Material prices pushing up the cost of the Tata Nano

Tata Motors is finding it increasingly difficult to meet its own self-imposed price target of $2,500 for its minimalist Nano. The latest issue is rising costs of raw materials, particularly steel. Steel prices have increased by half over the last 12 months, and other commodities are on the rise as well. At least part of that is due to rising energy costs, both for manufacturing the components as well as transporting them. The high cost of oil also feeds into more expensive plastics. Tata has built in a sliding cost scale for many of its components that is tied to production volumes. As the number of Nanos built goes up, the parts cost goes down. Indian suppliers typically set a fixed cost for parts for a period of time. Its not known how much of the increased materials cost Tata will be able to absorb in order to meet the price target.

[Source: Automotive News - Sub. Req.]