Livemint: March 14, 2017
New Delhi: Germany’s Volkswagen Group has signed a memorandum of understanding with Tata Motors Ltd to jointly develop product components and possibly vehicle concepts.
VW’s Skoda Auto AS will join the project on behalf of the German automobile group.
“The first step will address topics such as the application of specific market knowledge as well as local development expertise,” the Wolfsburg-based company said in a statement, adding that the basis of the tie-up is to explore long-term strategic cooperation in clearly-defined fields.
“In the long term, the Volkswagen Group is looking to further expand its product portfolio in the fast-growing emerging markets,” it said.
Tata Motors and Volkswagen signed an in-principle agreement on Wednesday to explore the possibility of working together to develop a new range of products to be shared by Tata, VW and Skoda Auto, Mint reported on Thursday.
The agreement was signed by Guenter Butschek, chief executive officer of Tata Motors, and Matthias Muller, chief executive of the VW Group, in Geneva, the report had said, adding that an official announcement was likely to be made on Friday.
India has emerged at the heart of the latest realignment in the global automobile industry, especially after Japanese car makers Toyota Motor Corp. and Suzuki Motor Corp. on 7 February announced plans to “establish an implementation framework” for a business partnership in areas such as green vehicles, safety and information technologies and mutual supply of products and components. Toyota, too, has taken full ownership of small car specialist Daihatsu Motor Co., and the latter’s products are expected to be introduced in India in 2019.
Top auto companies such as Toyota, VW, General Motors Co. and Ford Motor Co. lack a significant presence in India, whose passenger vehicle segment is expected to more than quadruple to 13.4 million units by 2026 from 3.2 million now if the economy grows at an average rate of 7.5% a year.
That would make India the world’s second largest market after China. Between April and February this year, Toyota, Volkswagen, GM and Ford together sold 282,028 units in India, which is about 10% of the total size of the Indian passenger vehicle market, where Suzuki’s Indian unit commands a 47% market share.
“Our aim with the envisaged strategic partnership with Tata Motors is to lay the foundations in the Group and the brands that will enable us to offer customer-oriented mobility solutions in the emerging, fast-growing automobile markets, as elsewhere. By offering the appropriate products we intend to achieve sustainable and profitable growth in very different parts of the world. That is why we are systematically pursuing our regional growth strategy”, Volkswagen’s Muller said in a statement.
Butschek said that both the companies, by working together, could leverage “each other’s strengths to create synergies and develop smart innovative solutions for the Indian and overseas market”.
According to Mahantesh Sabarad, head of retail research at SBICap Securities Ltd, the tie-up is exciting and also completely new for an Indian manufacturer.
“It remains to be seen if this co-development is going to be global or only for the Indian market. From development perspective, it seems to be better for Tata. If it is not going to be global, then VW is looking to ride on TaMo’s strength,” Sabarad said.
Volkswagen’s previous attempt to conquer emerging markets through a small-car partnership with Japanese automaker Suzuki Motor Corp. unraveled in a bitter dispute that was settled just before the German company’s diesel-emissions scandal erupted in 2015.
“The co-development should have happened with one of the Japanese companies since the Indian market is ruled by Japanese and Koreans,” Sabarad added.
The changing dynamics of the auto industry have meant that while firms are under tremendous pressure from regulators the world over on safety and emissions, newer concepts such as shared economy, autonomous driving and companies such as Tesla Inc. threaten to disrupt the age-old automobile business model of selling more cars. Amid such a scenario, tie-ups such Tata-VW or Suzuki-Toyota are mutually beneficial. While the smaller partner offers its expertise in cost-efficiency, the bigger ones bring the world’s best technologies in terms of safety and emissions.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.