VW Group is looking for a partner in the country to share risks and collaborate on future product development.
21 Feb 2024 | 18201 Views | By Hormazd Sorabjee and Ketan Thakkar
The top brass of the Volkswagen Group has engaged with two major business groups in India to explore a potential partnership in the electrification space. Autocar Professional had exclusively reportedearlier this week that the VW Group is ready to dilute its stake in its 100 percent local subsidiary Skoda ...
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The top brass of the Volkswagen Group has engaged with two major business groups in India to explore a potential partnership in the electrification space. Autocar Professional had exclusively reported earlier this week that the VW Group is ready to dilute its stake in its 100 percent local subsidiary Skoda Auto Volkswagen India Pvt Ltd (SAVIPL) to a suitable partner, with synergies to share production capacities, vehicle architecture, and investments in future product development and technologies.
People in the know say that the VW Group is clear that it wants to leverage the local manufacturing footprint for manufacturing electric vehicles not only for India but also for global markets in the second half of the decade.
The VW Group has already had discussions with the JSW Group, which recently forayed into the automotive business with MG Motor India. However, Autocar Professional has learned that Mahindra & Mahindra (M&M) has also expressed interest in a potential partnership and, according to company sources, the global CEO of Skoda Auto, Klaus Zellmer, was in Mumbai this week to meet the top management of M&M to explore joint projects.
Replying to Autocar Professional's query, a Skoda Auto Volkswagen spokesperson said, "Going by the current market trends, the electrification of the passenger car segment is expected to gain significant momentum in the coming years. Industry experts anticipate that in 2030 about half of all new vehicles will be fully electric in certain markets."
"To fully explore the country’s growth potential, especially in the e-mobility sector, we are always considering new business opportunities and are evaluating various options to implement our e-mobility strategy in India. We ask for your understanding that we cannot comment on specific names and ongoing discussions."
M&M and the Volkswagen Group did explore the joint development of a compact EV based on VW’s MEB21 platform with multiple rounds of discussions for over a year. However, the project was eventually dropped and the German automaker was left to go solo with its own compact EV project – a Nexon EV rival (codename: PEAK) led by Skoda.
Last week, M&M and Volkswagen formalised the commercial agreement for sourcing batteries and motors for battery electric vehicles for the Indian SUV specialist. Though this deal took inordinately long to formalise due to VW’s legal and bureaucratic red tape, at the technical working level, the two companies have formed a strong and close working relationship, which has given M&M the confidence to once again pursue exploring a broader alliance.
The VW Group’s PEAK project may call for an additional billion euros in localising the products in the country and given the slower-than-expected adoption curve for EVs, the company is keen to re-engage with potential alliance partners to share risks and collaborate to build scale and a viable business model.
Given the sub-optimal volumes in the EV markets but with a significant volume potential in the future, the exploratory talks by the VW Group point to a trend of automakers finding new ways to raise money. Tata Motors and M&M have taken the private equity route, whereas companies like Hyundai Motor and Ola are tapping capital markets with plans for an IPO or public issue. The VW Group is looking at selling equity to strategic partners to form a joint venture (JV) in the same way MG Motor has done with JSW.
There are other automotive groups like Suzuki-Toyota, Renault-Nissan Alliance, Hyundai-Kia and the Stellantis Group (Jeep-Citroen), which will be relying on sharing vehicle architecture to cater to the emerging demand for EVs, whilst the segment in India is still in its infancy.