The VW group has been looking to offload equity to share costs and risks in a market where its presence is marginal compared with rivals from Japan and South Korea besides local automakers. Negotiations between Mahindra & Mahindra and Skoda Auto Volkswagen India on a potential 50:50 joint venture appear to have got stuck with the companies unable to arrive at common ground on key matters, said people aware of the ongoing deliberations.
“The two companies that have already signed a series of nonbinding memoranda of understanding (MoUs) on various aspects of the business over the past few months, were supposed to sign the last few crucial ones at the end of the current month, taking it to the next stage,” said one of the persons.
“However, that doesn’t seem to be happening anymore. The discussions have slowed down.”
Skoda-VW and M&M didn’t respond to queries.ET was first to report August 30 that the two companies were planning a JV. The Indian subsidiary of the Volkswagen Group comprises the Skoda, Volkswagen, Audi, Porsche and Lamborghini brands.
M&M in Position of Strength:
The VW group has been looking to offload equity to share costs and risks in a market where its presence is marginal compared with rivals from Japan and South Korea besides local automakers. The scope of the joint venture, if it comes about, is likely to be confined to the Skoda and VW brands and will help the German giant tap into M&M’s frugal development costs and its sourcing.
A joint venture will yield synergies at the back end and help both capture almost a fifth of the domestic passenger vehicle market, said the people cited. But M&M may not be keen to pursue a potential collaboration if it has to compromise in the areas of development cost and sourcing.
“Unlike in the past, they (Mahindra) are now in a position of strength. Moreover, they have learnt their lessons from the joint venture discussions with others in the past,” said the person, referring to the previous association with Ford Motor Co.
Incremental Capacity: M&M, which was the SUV market leader in terms of revenue in the September quarter and has been second largest in volume for nine consecutive quarters, is keen to forge a partnership to strengthen its hold in the Indian market.
Apotential partnership with Europe's largest carmaker will also help the manufacturer of XUV7OO, Scorpio N and Thar models gain access to newer technologies from VW Group. Additionally, the deal would give M&M much-needed incremental capacity. Skoda-VW India has local manufacturing capacity of over 200,000 units per year, in addition to a land parcel that can be used for further expansion at its site in Chakan, Pune. The VW Group sold about 145,713 cars in India in 2023, up 8% over 2022.
M&M had cash of over INR 19,000 crore on its balance sheet at the end of September. India is a “strategic market” for the Volkswagen Group, Piyush Arora, managing director and CEO of Skoda Auto Volkswagen India told ET recently. “There is always an opportunity where you can partner with somebody, but that is always with a very clear focus to further strengthen your position in the market,” he said. “And I think the approach in India is not going to be different.”
Meanwhile, the Indian subsidiary, which is steered by Skoda in India, is also in talks with its parent for additional capital infusion and expects a decision in the next few months, said aperson familiar with the discussions.
