Growth Opportunity

Report: VW and Tata Agree to Explore India Alliance

File photo of VW Golf VII emblems at a production line at the plant of German carmaker Volkswagen in Wolfsburg
Volkswagen wants to expand into the growth markets of the future. Picture source: Reuters

Germany’s biggest carmaker and India’s Tata plan to explore a possible alliance aimed at expanding Volkswagen’s footprint in the emerging Indian economy, news agency Reuters reported on Thursday, citing company sources close to the matter.

The move would facilitate VW’s push into emerging markets, generally seen as a requirement for future growth following the fallout from the diesel emissions scandal.

The two carmakers have signed a memorandum of understanding (MoU), pledging to exchange technology, components and platforms and to identify overlaps, one of three company sources told Reuters.

 

VW, the world’s largest carmaker by sales, is still recovering from the scandal over rigged emissions software in its diesel vehicles. The group has grappled with a slew of lawsuits by investors, governments and consumers and has so far set aside €18.2 billion ($19.2 billion) in provisions to cover for Dieselgate.

Expanding onto new markets in emerging economies and a focus on electric vehicles are therefore seen as key in overcoming the scandal.

“We can confirm that we are in talks with VW for a potential alliance but an announcement will be made at an appropriate time.”

a Tata Motors spokesman

VW already is the biggest carmaker by sales in China. More than a third of all cars produced by the Volkswagen Group, including its subsidiaries and other brands, are sold to China. For the flagship Volkswagen brand, it’s 50 percent. Based on the company’s experience in China, a new blueprint for future success is being created to transform the company.

But previous attempts by the group to establish partnerships on the Asian continent to expand into other countries had failed. In 2015, an alliance to explore emerging markets with Japanese Suzuki Motor collapsed after a fierce debate evolving around corporate culture.

VW now appears ready for a new shot, this time in a tie-up with Tata Motors.

“We can confirm that we are in talks with VW for a potential alliance but an announcement will be made at an appropriate time,” Reuters quoted a Tata spokesman as saying.

A spokesman for VW told Reuters the company was discussing ways to expand its product portfolio with tailor-made solutions in India with both its car brands and potential partners.

Global automakers consider India, the world’s second most populous country, one of the most promising growth markets. The country is particularly attractive for producers of small vehicles and research firm IHS Markit expects light car sales in India to more than double to 7.1 million cars by 2025.

With purchasing power and vehicle requirements differing in emerging economies, carmakers are forced to adjust to gain ground in countries such as India. Budget-car champion Renault has led the way with its compact car Kwid, produced and sold in India for $4,800.

Under its former Chief Executive Martin Winterkorn, VW had already devised plans for the sale of budget car models in China. The cars, priced at between €8,000 ($8,560) and €11,000, are said to hit the Chinese market in 2018.

VW’s new CEO, Matthias Müller, appears intent on continuing his predecessor’s path. “We will continue to work on the budget car and we will offer good solutions here in the foreseeable future,” Mr. Müller is quoted by Reuters as saying.

 

Tina Bellon is an editor with Handelsblatt Global. To contact the author: bellon.tina@gmail.com

 

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