Europe braces for world's cheapest car Nano

According to Girish Wagh, head of Tata Motors' small vehicles department, Tata Motors is "going to develop a successor that will respect Euro-5 rules on exhaust emissions and European requirements in terms of safety standards."

In January, Tata Motors unveiled the $2,500 car Nano during the India Auto Expo in New Delhi to mixed reviews. While many marveled at the technological wonder and gushed how the car could revolutionize the way millions travelled in India, others worried about pollution and traffic hazards.

Tata Motors has not yet disclosed the price for Nano's European cousin.

Tata Motors will initially produce about 250,000 Nano and eventually increase it to 1 million units per year. A Tata executive said the company will be treading cautiously and will focus on the domestic market for two to three years before considering exporting the Nano to countries in South East Asia, Africa and Latin America.

Tata Motors currently sells a limited model range in selected European markets.

Though initially global carmakers were skeptical that Tata could produce such a low-cost car, yet, after the launch of the Nano, several carmakers began scurrying to make their own versions to meet the needs of cost-conscious consumers in emerging economies such as China, India and Russia.

While French carmaker Renault SA and its Japanese partner, Nissan Motor Co., announced that they would be working on a compact car for under $3,000, Ford said in January it would build a small car in India within two years.

Volkswagen, Toyota, Honda Motor, General Motors and Fiat have also said they are looking at small cars for emerging markets, where strong economic growth has for the first time made car ownership an option for millions.