MUMBAI—When the Tata Nano, a stripped-down minicar priced at around $2,000, was introduced in 2009, it was marketed as a car that would transform the way aspiring consumers in India and other developing countries got around.

But the low-cost automotive revolution fizzled. Selling poorly at home and with exports drying up, the Nano has become a cautionary tale of misplaced ambitions and a drag on sales and profit at Tata Motors Ltd., India's fourth-largest auto maker and the owner of Jaguar and Land Rover luxury vehicles....