Mahindra is keen on acquiring a 50 percent stake in Skoda Auto Volkswagen India and this deal could be valued at around USD 1 billion. Sources tell our sister publication Autocar Professional that the board of directors of Skoda Auto is currently in India for an important meeting to define the contours of the agreement, which may be announced shortly.
Mahindra-Skoda Auto Volkswagen India deal: what’s new?
Sources tell us that significant progress has been made in the negotiations and a preliminary understanding has been reached between both parties. Mahindra insists on a 50 percent stake, similar to its previous agreement with Ford. Otherwise, the deal is a non-starter, said one of the persons involved. And if successful, Mahindra would gain essential incremental capacity and access to Skoda Auto VW’s global technology ecosystem, including vehicle architectures.
Skoda Auto Volkswagen India currently has a local manufacturing capacity of around 2.1 lakh units per year, along with developable land for another plant. As for Skoda Auto VW, the European manufacturer would get access to Mahindra’s lower-cost vehicle architecture for future internal combustion engine and EV models, as well as tremendous sourcing benefits, thanks to Mahindra’s industry clout. Autocar Professional had exclusively reported that Mahindra is considering acquiring an additional parcel of land to expand its capacity beyond 8.4 lakh units, moving closer to the 1 million mark.
Mahindra-Skoda Auto Volkswagen India deal: hard talks
As per sources, both sides are engaged in tough negotiations. Skoda Auto VW initially valued the deal at USD 2 billion, but that figure has now been negotiated down to around USD 800 million-USD 1 billion, sources said. Moreover, much of the investment from Mahindra is likely to be in non-cash form. The SUV specialist is likely to share its New Flexible Architecture (NFA) platform with Skoda-VW as part of the deal, in addition to contributing some cash. Mahindra is looking at an investment of Rs 4,000 crore to Rs 5,000 crore as part of the deal, much of which will go towards capacity expansion at Chakan. However, the exact nature of the sharing of the manufacturing footprint and design platform is currently under discussion, according to sources.
An email sent to Skoda Auto VW and Mahindra & Mahindra is yet to elicit any response.
Sources indicate that Skoda Auto Volkswagen Group’s sales and marketing organisation, which houses all of VW’s global brands like Audi, Porsche, and Lamborghini, will be carved into a separate one, outside the joint venture (JV). If the deal goes through, the luxury brand Audi, which sources vehicles from Skoda Auto’s factory in Aurangabad, will receive vehicles from the JV under a contract manufacturing arrangement.
The deal could have an immediate impact on the development of the next-gen Kushaq and Taigun. These models were scheduled to be made on the VW Group’s MQB A0 37 platform, but the Czech carmaker is struggling to meet cost targets, currently facing an overrun of around 800-900 Euros. Volkswagen Group could end up using Mahindra’s NFA for these models while retaining its own engines. Hence, the next-gen Kushaq and Taigun could come with VW engines and their own top hats. Future EVs could also be spun off Mahindra’s NFA platform, which is being designed for both ICE and EV powertrains.
Interestingly, VW is also pushing for Mahindra to use its CMP platform to scale the project.
With this proposed alliance, the European carmaker may not need to invest in two different in-house architectures – MQB A0 37 and CMP 21. After the formation of the JV, Skoda Auto VW can use Mahindra’s NFA architecture for future ICE models while setting apart CMP for locally produced EVs. However, the impact of this alliance on the next generation of Skoda’s sedans – Slavia and Virtus – remains unclear.
Skoda Auto VW, which committed an investment of 1 billion Euros to India in 2018, has been actively examining numerous scenarios to stay relevant in the country’s fast-growing market and go beyond its portfolio of mid-size sedans and SUVs that make up its India 2.0 line-up.
With volumes from India 2.0 models falling far below internal expectations, the automaker has been forced to look for a partner to share investment and mitigate future risks. In this context, Skoda Auto Volkswagen has signed an MoU with the Maharashtra government to invest Rs 15,000 crore for future expansion.
It is believed that the group needs to invest over USD 2 billion to participate in India’s emerging electric vehicle market and comply with future regulatory norms. This investment would help the European carmaker meet the critical CAFÉ 3 (Corporate Average Fuel Economy 3) standards by FY28 and expand its addressable market. Hence, it has actively engaged with Mahindra and explored other partnership opportunities.
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