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Mahindra & Mahindra’s Kandivali Unit | Photo: Wikipedia
Mahindra & Mahindra (M&M) and Skoda Auto Volkswagen India Private Limited (SAVWIPL) are in talks to establish a joint venture (JV) in India. Reports of a potential JV or memorandum of understanding (MoU) between the two automakers have been circulating for some time. According to a report by The Economic Times, senior executives from both companies are expected to meet in Mumbai over the next few days to advance the collaboration and iron out its details.
“The board members of SAVWIPL and M&M are scheduled to meet shortly,” one source told The Economic Times, adding that the discussions are likely to focus on key elements such as product development, vehicle platform strategies, and the use of manufacturing facilities.
In response to the media reports, Mahindra & Mahindra issued a statement acknowledging the ongoing collaboration with the Volkswagen Group. The company confirmed that discussions are underway, though they have yet to reach any formal conclusion.
“As stated earlier, Mahindra and VW Group continue to explore multiple opportunities to expand collaboration. Should any concrete outcomes arise, appropriate disclosures will be made in accordance with regulatory norms,” the statement read.
What will the JV between M&M and Skoda include?
As part of the JV, the two companies aim to share costs, technologies, and vehicle platforms to streamline future product development. Skoda leads the VW Group’s strategy in India and is at the forefront of these negotiations.
However, the JV will not include the sedans and SUVs currently sold by Volkswagen and Skoda in India, nor will it involve luxury brands such as Audi, Porsche, and Lamborghini, which are part of the VW Group. Marketing and sales functions will operate under a separate organisation to ensure the premium brands maintain their distinct identity in the market.
Skoda to divest 50 per cent stake to M&M
Earlier this week, another report by Autocar Professional stated that Skoda Auto Volkswagen India is looking to divest 50 per cent of its stake to M&M, with the deal’s valuation estimated between $800 million and $1 billion. Top management from Skoda is currently in India to negotiate the deal, and the report indicated that both parties have reached a preliminary understanding.
If this JV materialises, M&M will gain access to Skoda Volkswagen’s manufacturing capacity of 300,000 units annually, alongside the European brand’s technological prowess and global systems. Skoda Auto VW has extensive land assets that could be utilised to set up additional manufacturing facilities in India.
In return, Skoda Auto Volkswagen would benefit from Mahindra’s cost-effective vehicle platforms for both internal combustion engine (ICE) models and electric vehicles (EVs). M&M, which currently has an annual production capacity of 840,000 units, could potentially surpass 1 million units annually when combined with Skoda VW’s capacity. This would further solidify Mahindra’s standing in India’s competitive automotive market.
M&M’s low-cost platforms would also provide sourcing advantages for Skoda Auto Volkswagen, allowing the European company to reduce its costs while expanding its portfolio. The report suggests that much of M&M’s investment in the deal will be in the form of its new flexible architecture (NFA), which will be exchanged for a 50 per cent stake in Skoda Auto VW. This architecture could replace Volkswagen’s MQB A0 37 platform for the next generation of compact SUVs like the Skoda Kushaq and Volkswagen Taigun.
Reports also suggest that most of Mahindra’s investment will not involve direct cash but will focus on non-cash assets, such as vehicle platforms and technologies. M&M plans to invest between Rs 4,000 crore and Rs 5,000 crore into the deal, including capacity expansion at the Chakan plant.
Skoda Auto Volkswagen’s 1 billion euro investment in India
Skoda Auto Volkswagen had earlier committed to investing 1 billion euros in India as part of its “India 2.0” strategy. However, the company’s expectations from this investment have not been fully realised, which could explain the interest in partnering with Mahindra. Skoda Auto Volkswagen has also signed a memorandum of understanding (MoU) with the state government of Maharashtra for an investment of Rs 15,000 crore. The company will need to invest over $2 billion to meet India’s Corporate Average Fuel Efficiency (CAFE-3) norms by 2028, a factor driving its pursuit of partnerships to manage future risks and profitability.
First Published: Sep 25 2024 | 10:54 AM IST
