Tata Motors [Get Quote] is working on new variants of its Rs 1-lakh car Nano to overcome challenges posed by high fuel prices, which could negatively impact vehicle sales, company Chairman Ratan Tata has said.

Noting that the company's Nano plant in Singur, West Bengal, was expected to come into operation in the last quarter of 2008, Tata, in a letter to shareholders in the annual report for 2007-08, said that manufacturing facilities would be expanded to meet domestic and global demand in the future.

"New variants of the Nano are also currently under development to meet the new environmental and fuel price challenges, as also the market requirement of several international markets," he said.

While terming the year ahead as 'a year of major challenges,' Tata said that 'higher fuel prices will negatively impact both commercial vehicles and passenger car sales.'

The chief of Tata group said there would be 'an enormous and unprecedented increase in material costs in steel, tyres, and the like, and there will be the impact of tighter money supply with higher interest rates.'

"In addition, the company will have to manage the completion of the Singur plant and introduction of the new Nano in the market. While dealing with these challenges in India, the Tata Motors' operations will also have to absorb the cost of the JLR acquisition, and deal with its integration," he said.

While noting these challenges appear daunting, Tata said 'the year ahead will be no more daunting than the challenges they have faced in difficult years in the past.'

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