Indian automaker Mahindra & Mahindra is close to signing an MoU that can eventually lead to an acquisition of a stake in Skoda Auto Volkswagen India, the local unit of Europe’s largest carmaker, according to sources.
Autocar Professional learns that Mahindra & Mahindra is keen on acquiring a 50% stake in Skoda Auto Volkswagen India at a valuation of $800 million to $1 billion.
The board of directors of Skoda Auto are currently in India for an important meeting to define the contours of the agreement, which may be announced shortly, according to the sources.
Significant progress has been made in the negotiations and a preliminary understanding has been reached between both partners, according to sources.
Mahindra has insisted on a 50% stake, similar to their former agreement with Ford. Otherwise, said one of the people involved, the deal is a non-starter.
If it does go through, Mahindra & Mahindra will gain much-needed incremental capacity and access to Skoda Auto VW’s global technology ecosystem, including vehicle architectures. Skoda Auto Volkswagen India has local manufacturing capacity of around over three lakh units per year, in addition to having a developable land for another plant.
As for Skoda Auto VW, the European manufacturer would get access to Mahindra & Mahindra’s lower-cost vehicle architecture for future internal combustion engine and EV models as well as tremendous sourcing benefits thanks to M&M’s industry clout.
Last week, Autocar Professional had exclusively reported that M&M is considering an additional parcel of land to expand its capacity beyond 8.4 lakh units, closer to the 1 million mark.
Hard Talks
Sources indicate that both sides are engaged in hard negotiations. Skoda Auto VW started with a valuation of USD 2 billion, but the number has now been negotiated down to around USD 800 million – USD 1 billion, according to sources.
Moreover, much of the investment by M&M is likely to be in a non-cash form.
The SUV specialist is likely to share its New Flexible Architecture (NFA) platform to Skoda-VW as part of the deal consideration, in addition to putting in some amount of cash. M&M is looking at an investment of Rs 4000 to 5000 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 indicated that Skoda Auto Volkswagen Group’s sales and marketing organization, which houses all of VW’s global brands like Audi, Porsche, and Lamborghini, will be carved into a separate organization, outside the JV.
The luxury car brand Audi, which sources vehicles from Skoda Auto’s factory in Aurangabad, will be supplied with vehicles by the JV on a contract manufacturing arrangement, if the deal goes through.
The deal could have an immediate impact on the development of the next-gen Kushaq and Taigun. These were scheduled to be made on the VW Group’s MQB A0 37 platform, but the Czech carmaker is struggling to make them within the cost target and currently, there is a cost overuun of around 800–900 Euros
The European major 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 in an effort to give scale to the project.
With this proposed alliance – the European carmaker may not have to invest on two different inhouse architectures – MQB A037 and the CMP 21. After the formation of the JV, Skoda Auto VW can use M&M’s NFA architecture for future ICE models, while setting apart CMP for locally produced EVs.
As for what impact all this could have on the next generation of Skoda’s sedans – Slavia and Virtus – there is still no clarity.
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 India’s fast-growing market, and go beyond its portfolio of mid-size sedans and SUVs that make up its India 2.0 lineup.
With volumes from India 2.0 models far below internal expectations, the automaker has been forced to look for a partner to share investment and future risks. In this context, Skoda Auto Volkswagen has already signed an MoU with the Maharashtra State Government to invest Rs 15,000 crore in the state 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 meet future regulatory norms. The investment would help the European carmaker meet the critical CAFÉ 3 or Corporate Average Fuel Economy 3 norms by FY28, and expand the addressable market. Hence, it has actively engaged with M&M and explored other partnerships.