Volkswagen’s India Reset: Compact SUV Confirmed, Bigger Product, Investment Push on the Cards

Volkswagen is preparing for a significantly bigger push in India, with a sub-four-metre SUV confirmed for launch next year and the company reassessing its broader product, powertrain and investment strategy for the market, according to Thomas Schäfer, Member of the Board of Management of Volkswagen AG and CEO of Volkswagen Brand.

“India will take on a more important role in the company’s global business as Volkswagen adapts to a changing geopolitical and automotive landscape. One very important step is to bring a compact SUV. The sub four meter is now decided. We'll bring it next year, which is an absolutely right decision to be a significant player in the market,” Schäfer told Autocar Professional. The company is also looking at bringing select models from its global portfolio.

“FTA has been announced in Europe. It is a huge opportunity to bring a certain sort of niche models to widen the portfolio for the consumer to offer some exciting models every now and then, which is great,” he said. He added that the company is looking at the long term and is studying the market dynamics over the next couple of months before deciding which models and technologies make commercial sense.

“We see an interesting development now into more electrification, some into flex fuel, diesel and so on. We have it all globally as a global player. When it's right time to localize it, we will localize it,’ he said. This move is significant for Volkswagen, which has so far had a relatively limited product presence in India compared with market leaders.

The company currently relies heavily on Virtus and Taigun, along with a handful of imported and locally assembled products. Schäfer’s India visit comes as Volkswagen reassesses its global business model amid geopolitical tensions, changing trade policies and the increasing importance of regionalised manufacturing.

“So, globally, we see almost like a decoupling. You have a geopolitical situation and the old business model where everything's focused on Europe and then you export to other markets is long gone. At the same time, you have a very different dynamic in China, then the U.S. that is putting in import duties and of Europe under certain attacks. So, in that game, you have to change your business model, you have to adapt it. And that's what we're busy doing,” Schäfer adds. 

This shift could work in India’s favour. Beyond its domestic market potential, Volkswagen sees India as an important engineering, IT and R&D hub. “ We will focus a lot on India going forward. Not only because the market is exciting and growing and creating more opportunity for the future, but also the sort of knowledge base that you have here in India,” he said. 

Cost remains a major hurdle

One of Volkswagen’s biggest challenges in India has been cost. He said the company has spent the past few years addressing two fundamental issues: ensuring that its products retain the core characteristics of the Volkswagen brand while simultaneously reducing the cost base.

“We worked over the last four years very focused on the cars that we bring to the market now are through and through Volkswagen in terms of quality, brand fit. And, yes, our cost base is traditionally high because we are very much focused on Europe and especially Germany,” he added. 

India, he said, is expected to play a role in this cost-reduction effort, particularly through more cost-efficient development and manufacturing. “Part of the programs that's been in the media over the last, especially two years, has been reducing our cost base, developing more in more cost-efficient places like in India very much, but also shifting production from high-cost locations into lower-cost locations,” he said. 

Volkswagen also sees exports as a way to build scale out of India. The company already exports vehicles produced in India to more than 40 countries, with Mexico being one example of a major automotive market that imports vehicles from India.

“So, exports is an important part of our business and we will always strengthen that going forward,” he said. For the upcoming compact SUV, export potential could therefore become an important factor in improving scale and making the business case stronger for the brand. 

Multi-powertrain options open

While the compact SUV is confirmed, Volkswagen has not yet decided which mix of powertrains will define its next phase in India. The company currently has a predominantly petrol portfolio in the country, even as demand for CNG and diesel grows and electric vehicles gain momentum.

“There's an interesting dynamic at the moment. So, what is clear is, in the long run, there will be strong electrification, especially also in India. We see it now accelerating tremendously in Europe. A lot of people said it will be just the Scandinavian countries and the rest will lag behind. Not so much. You see it accelerating, probably driven by the conflict in the Middle East and the oil situation. The question is, how do you orchestrate it to the best and most profitable way?” he said.

The challenge, he said, is deciding how and when to deploy each technology. “The dynamics in India and the market shift has been quite significant even in the last couple of months. So, to be honest, we haven't concluded our planning on that, but good thing is that we have it and we can deploy it if and when it is the right situation,” he adds. The company is also looking at the next generation of products on newer platforms, but these plans remain under evaluation.

Investment is not off the table

Given the company’s relatively limited product rollout in recent years, Schäfer says that future investment “isn’t off the table”. 

“What we do at the moment is a global exercise to look at our total investments globally and all sorts of products and facilities, etc. We traditionally have invested a little bit too much. So, we need to trim this to the market realities but that's more on the global side and less for growth markets. So, it's definitely on the table. The question is for what kind of drivetrain and models will it make sense in this new evolving environment that we are in? So, it's nothing off the table for India,” he said. 

He confirmed that facelifts and upgrades are part of the plan and newer models are being evaluated. “We will make sure that this all happens,” he said. Volkswagen is also expected to continue leveraging its relationship with sister brand Skoda in India, where the two brands have already shared platforms, engineering and products under the India 2.0 strategy.

“The more we collaborate, the more we work together, it's better for the consumer. And you can see the positive example of our European electric car family that we brought out four cars for three brands, with 80% same parts and totally different vehicles in front of the consumer, very exciting cars. That's our strength,” he said.