Tata Motors has a success on their hands in the tiny car called Nano. They recently increased production by 20% and have sold the first 100,000 units before they are even built. The Nano is the world’s cheapest car and was designed for India where it sells for 100,000 Rupees (a little over US$2,100), but the plan is to expand the market including selling it in Europe in 2011. Tata is building a new plant that will be able to crank out 250,000 Nanos per year, and it is signing contracts with other companies to build the Nano under their brand.

The environmental impact of the world’s cheapest car has been debated mostly in terms of the number of vehicles that it could unleash on the world’s developing cities. The Nano gets about 50 miles/gallon, and is said to perform similar to a Prius in terms of CO2 emissions. This is largely due to its tiny two-cylinder 623cc aluminum engine (with a whopping 32hp). The concern is that the price now makes owning a private car affordable to millions of people who otherwise would not be driving a car.

While this all sounds very democratic and capitalistic, the Center for Science and Environment in India believes that 25% of the 50 million scooter riders in India could become car owners thanks to low priced vehicles like the Nano (others have estimated as much as 30%). That is an additional 12.5 to 14 million vehicle purchasers. That sort of number does not go unnoticed and Toyota, GM, and Nissan have all announced they are working on vehicles that will be priced to compete with Nano. For those who have been following the Nano, none of this is big news.

The real news came on Monday, when Nissan made a more detailed announcement that it will launch its small car in 2010 in India, Thailand, and China to compete with the Nano. The critical piece of this announcement included that Nissan will need to sell 1 million of these vehicles per year by 2013 in order to make the program profitable for them. That huge number would mean that “sales in Europe and the United States are also planned, possibly as early as 2011.”

This competition to bring millions of new customers to the market can be expected to have a few different impacts. First will be an increase in emissions, just from the sheer increase in tailpipes. Using the Prius’ CO2 emissions of 89g/km as a yardstick, 12.5 million more vehicles would equate about 1.1 million kg/km of emissions. Some of this will be offset by fewer scooters (families that can’t afford cars are often currently using scooters for transportation) many of which may actually get worse emissions due to older two-stroke engines.

The second impact may be an increase in gasoline costs as fuel usage increases in India. The main concern with this is that many of the families that now own these new vehicles may shift to running the vehicles with kerosene, which is generally cheaper than gasoline and has worse emissions than gasoline.

The environmental impact of this volume of vehicles will continue to be debated. However, the impact on traffic certainly won’t be. At the time when the Nano went on sale last year, the average speed during peak times in New Delhi was already 7mph. By adding an additional 12.5 million vehicles to the country on a whole, it would not be surprising to see an additional 150,000-200,000 vehicles in that city alone. Surely, an influx of that much traffic would slow the already slow 7mph to a crawl.

In the end, it will be up to individual countries’ governmental agencies to regulate this expansion of the auto market. However, it seems unlikely that they would put on the brakes, as automakers race to the lower end of the market.