-wheelers. But the price gap between two-wheelers and four-wheelers has been very significant." The price tag for the People's Car is a bit more than double the cost of a midrange motorcycle, like Hero Honda's 100cc Splendor. Majeed forecasts that Tata's new car could encourage 10 to 20 percent of India's scooter and motorcycle buyers to purchase a car instead. If that happens, it would mean an additional 1.8 million vehicles sold per year—almost equal to the current size of the entire Indian passenger-car market.

Most analysts are waiting for a view of the car before pegging sales estimates—a task made difficult because Ratan Tata has played his cards very close to the vest in the three-year lead-up to the launch of the People's Car, revealing almost nothing about the design and features of the vehicle, or how the company managed to slash costs—both of which will define how the car affects the global industry. Prototypes have been as jealously guarded. Virtually all that is known for sure about the car so far—courtesy of a scripted "leak" by one of the company directors after Nobel Prize-winning climatologist R. K. Pachauri suggested the People's Car could be an environmentalist's nightmare if it vastly increases numbers on the road—is that it gets 25 kilometers per liter (59 miles per gallon) of gasoline, meets European emissions standards and matches the Maruti 800 in acceleration. It was also revealed that the car uses more plastic and fewer bolts than conventional designs, lending credence to rumors that Tata engineers visited Lotus in Malaysia to study adhesive bonding as an alternative to welding.

But its other cost-saving measures could have the biggest impact. Promising huge sales volumes, Tata has worked closely with components suppliers to bring the price of each part into a predetermined target range. The efforts are reminiscent of the techniques Tata used a few years back to bring down the price of the Ace, India's first mini-pickup truck, to about $6,000—close to the cost of the three-wheeled vehicles generally used for small jobs. In a considerable feat of engineering, the company came up with a design that allowed it to cut two engines for the Ace from the same block it used for the Indica. Not only did that allow the company to avoid building a new assembly facility, it also allowed it to capitalize on further economies of scale. If the People's Car shows more of the same, Tata—and India—may well win the race to miniaturize the automobile.

With Keith Naughton and George Wehrfritz

© 2008