If a $2,500 car from India isn't enough for automakers to worry about, Tata Motors now says it will develop an all-electric vehicle to compete in the upcoming automotive X-Prize competition.

The contest, underwritten by Progressive Insurance, is offering a $10 million purse to contestants who can come up with a new car that is suitable for mass production and can achieve fuel economy equivalent to 100 miles per gallon or better. Entrants also have to have a business plan for making and marketing their vehicle.

Organizers hope the competition will showcase viable alternatives to the internal combustion engine as well as technologies that improve ICE performance and reduce emissions.

Tata, best known for the four-seat Nano "people's car" that it introduced at the New Dehli auto show earlier this year and has said will sell for the equivalent of $2,500, actually plans to enter two vehicles in the Progressive Insurance Automotive X-Prize competition, the Santa Monica-based X-Prize Foundation said this morning.

India's Tata Motors wants to bring the next generation of its super-affordable Nano car to the European market by 2012, the company's compact car projects director said in an interview with the German magazine Focus.

"We will develop a successor model in four years time, which will meet the Euro 5 emission regulations and the crash standards in Europe," Girish Wagh was quoted as saying in an advance abstract of the article published Sunday and reported by Reuters news service.

Tata unveiled the $2,500 Nano, the world's cheapest car, at the  New Delhi auto show in January and said production of the four-seater would begin lateer this year fat the Tata factory in West Bengal.

Tata has said it will initially produce about 250,000 Nanos and expects eventual annual demand of 1 million units.

Tata Ace could be heading for U.S. as a low-speed electric truck.

Chrysler Corp. and India's Tata Motors reportedly have signed a development deal for Chrysler's neighborhood electric car unit to import and market a new vehicle based on the Tata Ace mini-truck.

While the 1-ton truck uses a 17 horsepower diesel motor in India, the U.S. version would use a battery-electric drivetrain from Chrysler's Global Electric Motors, according to a report this week in India's Business Line magazine.

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