The Indian carmaker will launch its $2,467 vehicle by the third quarter of 2008 and may unveil it at January's Auto Expo in New Delhi, Managing Director Ravi Kant said.
Separately, Tata Motors is developing a line of small hatchbacks and mid-size sedans to be introduced next year. India produces 1.3 million cars a year. With the market growing at 10% to 12% per year, this could reach 3 million within a decade.
The four-door car — a pet project of Tata Group Chairman Ratan Tata — would be the cheapest by far in its class. The current cheapest, the Maruti 800 produced by Suzuki Motor Corp., sells for more than $4,000.
Tata's progress is being watched by carmakers including Toyota Motor Corp., General Motors Corp. and Ford Motor Co., which are developing, or have launched, cheap cars in India, Russia, China and other emerging markets.
Carlos Ghosn, Renault/Nissan's chief executive, said the group was working on an even cheaper variant of the Logan, the global no-frills sedan it launched in April in India, where it sells for under $10,000.
Tata's car will not conform to European safety and emissions norms. However, Tata, which sells cars in South Africa and a few European markets, said it could be upgraded should it choose to export.
Competitors are skeptical about the price and quality of the car, which the group says will have a 600-cubic-centimeter engine and come in a range of models.
However, Kant said: "It will be a good-looking car which you will want to purchase."
Tata developed the car using lower-cost Indian engineers and is exploring "out-of-the-box solutions" to slash development and production costs.
Construction on the plant in West Bengal, where the car will be made, was delayed by a land dispute. However, Tata was on track to launch the vehicle in the second to third quarter of 2008, Kant said.
Rising prices of steel, aluminum, copper and other commodities raised the car's costs in the four years since Tata announced it, prompting the group to make design changes for the car.
The plant will have a capacity of 250,000 units per year, which Tata aims to reach within two to three years. Achieving large sales volume will be crucial for the car's viability, given its low price target.