Mahindra and Skoda Auto Volkswagen India are close to signing a MoU
Mahindra is reportedly in advanced talks to acquire a 50% stake in Skoda Auto Volkswagen India, a deal potentially valued at around USD 1 billion. The board of directors of Skoda Auto is currently in India for a crucial meeting, with an announcement expected soon. The partnership, if finalised, could significantly reshape both companies’ presence in the Indian automotive market.
Key Aspects of the Deal
The negotiations have progressed and a preliminary understanding between both parties has been reached. Mahindra is pushing for a 50% stake, similar to its earlier joint venture with Ford. This stake is viewed as a non-negotiable aspect of the deal. Mahindra stands to gain substantial manufacturing capacity and access to Volkswagen’s advanced global technologies, including vehicle architectures, while Skoda Auto Volkswagen would benefit from Mahindra’s cost-effective vehicle platforms and extensive industry influence in India.
Skoda Auto Volkswagen currently has an annual manufacturing capacity of 2.1 lakh units in India, with room to expand. For Mahindra, this deal offers access to valuable production assets and global technologies. Meanwhile, Skoda Auto Volkswagen would tap into Mahindra’s cost-efficient vehicle architecture for future internal combustion engine and electric vehicle models.
Strategic Importance for Both Parties
Mahindra’s broader strategy focuses on scaling its operations, potentially acquiring more land to push its manufacturing capacity beyond 8.4 lakh units annually. For Skoda Auto Volkswagen, the collaboration with Mahindra provides access to cost-efficient production methods and Indian market expertise. The automaker had committed an investment of 1 billion Euros to India in 2018 but has struggled to meet sales targets, particularly with its mid-size sedans and SUVs under the India 2.0 initiative.
This deal offers the European manufacturer a lifeline to stay relevant in India’s competitive market. The potential joint venture could also influence the next generation of key models like the Skoda Kushaq and Volkswagen Taigun. Initially planned on Volkswagen’s MQB A0 37 platform, cost overruns have prompted discussions to shift these models to Mahindra’s New Flexible Architecture (NFA) platform. The vehicles could still retain Volkswagen’s engines but adopt Mahindra’s platform to control costs.
EV and ICE Synergies
Both companies are keen to expand their EV offerings, with future electric models potentially benefiting from Mahindra’s NFA platform. This flexible architecture is designed for both ICE and EV powertrains, making it an attractive proposition for both Skoda and Mahindra as they look to meet India’s evolving regulatory and environmental standards. Skoda Auto Volkswagen had initially planned to invest heavily in two architectures – the MQB A0 37 for ICE models and the CMP 21 for EVs – but the collaboration could streamline development by focusing on Mahindra’s NFA platform for both categories.
Financial and Technical Terms Under Discussion
While tough negotiations continue, sources suggest that Skoda Auto Volkswagen initially valued the deal at USD 2 billion, but the figure has been revised to between USD 800 million and USD 1 billion. A significant portion of Mahindra’s investment is expected to be in non-cash form, with the company offering its NFA platform as part of the deal alongside cash contributions estimated at Rs. 4000 crores to Rs. 5000 crores. This investment will likely be allocated toward expanding capacity at Mahindra’s Chakan plant, though the exact details are still being discussed.
One of the more complex aspects of the negotiations revolves around the luxury brands under the Volkswagen Group. The group’s sales and marketing arm, which includes brands like Audi, Porsche and Lamborghini, will remain separate from the joint venture. Audi, which currently sources vehicles from Skoda Auto’s Aurangabad factory, may transition to contract manufacturing under the new arrangement.
Future Prospects
If the deal goes through, it could provide a much-needed boost for Skoda Auto Volkswagen to participate more actively in India’s emerging EV market and meet critical regulatory requirements such as the CAFE standards by FY28. Mahindra, on the other hand, would gain not only manufacturing capacity but also a valuable partnership in global vehicle technology.
As discussions move forward, both companies are working to iron out the specifics of the deal, which could redefine their strategies in India and beyond. However, the impact of the alliance on future models like the next-generation Skoda Slavia and Volkswagen Virtus remains uncertain.
Both Mahindra and Skoda Auto Volkswagen have yet to release official statements on the matter.
