Volkswagen Nears Landmark Indian Partnership to Fuel Growth and Mitigate Risks
NEW DELHI, India – August 19, 2023 – Volkswagen, the German automotive giant, is poised to finalize a significant partnership deal in India this year, a move spearheaded by its Skoda brand. The strategic alliance aims to bolster Volkswagen’s presence and scale in the world’s third-largest car market, where it has historically struggled to gain substantial traction despite two decades of operation.
Klaus Zellmer, CEO of Skoda, confirmed on Wednesday that discussions with an unnamed local partner are in advanced stages, expressing strong confidence in completing a deal before the year’s end. "I’m deeply convinced that our momentum can be much stronger if we have a local partner with strong roots," Zellmer told reporters at a Skoda event in Mumbai. This statement marks the clearest indication yet that a decision is imminent for the Volkswagen Group, whose India strategy is currently overseen by Skoda.
The primary contender for this partnership is JSW, a formidable Indian conglomerate with interests spanning steel to automobiles. Sources close to the negotiations suggest that JSW is seeking a majority stake in the proposed joint venture. This move aligns with JSW’s ambitious plans to become a dominant force in the Indian automotive sector, a strategy already evidenced by its existing joint venture with China’s SAIC through MG Motor India, and a separate agreement with Chery.
Volkswagen’s openness to potentially ceding control of its Indian operations, as reported by India’s Economic Times, underscores the company’s determination to succeed in this challenging yet high-growth market. This willingness reflects a pragmatic approach to navigating a landscape that has proven difficult for many foreign automakers. Notably, American giants General Motors and Ford ultimately exited India after years of sustained losses, unable to achieve the necessary scale.
A local partner would enable Volkswagen to effectively share investment risks, a critical factor in a market where the company saw a 50% increase in profit and a doubling of sales last year, yet its overall scale remains limited. The pursuit of a partner began in 2022 following unsuccessful talks with Mahindra.
Analysts view a partnership with JSW as particularly promising due to the latter’s deep financial resources and strategic vision. This alliance could be instrumental in funding Volkswagen’s next phase of growth in India, especially as the company needs to accelerate the launch of clean-energy vehicles to comply with stricter emission norms set to take effect from 2027. Any substantial new investment into India will require endorsement from the Volkswagen Group’s board, several members of whom were present in Mumbai, highlighting the strategic importance of these discussions. "We brought all our VW colleagues… to help them understand why we are so passionate about it. And it’s sinking in," Zellmer remarked, indicating the high-level commitment to this initiative.
However, Volkswagen faces another significant hurdle in India: a tax demand of $1.4 billion from Indian authorities in 2024. The demand is based on allegations of import tax evasion, which Volkswagen has vigorously challenged, asserting full compliance with Indian laws and regulations. The court’s verdict on this matter is still pending.
Globally, the Volkswagen Group is under increasing pressure from investors to streamline costs and enhance competitiveness. This pressure is exacerbated by the aggressive expansion of Chinese automakers into European markets, mounting tariff pressures, and a prolonged economic slowdown in China. A successful and scalable venture in India could provide a crucial counter-balance and contribute significantly to the group’s overall resilience and future growth trajectory.
(Reporting by Aditi Shah, additional reporting by Neha Arora in New Delhi and Christina Amann in Berlin; Editing by Alexander Smith)
