Renault, Nissan and Bajaj Motors are to jointly build a $2,500 car to compete with Tata Motors’ Nano cut-price family model.

The car, called ULC for “ultra low-cost,” will be made at a new 400,000-capacity joint-venture plant in Chakan, Maharashtra, the three companies said on Monday. Bajaj – best known for its motorcycles – and Renault and Nissan will own 50, 25 and 25 per cent of the joint venture respectively and the car will be sold from early 2011.

The move highlights the shift by carmakers into new markets as sales fall in mature markets such as the US and Japan.

Carlos Ghosn, Renault and Nissan’s chief executive, is expected to make emerging markets a cornerstone of a new five-year plan for Nissan, to be presented in Tokyo on Tuesday. Renault faces falling sales in western Europe, but has reported strong sales elsewhere of the no-frills Logan, which sells for about $10,000.

Mr Ghosn first said last year that the carmaking group was studying a venture with Bajaj. Renault said the car was for India only, but might be sold in other markets later. There were no plans to sell it in Europe, where it would face tough emissions and safety standards.

Tata’s Nano, unveiled in January and due to hit Indian showrooms later this year, will be priced at $2,500 in its entry-level version, making it the world’s cheapest car.

However, higher interest rates have slowed India’s car boom recently.

With steel and other material prices soaring, Renault admitted it would struggle to sell the car for $2,500, which it described as a wholesale price.

The ULC’s price-tag could change if steel and other costs rise, and as India upgrades emissions standards in the next two years, S Ravikumar, Bajaj’s vice-president of business development, told the Financial Times.

“We expect the product to carve out its space,” said Mr Ravikumar. “Some of the best engineers from Renault, Nissan and Bajaj are at work.”

General Motors, Ford Motor, Suzuki and other carmakers are developing or have launched low-cost cars, for which India is the biggest market. Toyota last month said it was building a second plant in Bangalore to build a car expected to sell for less than $10,000.