Given the fundamental changes in the global economic scenario over most of the year 2020 due to the all-encompassing impact of the Covid-19 pandemic, businesses are compelled to take a strong relook to their proposed future growth plans.
While we saw Honda Cars India deciding to cease production at one of its two plants last week, the next such example is the Mahindra-Ford joint venture. Even as 2020 turned into 2021, the two automakers released statements calling off their joint venture, which was officially inked on October 1, 2019.
In a virtual press conference called by the M&M top management earlier today, the company addressed queries regarding this major announcement, which comes on the back of the narrative of reassessing its proposed investment of Rs 1,400 crore in direct equity in the now-terminated JV, given the “drastic difference” in the global business scenario over the past 15 months.
“Both parties have decided that there shouldn’t be an extension to the JV discussion longstop that ended on December 31, 2020,” announced Dr Pawan Goenka, managing director, M&M.
While the plan was to sign the JV in May-June 2021, “Both Mahindra and Ford have decided that we will not go any further with the JV,” Dr Goenka said.
Citing the exact reasoning behind this call-off of the mega tie-up that would have given a 51:49 percent stake to M&M and Ford in the new JV, respectively, Dr Goenka explained, “This particular JV got impacted by the significant upheaval due to the pandemic. The current reality is quite different from when we signed the DA. In the changed scenario, the investments would have been significantly different.”
“However, it doesn’t mean M&M will not be open to JVs going forward,” Dr Goenka added.
Rs 3,000 crore investment axed
The JV, which would have given charge of the Ford’s India business to M&M including its two plants in Sanand, Gujarat and Chennai, as well as offered it a chance to expand into newer markets such as the ASEAN region through Ford, would have entailed the homegrown SUV specialist to invest over Rs 1,400 crore in direct equity as well as raise another similar sum through debt.
“But we felt that the objectives of the JV were not being met for both partners; it was clear that this was the most prudent decision,” remarked Anish Shah, deputy managing director and Group CFO, Mahindra Group.
“Both partners looked at what happened over the last year-and-a-half, and the amount of money that was supposed to be invested would have gone up significantly,” Shah said.
“Our source of advantage is in our SUV business, which is clearly reflected by our brand. The success of the new Thar is a reflection of a very strong platform and product strategy, and we will continue to make it stronger by leveraging various platforms such as Mahindra Adventure,” added Rajesh Jejurikar, executive director, Auto and Farm Sectors, M&M.
“This decision will allow us to focus and strengthen our core SUV business. We will also focus on India-like markets where we already have a presence and not expand into new markets for the time being,” Jejurikar mentioned.
The road ahead
While the formulation and proceedings towards an official joint venture have been called off, the duo could still look at some synergies to drive mutual growth with a bit of cost efficiency in a tough business environment.
Mahindra’s project W601 and Z101, which are the new XUV500 and Scorpio programmes respectively, are in the pipeline for a 2021 launch and the company is bullish about making it big with these new models.
However, it had already been sharing development costs with Ford, which is learnt to have been developing a new C-segment SUV based on the W601 platform. Moreover, with M&M introducing a whole range of new BS VI-compliant turbocharged petrol engines last year, it was also meant to supply the 1.2-litre turbocharged petrol unit to Ford for application in its updated EcoSport compact SUV.
But the duo is now going to have a revisit to their initial agreement terms to see what next from here. “The key for both of us is to look at things that would value add to both partners,” Shah said.
Answering to the possibility of contract manufacturing for Ford, he added, “We are not bound anymore by what we had agreed to earlier in the JV and we would revisit the agenda in the next quarter and see what would be mutually beneficial to both. Some projects may get cancelled and new ones may get added.”
While it had put its plans to develop the Ford Aspire-based EV on hold way in advance citing huge “unviable” investments in the project, M&M is, however, aiming to double down on the EV space which is pegged to touch an inflection point in the short term.
The M&M top management concluded the conference with the idea that it could also look at its options of collaborating with Ford with respect to EVs, or be open to a tie-up with other manufacturers as well in this regard.